In “Plunder,” Danny Schechter traces the destructive self-interest of the financial services industry from the issuing of subprime loans just before the turn of the century through a 2008 protest of the Federal Reserve’s bailout of Bear Stearns. The tale is sobering in its detail and remarkable for its timing, given that it was published late last summer at a time when most Americans were just waking up to screaming headlines and broadcasts about the collapsing investment firms and the plummeting stock market.
The financial crash is a complicated tale, but Schechter lays it out well, drawing from a panoply of sources—low-income buyers who lost their houses, state attorneys general who investigated mortgage fraud, and defrauded consumers who testified to empty seats at Congressional hearings. He also explains how Wall Street enabled the mortgage crisis to go viral with its worldwide bundling and sale of mortgage-backed securities.
Schechter is incensed by what he describes as the news media’s failure to adequately cover the subprime crisis as it evolved. Yet his own reliance on newspaper stories for his book raises a question about the solidity of this allegation. There is certainly evidence of local and national coverage of aspects of what we now know as the subprime crisis as it was evolving. In Forbes, Stephane Fitch and Brandon Copple wrote presciently on this topic in September 2001 in an article that explored the very real possibility that a housing bubble was being created. (Given the article’s timing, it is certainly possible that readers’ minds were focused on the more immediate crisis.)
In the Spring 2008 issue of Nieman Reports, Schechter wrote about news media’s failure to adequately cover the subprime crisis in an article entitled “Urgent Issues the Press Usually Ignore.”
In the December/January 2009 issue of American Journalism Review, an article entitled “Unheeded Warnings” contends that despite journalists shining “a spotlight on serious problems in the U.S. economy” before the collapse, “regulators and members of the public didn’t pay much attention.” Since the late 1990’s, there has been a proliferation of magazines, Web sites, articles and books offering advice to consumers about how to handle their financial lives. If someone sought out specific information about mortgage problems or credit card debt, they could have found it. Yet, in the euphoria of the moment, it seems that many weren’t seeking such guidance.
Even with news coverage and good guidance available, Schechter is correct that the kind of story that makes people take notice—the vital connect-the-dots reporting—was seldom done. And stories that were done about this subject weren’t given banner headlines on the front page of newspapers or top billing on Web pages until the dominos of the world’s interlocked financial system had begun to fall. In retrospect, editors and reporters should have looked more carefully and consistently at the consequences of deregulation on Wall Street and Main Street.
As is now known, rule changes made during the past decade resulted in increased debt in every sector of the economy. In 1997, the Taxpayer Relief Act created the conditions for a housing bubble when it changed the old rule that homeowners had to use the profits they made to buy another, more expensive house within two years. The new rule enabled single owners to take up to $250,000 without paying capital gains and a married couple to take $500,000 without capital gains. Out of this emerged a profiteering mentality in which a lot of people took out a mortgage to buy the house, another loan to renovate it, and then sold the property to reap a profit in two years in which they were supposed to be living there. By not taxing income on the profit of home sales, Congress turned home ownership into a free-for-all investment party that featured the buying and flipping of homes for the purpose of producing quick, tax-free income.
Two years later, the Clinton administration reduced mortgage requirements for working-class buyers and thereby introduced a new segment of homeowners, many who lacked adequate collateral, into this escalating market.
The crowning blow came in 2004, when the Securities Exchange Commission (SEC) changed the net capital rule. That rule had required that no broker or dealer be able to allow its net indebtedness to exceed 15 times its net capital. Encouraged in this rule change by former Treasury Secretary Henry M. Paulson, Jr., who was then head of Goldman Sachs, the SEC allowed the big five investment firms to more than double that leverage to 33 times their assets. Within a few years, several of the nation’s largest investment banks crashed or sought emergency buyers when they couldn’t pay the rush of investors or lenders who demanded payment.
Stories Ready to Be Told
Americans really could have used connect-the-dots reporting that would have shown them where Main Street and Wall Street intersected before the debt collisions occurred. They needed narrative stories describing how ordinary house and car loans were being transformed into investment opportunities for the rich and powerful—and a glimpse into the ways that mounting debt belonging to homeowners and financial institutions could jeopardize almost every sector of the economy.
Stories were certainly there to tell: An enterprising journalist could have followed a mortgage taken out on a home in the desert of Las Vegas and shown its path through the global markets as it was converted into a mortgage-backed security and sold to the government of Iceland. Another good place to begin reporting might have been at the sparsely attended (and rarely covered) Congressional hearings, as people whose finances and lives were in ruin told their stories to people whose institution was complicit in creating the rules governing what was turning into a high-stakes game.
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“The French Fry Connection”
– www.pulitzer.orgEither story—and many others—could have been done in much of the same way that The Oregonian’s Richard Read tracked the French fry from its underground birth in Washington state to the Asian dinner table in 1998. His series of articles took readers on an insightful journey into the Asian economic crisis and illuminated its spillover impact on Americans; these stories earned Read the 1999 Pulitzer Prize for Explanatory Reporting.
Reporters should always produce vivid snapshots of the local economy. But given what we now know of the incestuous nature of the global economy, journalists also have to be willing to devote more time and resources to finding creative ways of linking these snapshots to create a sweeping panoramic view. The ongoing challenge is to humanize the type of complicated business story that front-page editors often resist out of fear that readers will have a hard time connecting to terms such as “collateralized debt obligation.”
Business reporting—especially when it has the potential to touch so many people so close to home—often requires a face and a narrative. Schechter confronted this challenge in writing “Plunder.” In the preface, he explains how he could not convince traditional publishers to pay attention to “Plunder,” because they didn’t think the average buyer at Barnes & Noble would “connect” with it. It is our good fortune that Schechter didn’t let this deter him. Cosimo Books, a specialty publisher for niche audiences, stepped forward to rescue “Plunder,” and in this a lesson for business reporters can be found. When they encounter reluctance to publish complex financial stories, grab some of Schechter’s determination, venture forth, and get the information out—even if they have to publish it on their own blog.
Susan E. Reed, a 1999 Nieman Fellow, has covered business stories for CBS News, The New York Times, and several other organizations for 25 years.