Bad News: How America's Business Press Missed the Story of the Century
240
Bad News: How America's Business Press Missed the Story of the Century
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Overview
Bad News is a foundational text for navigating a controversy that will be studied for years to come. With contributions from leading journalists and academics—including Nobel Laureate Joseph Stiglitz, Columbia Journalism Review's Dean Starkman, and Huffington Post business editor Peter S. Goodman—this collection presents a complex debate in a highly accessible format for anyone from curious readers and scholars to journalists themselves. And ultimately, the questions it raises illuminate the heated debate about the media's role as guardians of our democracy.
Product Details
| ISBN-13: | 9781595587725 |
|---|---|
| Publisher: | New Press, The |
| Publication date: | 04/03/2012 |
| Pages: | 240 |
| Product dimensions: | 5.20(w) x 7.90(h) x 0.70(d) |
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Read an Excerpt
CHAPTER 1
THE U.S. PRESS AND THE FINANCIAL CRISIS
Anya Schiffrin
The financial crisis of 2008 and 2009 came at a time when American journalism was already imploding. Beset by job losses and the migration of advertising revenue to the Internet, traditional media was in a decline that seemed irreversible. Major newspapers like the Los Angeles Times, Chicago Tribune, and the New York Times cut jobs and offered buyouts to many of their staffers. Well-known magazines such as Newsweek changed their format in an effort to boost revenues but still shrank in size. Condé Nast's glossy business magazine Portfolio and Dow Jones's Far Eastern Economic Review were shut down. Bloomberg bought BusinessWeek in the autumn of 2009, and then began to slash its staff, replacing the BusinessWeek writers with those from Bloomberg. Across the country, newspapers folded, including the Rocky Mountain News and the print edition of the Seattle Post-Intelligencer. Television stations struggled for ad revenue, and wire services cut staff. An estimated thirteen thousand newspaper jobs were lost in 2008 and fifteen thousand more in 2009, according to Paper Cuts. Newspaper circulation continued the declines of 2007 and 2008, falling an average of 10.6 percent in a six-month period of 2009 as compared to the previous year. In the same period, advertising revenues showed their biggest decline since the Great Depression. The New York Times called 2009 "the worst year the newspaper business has had in decades."
"As almost everyone knows, the economic foundation of the nation's newspapers, long supported by advertising, is collapsing, and newspapers themselves, which have been the country's chief source of independent reporting, are shrinking — literally," wrote Leonard Downie Jr. and Michael Schudson in their report, "The Reconstruction of American Journalism," published on the Columbia Journalism Review Web site in October 2009. "Overall, according to various studies, the number of newspaper editorial employees, which had grown from about 40,000 in 1971 to more than 60,000 in 1992, had fallen back to around 40,000 in 2009."
The problems that beset the industry took a toll on the reporting that took place during the crisis. Afraid for their jobs and struggling with fast-moving and complicated events, reporters struggled to keep up with the most complicated story that many of them had ever covered — all the while worrying about their own futures. Sometimes reporters were even personally involved, suffering from financial troubles while covering the story. The most famous case was that of former New York Times writer Edmund L. Andrews, whose book Busted chronicled his own troubles keeping up with his mortgage payments even while he was covering the economy from Washington, DC. After the book appeared, Andrews was criticized for being too close to the story he was chronicling.
As journalists were attempting to cover the collapsing economy, the pundits and the public criticized them for not seeing the crisis coming and for ignoring its warning signs. American journalists viewed the situation as unprecedented even though it was eerily similar to the one faced during the financial crisis that rocked much of Southeast Asia in 1997–98. That crisis, half a world away from the United States and less severe, was of only peripheral concern to most Americans, but it took a heavy toll on much of that region for several years. The experience of Southeast Asian journalists during that crisis was similar to what reporters would face in the United States a decade later — heavy declines in advertising, job losses, and pressure from sources not to write depressing stories that would undermine confidence in the economy.
This chapter is not an exhaustive look at the coverage before the crisis began (which we can date to the problems in the mortgage market in 2007). Nor will I provide a close textual analysis of the coverage during the crisis. Those subjects are covered in subsequent chapters by Dean Starkman and Ryan Chittum. Rather, I want to look at some of the broader research that has been done on the press, and in particular on the business press, and explain some of the larger themes that have been researched by media critics and academics. I supplemented my reading of the academic research with some of my own research — done with colleagues — on coverage of the stimulus package. I also interviewed some twenty-five working business journalists.
