The Financial Press Before the Crisis – and After

I attended a panel Wednesday night at The Columbia Journalism School that asked whether the financial press failed the public by overlooking issues that led to the financial crisis.  (The event was co-sponsored by Public Business Media and the Columbia Journalism Review.)

The genesis of the event was an article by Dean Starkman, a former Wall Street Journal reporter who now writes for The Audit, a critical look at business reporting that appears on the CJR website.  Starkman’s article concluded that the stock-investing boom that began in the late 1980s produced a style of financial journalism that served investors but neglected the wider public:

But even as it expanded, business news, paradoxically, was narrowing. Following the middle-class stampede into stocks, business news ramped up quantity but increasingly shifted its gaze toward investor concerns.

I like to call this shift in emphasis the “CNBC-ization” of business news, after the network that so definitively represents it. CNBC emerged in its current form in 1991. Yet the shift also seems to represent something less modern: a return to the business press’s early twentieth-century roots as a servant to markets—and a retreat from its later role as watchdog over them.

Being both a ‘servant of the market and its watchdog,’ as Starkman describes, is a tension that has always existed in news organizations.  It’s not really new, and the lines between the two aren’t drawn as sharply as he suggests.  High quality news outlets do both well.

Starkman’s piece also focuses on the rise of M&A reporting in the mid-1990s, but it’s hardly a culprit in the financial crisis of 2008.   It wasn’t the absence of critical press coverage of ill-considered mergers that sank the economy.   It was complex mortgage securities, complacency about risk and colossal regulatory failures.

The bigger question is why, just a few years after a market crisis that featured the collapse of prominent companies (e.g. Enron, Worldcom) and exposed shameful conduct by banks, rating agencies, lawyers and auditors, we had another crisis – only much worse.

The failures that were seen in the collapse of Enron and WorldCom – pliable boards, entrenched CEOs, complacent institutional shareholders, obscure off-balance-sheet entities – were all seen again just a few years later in the demise of Lehman Brothers, Bear Stearns, AIG, Countrywide and Merrill Lynch.   There were a few prescient news reports on questionable practices in the mortgage market, but they were ignored, as were the warnings about Enron only a few years earlier (most notably in a Fortune piece by Bethany McLean in 2001).

The development of the blogosphere is a good thing in this regard.  It has an ability to catch issues early and keep them alive, even if they’ve receded from the headlines in daily newspapers.   One can hope that those with the power to hold companies accountable – shareholders, regulators and prosecutors – will use these sources to be more attentive to abuses in the future.

Looking back, certainly one difference in the run-up to the mortgage crisis of 2008 was the role of the Federal Reserve.   I suspect that reporters and editors were persuaded by the comforting words of Alan Greenspan, who famously said the problems in sub-prime mortgages were contained and would not affect the broader economy.  Many bank CEOs found those words just as comforting, too.

The bigger problem for the financial press represented on the panel – The Wall Street Journal, the American Banker and The New York Times – is that the best financial writing is no longer in their pages.  They’re not on pages at all, in fact, but on various blogs and websites.   Newspaper executives (The Times’s Bill Keller, for one) still are dismissive of blogs, but many of them are insightful, well written, insightful, lively and engaging.  And they’re draining newspapers of readers – and influence.  I’d trust Felix Salmon over the WSJ to explain a complex issue on derivatives.

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