Missing The Subprime Menace: Why Did The Markets and The Media Downplay The Subprime Crisis?
That why didn't we know question is back. Again? It was asked about 911 in connection with our government ignoring warning after warning about likely terrorist attacks. The CIA has just raised it again about their own ostrich like behavior in the run-up to the attacks on the Pentagon and World Trade Center. Now its being asked by the New York Times about the failure to anticipate and potentially pre-empt the Sub-prime mortgage crisis which has since escalated into a deeper meltdown in global financial markets leading to lay-off and predictions of a fall-off in economic growth.
More insidiously, this is an ongoing crisis not just confined to markets. It is expected that, once adjustable rate mortgages are "reset" upwards, two million more families face the foreclosure of their homes. Their economic pain is being recognized but too late to prevent a vast displacement of people who cannot afford to live in homes they were suckered in to purchasing with the promise of practically free money.
Did this "just happen," appearing one morning out of blue skies like a hurricane moving from category 4 to category 5? Of course not! The signs were there for all who wanted to see them, and warnings were plentiful even as they were ignored.
Many in the markets were too
It's odd how the front page of its widely-read Sunday edition, the one -time newspaper of record could splash a story on how the media and the markets looked the other way as massive deals were being financed by securities cobbled together from sub-prime loans backed with no assets. Why were the signs missed, asked the Times?
Unlike the CIA, the Times did not assess its own reporting and its role in all this.
A few days later the newspaper's business columnist showed that, in fact, many did know and tried to raise the alarm. It seems to be an example of the front pages not knowing what the business pages had reported.
He reminded readers that Ben Bernanke, Chairman of the Federal Reserve Bank who just pumped billions of dollars in the markets to keep them liquid and then followed up with a cut in the discount rate, was asked about these issues two years earlier:
"It came in November 2005, toward the end of his all-day Senate confirmation hearing, when Senator Paul Sarbanes brought up the mortgage business. Ã¢â‚¬Â¨Mr. Sarbanes, the ranking Democrat on the Banking Committee then, pointed out that the number of people taking out adjustable-rate mortgages soared in 2004. "Are you concerned about the potential for a bubble in the housing market?" the senator asked Mr. Bernanke. "And specifically, does the drastic increase in the use of risky financing schemes, including interest-only and even negative amortization mortgages, concern you?"
Mr. Bernanke replied that the Fed was reviewing its guidelines for these loans and planned to issue new ones soon. The guidelines, he added, "would have on the margin some beneficial effects in reducing speculative activity in some local markets." At no point, though, did Mr. Bernanke suggest that he was concerned.
And what about the larger media? Where was their concern? Back in the spring of 2006 I published an article in Nieman Reports, the journalism review published at Harvard and read by top editors. I specifically lambasted the lack of reporting on the issue. It was titled "Investigating the Nation's Exploding Credit Squeeze."
Its thesis: 'Questions of by whom and for whom need more and better investigation, as well as a look at who are the losers and who are the winners.'
The response: tepid.
I then followed up by organizing a Media For Democracy online-email campaign (Media For Democracy is an advocacy effort tied to Mediachannel.org, the media issues website I edit.)
Media For Democracy members sent tens of thousand of requests to media outlets urging that the issue be given more coverage. This was well before the market meltdown. The appeal read in part: "
"We are dismayed by the superficial reporting we have seen on the debt crisis in America. The press has been asleep at the switch in reporting on this story, often showing more compassion for wealthy businessmen than abused consumers.
"We believe that our media outlets have a responsibility to offer more context, background and information about how this debt crisis occurred and what we can do about it."
What was the response? Not much. Most responses came in the form of yada-yada-yada form letters as in "Thank You For Writing to the Today Show." Responding to public concerns and suggestions are not high on the media agenda.
I then made the film IN DEBT WE TRUST: America Before The Bubble Busts to try to raise the visibility of the issue. The film was well reviewed but ignored by the New York Times. I personally sent copies and letters to leading op-ed writers and reporters. The result: nary a mention. I have been interviewed extensively in the alternative press but largely ignored by the mainstream.
That's not entirely true. CNN and MSNBC did carry positive articles including one which compared my documentary to "Carrie," a horror movie. They suggested mine was scarier. Tavis Smiley had me on; Larry King did not. Oprah has yet to return a call. (And AOL/truestories is now streaming the film.)
The media has still not given us an accounting for burying the story. Eventually, On the Iraq War, some media outlets admitted they practiced poor journalism even as many of their mea-culpas did not basically change their narratives.
Why not on this issue?
Other media critics have been scathing about the dereliction of duty that is so obvious here. Dean Starkman in the Columbia Journalism Review was contemptuous:
"What's wrong? Why ask us? This kind of after-the-fact financial reporting I equate with a National Transportation Safety Board investigation-kicking through smoldering wreckage after the plane has already crashed. There's nothing intrinsically wrong with this kind of reporting. It just feels a little late. Also, I always find it disingenuous to talk about napping watchdogs, as in the headline above, when the Journal and the rest of the business press themselves slept on the job and had to scramble to catch up to the corporate scandals earlier in the decade."
Now the story is being covered but it is often the wrong story. The reporting tends to focus far more on panicky markets than victims of predatory lending. It seems like only a few critics like Jim Hightower are telling it like it is:
"At its core, this is a classically simple story of banker greed and outright sleaze. And the astonishing part is that nearly all of the rank injustice perpetrated by today's money changers is considered legal and is practiced by supposedly reputable financial firms."
Some years back, a hamburger chain challenged its competitors with commercials asking, "where's the beef?"
My questions today to media colleagues, including the progressive blogosphere, are where's the pick-up, where's the follow-up, where's the outrage?