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Apr 24, 2014
Is the Press Too Big to Fail?
Posted on Apr 25, 2013
By Todd Gitlin, TomDispatch
Although the New York Times and the Washington Post later acknowledged flaws in their Iraq reporting, neither paper nor other major outlets have owned up to the negligence that led up to the great global economic meltdown of 2007-2008. We are far from grasping how fully business journalism played cheerleader and pedestal-builder for the titans of finance as they erected a fantastical Tower of Derivatives, which grew way too tall to fail without wrecking the global economy.
Start to finish, financial journalism was breathless about the market thrills that led to the 2007-2008 crash: the financialization of the global economy, the metastasis of derivatives, and especially the deregulation underway since the late 1970s that culminated in the 1999 congressional repeal of the 1933 Glass-Steagall Act (with President Bill Clinton blithely signing off on it). That repeal paved the way for commercial and investment banks, as well as insurance companies, to merge into “too-big-to-fail” corporations, unleashed with low capital requirements and soon enough piled high with the potential for collapse.
A Proquest database search of all American newspapers during the calendar year 1999 reveals a grand total of two pieces warning that the repeal of Glass-Steagall was a mistake. The first appeared in the Bangor Daily News of Maine, the second in the St. Petersburg Times of Florida. Count ‘em: two.
On February 24, 2002, as the scandal of the derivative-soaked Enron Corporation unfolded, the New York Times’s Daniel Altman did distinguish himself with a page-one business section report headlined “Contracts So Complex They Imperil The System.” He wrote: “The veil of complexity, whose weave is tightening as sophisticated derivatives evolve and proliferate, poses subtle risks to the financial system—risks that are impossible to quantify, sometimes even to identify.” He stood almost alone in those years in such coverage. Most financial journalists preferred then to cite the grand Yoda of American quotables, Federal Reserve Chairman Alan Greenspan. And he was just the first and foremost among a range of giddy authorities on whom those reporters repeatedly relied for reassurance that derivatives were the great stabilizers of the economy.
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“A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.”
“Little-noticed” indeed. According to Lexis-Nexis, not a single substantive mention of this law appeared in the Times that year. On October 1, 2000, Washington Post writer Jerry Knight did note ruefully, “What’s fascinating about the policy debate is the agreement on the guiding principle: The government should not stand in the way of financial innovation.”
In a syndicated column on Christmas Eve, way-out-of-the-mainstream columnist Molly Ivins was not so poker-faced. She called the new law “a little horror.” And in that she stood alone. That was it outside of financial journals like the American Banker and HedgeWorld Daily News, which, of course, were thrilled by the act. That magic word “modernization” in its title evidently froze the collective journalistic brain.
Or in those years consider how the New York Times covered the exotic derivatives called “collateralized debt obligations,” among the principal cards of which the era’s entire international financial house was built. These tricky arcana, marketed as little miracles of risk management, multiplied from an estimated $20 billion in 2004 to more than $180 billion by 2007. The Times’s Floyd Norris drily mentioned them in a 2001 front-page business section article about American Express headlined “They Sold the Derivative, but They Didn’t Understand It.” He quoted the CEO of Wells Fargo Bank this way: “There are all kinds of transactions going on out there where one party doesn’t understand it.” From then on, no substantial Times front-page business section article so much as mentioned collateralized debt obligations for almost four years.
In 2009, in an enlightening article in the Columbia Journalism Review, Dean Starkman, a former staff writer at the Wall Street Journal, looked at the nine most influential business press outlets from January 1, 2000, through June 30, 2007—that is, for the entire period of the housing bubble. A total of 730 articles contained what Starkman judged to be significant warnings that the bubble could burst. That’s 730 out of more than one million articles these journals published.
The formula was simple and straightforward: the business press served the market movers and shakers. It was a reputation-making machine, a publicity apparatus for the industry. In other words, the job of financial reporters in those years was to remain fast asleep as the most flagrantly abusive part of the mortgage industry, subprime mortgages, was integrated into routine banking.
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