There has been very little academic research done on how business journalism fares during economic crises but what has been done suggests that during crises, reporters become more dependent on their "sources" — their contacts at the firms in key public and private institutions — for information. The pace at which the stories unfold means that reporters do not have the time to do broader investigative reporting, or to turn to academics or even former "insiders" for more analytic perspectives. At the same time, these sources dry up because they are afraid that publicizing bad news will make things worse. If the sources are available, their focus — even more than usual — is on "spin," trying to shape the coverage of the story as it develops.
One of the maxims of U.S.-style capitalism is that transparency is critical to well-functioning markets, but so is confidence. In this crisis, transparency and confidence came into conflict. Honesty in appraising bank losses from declining housing prices would have presented a bleak picture of the economy's prospects. That would undermine confidence, further freezing consumer spending and making the economy weaker.
Public officials often see part of their role as being civic boosters and glossing over problems as part of the job. When things are going well, it is an easy task that does not contradict the evidence that they see. But in a crisis, there is a need for obscurity, dissemblance, or dishonesty (with different public officials drawing the line differently). In retrospect, it's hard to know whether inaccurate official statements were deliberate attempts at manipulation or arose from genuine misunderstanding. In this respect, Fed Chairman Ben Bernanke's remarks are of particular interest, as he repeatedly attempted to reassure the nation that the problems of the subprime mortgage market were contained and that the economy's prospects were positive. For example, with the economy on the brink of recession in March 2007, Bernanke testified before the U.S. Congress and portrayed the declining GDP growth rate as a sort of settling-in. "Economic growth in the United States has slowed in recent quarters, reflecting in part the economy's transition from the rapid rate of expansion experienced over the preceding years to a more sustainable pace of growth," he said. "Thus far, the weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant extent to other sectors of the economy." He went on: "Employment has continued to expand as job losses in manufacturing and residential construction have been more than offset by gains in other sectors, notably health care, leisure and hospitality, and professional and technical services, and unemployment remains low by historical standards."
In November 2007 — a month before the date that the National Bureau of Economic Research later identified as the beginning of the recession in the United States — Bernanke could still sound upbeat. "Since I last appeared before this Committee in March, the U.S. economy has performed reasonably well," he testified before Congress. "On preliminary estimates, real gross domestic product (GDP) grew at an average pace of nearly 4 percent over the second and third quarters despite the ongoing correction in the housing market." Bernanke described the crisis as being of possible longterm benefit: "Recent developments may well lead to a healthier financial system in the medium to long term," he said, though he qualified that, in the short-term, "these events do imply a greater measure of financial restraint on economic growth as credit becomes more expensive and difficult to obtain."
By December 2008, even as he acknowledged that the financial "crisis has become global and is now affecting a wide range of financial institutions, asset classes, and markets," Bernanke sounded a positive note in a speech about the government's efforts to lower the federal funds rate, saying that its "policy response stands out as exceptionally rapid and proactive." He predicted a gradual economic strengthening. "Although the near-term outlook for the economy is weak, a number of factors are likely over time to promote the return of solid gains in economic activity and employment in the context of low and stable inflation," he said.
But if officials felt under pressure not to be too gloomy lest they contribute to a general loss of confidence, the same was true of reporters. Their training requires them to cover the news no matter how bad it is. But they are afraid that their coverage will cause share prices to fall and consumer confidence to evaporate, and will push the economy into a downward spiral. Like journalists in China and Vietnam who have internalized government/ Party instructions to write stories that will help promote economic growth, U.S. journalists were afraid of making things worse. In March 2009, some cheery data gave rise to a series of articles about "green shoots" suggesting the economy was due to recover despite the fact that unemployment was still high and retail sales were still weak. When asked why subeditors kept putting optimistic headlines over stories that reported on gloomy economic news, one Financial Times reporter hinted that the editors had internalized the prevailing administration line and winkingly described them as "People's Daily headlines" — a reference to the cheery headlines often found in China's government-controlled media.
An article in the New York Times in September 2008 described the journalists' dilemma well. "We're very careful not to throw words around like 'meltdown' and 'free fall,'" said Ali Velshi, senior business correspondent at CNN. "If someone wants to say the markets are in free fall, we'll discuss it first," he said, and the outcome is most likely to be a change in wording. Marcus W. Brauchli, the new executive editor of the Washington Post, said that covering Wall Street differed from any other industry. "When financial institutions are suffering a crisis in faith about themselves, journalists are inherently a little bit more prudent and cautious."
