Making Sense of the Credit Debacle

Journalists Weren't the Problem
E-mail debates of newsworthy topics.
March 4 2009 2:38 PM

Making Sense of the Credit Debacle


You know, speaking as a writer of business media, I am somewhat tired of the notion that we should have been writing in one voice against very specific things about which it was very difficult to know the intricate details. How were we to know the true extent of AIG's credit-default swap exposure? The company's 2005 10-K, for example, has two mentions of credit-default swaps, and they're not exactly illuminating. Who was going to tell the curious reporter what the total possible downside was? I wish anybody the best of luck in prying that kind of information out of any public company that is not required to report it in detail. What's more, every time something like this (e.g., dot-com bust, the collapse of Long-Term Capital Management, the credit debacle) has happened, there have been plenty of instances in which people did write penetrating and challenging stories on the potential problems of the day. Take Jesse, for God's sake. Everyone knows that the man is actually incapable of an article consisting only of praise—he's been Portfolio's chief alarm-raiser since Day 1.

Let's turn things around as well. Speaking as a reader of business media, I can personally testify to being familiar (i.e., informed by my peers) about a number of issues before the collapse.

● First, we all knew there was a housing bubble. As with all bubbles, it was a game of chicken, but it's not like people were not adequately warned. I bought a house in 2005, at what appears in retrospect to have been the top of the bubble. But I did it fully knowing that was a distinct possibility.

● Second, we all knew of dangerously rising leverage at a number of investment banks (although I had no idea what was going on at Citigroup; we were focused on other issues over there). Maybe Gillian is right in that we should have focused more on the scale of the phenomenon. But it's not like it hadn't been covered whatsoever.

● Third, we have known for years that the rating agencies were conflicted. This is not news, as journalists have covered it ad nauseam.

● Fourth, we all knew that there were a number of constituencies (e.g., hedge funds, prop desks, etc.) that had dangerously skewed incentives influencing their behavior. The entire business-media community had been trying to get at the much-rumored juicy story of how Goldman Sachs had consistently outperformed in the past decade, but to no avail. It wasn't for lack of trying, though. (It's well-known in the journalism community that seeking the Goldman "gotcha" story is a fool's errand, in no small part because of the fear Goldman strikes in anyone who does or might possibly do business with them. But we continue to try.)

● Fifth, we knew from Michael Lewis in Liar's Poker, published more than 20 years ago, that there was an inherent problem with securitization of mortgages, given the separation of loan maker and loan.

● Sixth, there are genuine bears who have had ample opportunity, via journalists giving them air time, to voice their concerns: Bill Fleckenstein, James Grant, Jim Chanos, Jeremy Grantham, and Peter Schiff, to name a few. These guys have been everywhere.


Seventh, people have long been writing about the danger that lurked in a haphazardly managed Citigroup. While much of the criticism was about a lack of growth, you certainly must remember the stories that talked about it being an accident waiting to happen. And it was. I wrote about Citigroup CEO Chuck Prince in the summer of 2007, and I didn't mention structured investment vehicles. But I feel no responsibility whatsoever for not knowing it was holding an implicit time bomb off its balance sheet. We don't have subpoena power, do we?

So it grates on me that even though all of the above made their way into the business press, it's suggested that the same people writing those stories should be somehow collectively criticized for the fact that they were ignored and/or we or other people failed to connect all the dots in the end. An individual journalist has only so much bandwidth. And there were a number of real success stories—e.g., Google, Apple, and, yes, Jamie Dimon—that merited their coverage as well, and which therefore quite rightly competed for space in our pages. Yes, there is always room for improvement. But in my list of people who should hang their head in shame, journalists are nowhere near the top.

Duff McDonald is a contributing editor at New York and Portfolio and is completing a biography of Jamie Dimon of JPMorgan Chase.