NY Times: How Missed Signs Contributed to a Mortgage Meltdown. (T)he cast of characters who missed signals like the rise of delinquencies and foreclosures is becoming easier to identify. They include investment banks happy to sell risky but lucrative mortgage debt to hedge funds hungry for high interest payments, bond rating agencies willing to hope for the best in the housing market and provide sterling credit appraisals to debt issuers, and subprime mortgage brokers addicted to high sales volumes.
The Times fails to add one of the most culpable institutions of all: the press.
Newspapers and broadcasters were raking in billions in advertising from the real estate and banking industries as this bubble inflated. I do not believe this is a coincidence. (Update: I also don’t believe it was deliberate malfeasance; but you just don’t see lots of tough coverage in media of the people and companies paying the bills.)
Oh, sure, there were extremely infrequent stories containing warnings in a few publications — and occasional quotes from skeptics in the prices-just-keep-rising stories that overwhelmingly dominated the coverage. But the reality is that journalists mostly didn’t have a clue, or didn’t want to have a clue. I don’t know which is worse.
Some bloggers did shout warnings. They were ignored, or worse, insulted by wishful thinkers and (I suspect) people who stood to gain from the continuing bubble.
On Thursday, the Wall Street Journal put a story on Page One, entitled, “One Family’s Journey Into a Subprime Trap.” It chronicled the crazy financial stretch a Fullerton, California, family made in “buying” a house with two loans, one for 80 percent of the price and the other for the rest. The loans were interest-only, and now the real bills are coming due. The Journal writes:
The Monteses are caught in a trap — one that hundreds of thousands of people could face as the housing market totters and the easy credit of recent years dries up. They in effect bet that the boom in housing prices would continue. It was more important to hop onto the escalator than to wait until they could afford to make the leap according to traditional measures.
The Journal’s sympathy for this family seems misplaced, in part because these folks were reckless. They had to know they were taking an enormous risk — though I suppose if they were reading the local newspapers and watching TV perhaps they thought the boom had years and years to run. If they relied on the press to tell the truth, in the kind of incessant drumbeat that it needed telling, they were misguided.
Where were the stories we should have been seeing — the warnings that people like the Monteses were running headlong toward a financial cliff? What happened to the coverage of a housing market that fewer and fewer people could afford to enter except with no-interest or no-down-payment loans, where home prices were so far out of sync with the economy that there was no precedent for such imbalance?
Where were the stories pointing out that the secondary (and far beyond) mortgage markets were salting hugely risky debt all through the American economy? You think your bank or pension fund doesn’t have some of this garbage somewhere in its books? Think again.
The media also bungled by not fingering the makers of this bubble apart from foolish “buyers” who proved to be such suckers. This boom was fueled by people who knew it couldn’t last: brokers, bankers and, above all, Wall Street’s ever-clever wizards who risk other people’s money for gigantic fees.
This is another journalistic scandal. It’s not quite on the order of the bended-knee, pre-war coverage — stenography of government officials’ lies and deceptoins — that helped steer America into the Iraq war, but only because it’s not killing people in large numbers.
It’s a massive enough scandal, though. There’s plenty of pain left in this deflation, possibly including an outright tanking of the economy.
You’d never know if from today’s newspapers. They’re full of stories about how the Federal Reserve is stepping up to keep things on an even keel. What it’s actually doing is propping up the Wall Street con artists who helped fuel this thing.
The journalism craft should take a long, hard look at what it’s failed to do, yet again, in the housing bubble. It has failed to warn — as loudly and incessanty as it did in promoting the housing bubble — that a financial crunch was on the way.
There’s plenty of blame to go around in this mess. The finger-pointing has barely begun. But when it gets going for real, I hope that journalists who do some of that pointing will at least look in a mirror.