“Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail, and that’s wrong.” Charles Ferguson 2011 Academy Award Acceptance Speech for Inside Job
I am very disturbed at how the media reports financial trends and crises.
First, they cheered speculative trends. Remember 2004-2007 and how laudatory the reports of the housing boom and soaring stock market were? The signs of disaster were all there, but nary a warning about the crisis to come.
Second, when the crisis was an undeniable reality, reporters seemed to lose the ability to think critically. There was simplistic and naïve acceptance of government assurances, and belief that the crisis was well-contained and limited to only subprime mortgages. Only when the situation became so blatant and ubiquitous did the media admit as much.
Third, by the time any coverage contained a measure of accuracy or alarm, events had deteriorated so much as to render the coverage irrelevant and useless to shape financial reform.
Fourth, this late and useless coverage still failed to “connect the dots” and reveal the obvious unethical and/or criminal behavior behind the crisis: bank collusion on mortgages, no prosecutions, conversion of private debt to public tax obligation, zero interest rates, punishment of savers, dollar devaluation, and food and energy cost inflation.
Better Never than Late?
As we discussed in Rates are Low, Morals are Lower, even the revered Wall Street Journal is late reporting key financial trends. Since December 2008, the Federal Reserve has maintained a zero interest rate policy, punishing savers in general and the elderly in particular. Why has it take the Journal almost 2 1/2 years to report the plight of the elderly? Moreover, the Journal does a mediocre job of explaining the interconnection between and among misdeeds of the banks, loose monetary policy, poverty among the elderly, high unemployment, inflation, and transferring obligations to taxpayers. See Fed’s Low Interest Rates Crack Retirees’ Nest Eggs
And unfortunately, the Journal’s late discussion is one among many instances of late and irrelevant reporting. Let’s examine two more stories:
Last Sunday CBS’s Sixty Minutes focused on the mortgage foreclosure crisis. In The Next Housing Shock, reporter Scott Pelley boils the housing crisis down to poor paperwork, major banks hiring irresponsible mortgage service companies hiring low skilled employees paid minimum wage to prepare and verify mortgage foreclosure papers.
Missing from this analysis is the entire cycle (2002-2008) of mortgage fraud perpetrated by banks and Wall Street investment firms on the entire US and world economies. Mr. Pelley avoids the more troubling issues of writing mortgages for people who could not afford the mortgage payments, the packaging of these mortgages into mortgage-backed securities, marketing these securities to fiduciaries such as pension funds and American and foreign investors. Rating agencies such as S&P and Moody’s placed their AAA imprimatur to reassure investors. Does Mr. Pelley even mention how long this has been going on? Now we find that many of these mortgage-backed securities may not have complied with NY trust law or IRS regulations. See 60 Minutes on Mortgage Securitization Document Lapses and Foreclosure Fraud
Is Overseas Journalism Better?
In yet another dismal example of journalistic laziness, we can cite yet another major international financial newspaper, the Guardian.
During a 22-month investigation by agents from the US Drug Enforcement Administration, the Internal Revenue Service and others, it emerged that the cocaine smugglers had bought the plane with money they had laundered through one of the biggest banks in the United States….
The authorities uncovered billions of dollars in wire transfers, traveller’s cheques and cash shipments through Mexican exchanges into Wachovia accounts. Wachovia was put under immediate investigation for failing to maintain an effective anti-money laundering programme….
Criminal proceedings were brought against Wachovia, though not against any individual, but the case never came to court. In March 2010, Wachovia settled the biggest action brought under the US bank secrecy act, through the US district court in Miami. Now that the year’s “deferred prosecution” has expired, the bank is in effect in the clear. It paid federal authorities $110m in forfeiture, for allowing transactions later proved to be connected to drug smuggling, and incurred a $50m fine for failing to monitor cash used to ship 22 tons of cocaine. More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4b – a sum equivalent to one-third of Mexico’s gross national product….
See How a Big US Bank Laundered Billions from Murderous Mexico’s Gangs
How reprehensible that the Guardian did not report the matter until April 3, 2011, days after the deferred prosecution agreement expired. Karl Denninger in his Market Ticker blog reported on this matter almost nine months ago, in June of 2010. See How to Run Drug Money: Be a (Large) US Bank
What is Really Happening Here?
Mainstream media is providing late and lazy coverage of critical financial stories. Why? Some possibilities:
- Financially strapped print media and network news organizations can no longer afford the expense of hard hitting investigative journalism.
- In an era of reduced advertising, main stream media are less willing to offend banks and other financial companies who are major advertisers.
- Financial journalism is not the glamour assignment. Perhaps less able journalists are assigned to these stories.
- Financial investigations are long and tedious; not as sexy or dramatic as a war, an earthquake or an election campaign. (Perhaps a corollary here is the lack, so far, of criminal prosecution: we have yet to see even one major prosecution against a large operating bank.)
- Since banks are the politically anointed agents of economic recovery (TARP, zero interest rates, etc), perhaps the media are afraid to be accused of demonizing the banks and derailing the economic recovery.
- Even worse, is the Administration colluding with the media to under report financial chicanery?
The truth may be all or none of the above. But for sure we, the people, and our political leaders remain uninformed. Serious financial investigative journalism needs to make a comeback. Right now, only blogs like Market Ticker and Naked Capitalism continue to challenge the status quo.
CBS, The Wall Street Journal and even The Guardian should be embarrassed. One of my early mentors used to say, and it applies most pitifully to our current major media:
“You have an excellent grasp of the obvious.” Even the obvious would be better if it was timely.
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