Just as the credibility of the administration and the Fed was undermined by their ever-rosy forecasts, so too for the media. Some reporters I interviewed said their in-boxes were full of angry e-mails from readers who accused them of putting air in the bubble as the economy grew throughout the nineties and then kicking the economy as it went down. Most of the journalists interviewed said the letters they got did not affect their reporting, but one said it did make him more careful about the words he used. One journalist shared with us some of the angry letters he received. Two of the letters are excerpted here:
Your article ... on worsening estimates of the US economy is unnecessarily alarmist. By all means, report the news, but in this time of difficult economic conditions, psychology is a critical part of whether the country can recover soon or not. In that setting, reporters such as yourself using overheated rhetoric become part of the problem. ... This is serious. Please write in more neutral terms. It is going to be challenging enough to fix things as it is. We don't need journalists making it worse.
The media and the President have turned this into a self-fulfilling prophecy. Who could possibly want to spend anything more than necessary when we are being told we are in an economic "catastrophe"? The people who do have jobs don't want to spend for fear of not having a job next week or next month. We need someone with some confidence out there telling us that we will get through this and that things will improve.
While the top writers in the field rose to the occasion and produced a string of significant work as the crisis unraveled (more about them later), many others were simply overtaken by events and hesitant about how to report them. The U.S. business reporter in 2008 was exhilarated by the chance to cover such an important and dramatic story but also afraid and uncertain. No one knew for sure how bad the crisis would get. There had been coverage of a bubble in the housing market, but the world of credit derivatives and credit default swaps was largely unreported — beyond the occasional story of its immense size (in the trillions of dollars). Such numbers added mystery to what was going on. How could the value of this supposed insurance product come to exceed the world's entire GDP many times over? Who was buying and selling these derivatives? Were they really insurance products? If so, what reserves had been set aside? All that was clear was that these products were highly profitable — and that the industry players were so politically powerful that the sellers had managed to get legislation ensuring that the sellers would not be regulated (either as insurance products or as gambling products), and that they would receive priority treatment in bankruptcy.
While the usual "sources" became less available and/or less reliable, even those without self-interest became less helpful. Reporters and editors have no choice but to rely on the experts. But many of the so-called experts had failed to see the crisis coming. Lots of economists did not believe that things would get as bad as they did. And so, caught in the fog of events, the coverage reflected the confusion felt in the broader economy.
Many journalists feel upset and guilty about their coverage before and during the crisis. They knew they fell short and they agonized about it:
The reality: We committed journalistic malpractice on a grand scale. We wrote glowing accounts of the heroic masters of the universe, epitomized by endless reverential profiles of the likes of Jack Welch of General Electric, and, until the roof fell in, Ken Lay of Enron. We asked far too few questions about derivatives and risky changes to the banking system, instead following mergers and slick new securities like star-struck sportswriters. We helped pimp the stock market as working Americans were giving up their pensions and embarking on a risky — and now ruinous — experiment.
— Jon Talton, economics columnist for the Seattle Times, in a widely quoted blog post in March 2009
The History of the Business Press
The difficulties journalists faced in reporting the Great Recession were a logical extension of the limitations of the entire genre of business reporting. Academics and journalists have long criticized business/economic reporting for its cheery, pro-business stance. Chris Roush describes the history of some of this criticism later in this book. Media critics on the left such as Rory O'Connor and Danny Schechter have accused business journalists of being "embedded" with the community they cover, pushing an ideology of U.S.-style free market capitalism. However, although these criticisms have intensified over the last couple of years, they are not new. In his book on the history of the financial press, Wayne Parsons writes that even in the nineteenth century the business press helped shape public opinion in favor of the free market: "Clearly the historical importance of the financial press does not lie so much in its contribution to the development of a literary form as in its role in defining a capitalist language and culture: free markets, individualism, profit and speculation. Not only did the publication of information facilitate the growth of the internationalization of markets, it also assisted in no small way in the promotion of capitalist culture."
(Continues…)
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Table of Contents
Preface Anya Schiffrit ix
1 The U.S. Press and the Financial Crisis Anya Schiffrin 1
2 The Media and the Crisis: An Information Theoretic Approach Joseph E. Stiglitz 22
3 Power Problem Dean Starkman 37
4 The Financial Press: It's Not as Bad as Its Reputation Chris Roush 54
5 Missing the Moment Ryan Chittum 71
6 The Quiet Crisis Peter S. Goodman 94
7 The Real Housing Crisis of Orange County Moe Tkacik 122
8 The Financial Crisis and the UK Media Steve Schifferes 148
9 What Would Good Reporting Look Like? Robert H. Giles Barry Sussman 179
About the Contributors 201
Notes 206