Is the Financial Crisis Also a Crime Story?

My 2006 investigative film, "In Debt We Trust: America Before the Bubble Bursts,"exposed subprime lending and abusive credit practices and warned of the dangers of a financial meltdown. Some friends and critics dismissed the documentary as alarmist, calling me a "doom and gloomer."

I confess that I felt very alone as I probed what was an unfashionable subject in our then bubble-promoting news media. Reporting on an impending financial crisis at a time of economic boom didn't fit the prevailing story line. Yet it was clear that our economy had changed from a focus on production to consumption. Debt fueled our growth, and hedge funds and private equity companies were in command. Main Street had given way to Wall Street.

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“Investigating the Nation's Exploding Credit Squeeze”
- Danny Schechter
From Spring 2006 In my essay, "Investigating the Nation's Exploding Credit Squeeze," published that spring in Nieman Reports, I laid out my findings and appealed to financial journalists to take a look at these issues. Few did. Perhaps my message was ignored because of my lack of "standing" as a financial journalist since I was not then at a mainstream outlet. I had attended Cornell University's School of Industrial and Labor Relations and the London School of Economics and I produced the first prime-time investigation for ABC News on the savings and loan crisis. Still I wasn't an "insider," a member of that club of self-styled experts who worked for financial media. Many of those "experts" had experience on Wall Street or had graduated from the leading business schools, which suggested to me that their reporting perspective might be embedded in the corporate narrative.

Reporters can have a difficult time assessing criminality so they tend to fall back on the establishment mantra that on cursory analysis all of what happened was legal. Mistakes were made, yet no one is blamed because we are all at fault. This is now a dominant arc of financial stories.In an interview I did with Georgia's former Governor Roy Barnes for "In Debt We Trust," he made observations about Americans at large that also spoke to the blinders so many journalists were wearing. "It is shocking to me that intelligent people, educated people, have not taken time to think about this. We cannot sustain over an extended period of time these high levels of debt," Barnes told me, "… and there is an end to the amount of credit … in other words, when it gets so leveraged, it will create an economic crisis so deep that it will threaten us as a nation. … And nobody seems to be concerned about it."

I continued my investigation. In 2007, I published "Squeezed," a collection of essays and blog posts, as an e-book. Then a year later, before the collapse of Lehman Brothers, a book I wrote called "Plunder: Investigating Our Economic Calamity" went to 30 publishers, all of whom rejected it. The reason: The topic was not of significant interest.

Soon after, the ground began to shift. In March 2008, Bear Stearns, the nation's fifth largest investment bank, crumbled and JPMorgan Chase bought its remains quickly in a fire sale, with intervention by the Federal Reserve. When the markets seized up, reporters began paying more attention. CNBC correspondents appeared on NBC with more frequency, as explainers, not as investigators, which was in part a sign of newsroom cutbacks. Warnings from experts were reported—such as the 2007 statement by the National Association for Business Economics: "The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the U.S. economy."—but were rarely reinforced by follow-up stories or by genuine debate. Reading or watching the news in the spring and summer of 2008 offered little sense of an impending crisis. Talk of economic dangers—largely confined to business sections and op-ed columns—rarely became newsworthy in ways that would register with the average American. Nor did presidential candidates during that election year talk much about Wall Street's responsibility, job loss, or home foreclosures.

Crime Reporting

In thinking about why financial issues didn't gain the traction they deserved, I return to a maxim I learned at ABC News. MEGO, which stands for "my eyes glaze over," was used there to describe the anticipated reaction of viewers when stories are too complex or detailed, as financial ones tend to be. Broadcasters use a different maxim—KISS, as in "keep it simple and stupid." Because the level of financial literacy among our citizenry is very low, the operating principle was that KISS worked better.

But perhaps I was also missing a deeper dimension of this story, one that belonged with crime reporters rather than on business pages. As I'd found out in the savings and loan scandal, criminal acts of fraud and white-collar felonies were woven through that story, but they weren't reported as such until the trials and convictions. And after savings and loan bankers went to jail, the financial industry invested in political contributions and lobbied to change regulations and laws, essentially to deregulate and decriminalize their workspace in the name of "financial modernization." And they succeeded.

Now, very few journalists have been examining or explaining well how three leading Wall Street players—finance, real estate, and insurance—collaborated in a mutually beneficial strategy to secure mortgages for homebuyers who ended up with worthless assets. They then leveraged their holdings and ended up with trillions on their balance sheets. Back in 2004, the Federal Bureau of Investigation warned of pervasive mortgage fraud but it claimed to lack the means to investigate and prosecute. Complaints by community groups who were hearing about predatory lending practices got buried. The New York Times later acknowledged that its reporters met with neighborhood groups in New York as early as 2001 and heard about these lending practices but did not investigate further.

In my 2009 film "Plunder: The Crime of Our Time" and a companion book with the same title, I tell this story. Despite my long filmmaking career, for which I've received awards and recognition, this documentary is proving a very hard sell. People accuse me of being conspiratorial, of concocting a reality that wasn't there. In "Plunder" I also look at the news media's failure to examine the run-up to the crisis. In it, I asked former Wall Street Journal reporter Dean Starkman, now with Columbia Journalism Review, about the effect of reporters relying on their insider access and fearing its loss if they did stories veering from the prevailing view.

"The great panic of the 2008 crisis is the equivalent for the business press of what the Iraq War was for the general press," he said. "In the case of Iraq, the general press clearly had it wrong. For the business media, the financial crisis is the big one… The parallel is there.

"Essentially the entire industry became predatory," he concluded.

"Predatory, like criminal?" I asked.

EDITOR'S NOTE
For more on Starkman’s views and a more measured critique of the financial press, see Anya Schiffrin’s “Bad News: How America’s Business Press Missed the Story of the Century,” published in 2011 by The New Press."Deceptive marketing on a mass scale as a function of a corporate policy," he replied. "Criminal, yeah, whatever. I'm just saying that the evidences at that point were overwhelming. … The borrowers were subjected to deceptive marketing practices. A lot of time I think was spent on personality-driven reporting … [and this topic was] not adequately explored."

Today we hear about lawsuits among investors, borrowers and banks. Yet the only target of government prosecution seems to be insider trading, not cases involving the deep fraud ruining the lives of many homeowners. The government's failure to protect borrowers rarely rises to even a sidebar even though 14 million families are affected by foreclosure or by the threat of one. Reporters can have a difficult time assessing criminality so they tend to fall back on the establishment mantra that on cursory analysis all of what happened was legal.

Mistakes were made, yet no one is blamed because we are all at fault. This is now a dominant arc of financial stories. Even the voluminous report of the Financial Crisis Inquiry Commission went through a buzz saw of bitter partisan acrimony so that by the time its findings were reported, they were much watered down.

The summer of 2011 ushered in a global economic crisis and increased awareness of a widening gap between working people and the wealthy. With this recurring cycle of financial meltdowns, the time seems ripe for reporters to dig deeper than they have to find out whether criminality is involved. After all, crime stories are something that every American understands.

Danny Schechter, a 1978 Nieman Fellow, reports and comments on economic issues on his blog, www.newsdissector.com. For more information on his film and book, go to www.plunderthecrimeofourtime.com.