Each morning, I tiptoe out the front steps, skin the newspapers from their polyethylene casings, and scan the headlines with unease. Will this be the day that the subprime story turns cataclysmic and I join Merrill Lynch, UBS, Citigroup, HSBC, Bear Stearns, Northern Rock, et al., as a casualty of the credit crush?
Don't get me wrong. I'm not holding billions of dollars' worth of structured investment vehicles that I can't unload because of the credit crunch. Nor do I face foreclosure on my home. I rent. I simply fret about the financial wrecking ball swinging so wide that a reeling economy brings hardship to my family.
I stoke those worries by reading as much of the financial coverage as I can. Better put, I read as much of financial coverage as I can understand. I'm not embarrassed by my ignorance—why should I be? I can't be much more clueless than the masters of the universe who have lost their companies billions in the last two quarters.
As a layman, I've gleaned much from the Financial Times' coverage. A Nov. 5feature by Gillian Tett and Paul J. Davis("What's the Damage? Why Banks Are Only Starting to Uncover Their Subprime Losses") reports that private-sector economists believe that the mortgage problems, which the U.S. government has estimated may destroy $100 billion in value, may actually reach $200 billion or more. But nobody really knows.
I polled a dozen journalists and economic thinkers for recommendations on whom and what to read on the topic. David Warsh of Economic Principals seconds my FT nomination and praises Greg Ip of the Wall Street Journal, writing that Ip "has been consistently more interesting since June on the Fed's response than any other reporter i read regularly."
Slate Editor Jacob Weisberg singles out the FT's Martin Wolf. Slate "Moneybox" columnist Dan Gross writes that the FT's Tett "has done the best job covering it from the capital markets/bank perspective—not the sad sack stories of individual homeowners losing their homes." He admires the way FT coverage has given an international dimension to the story—"the way German banks, Australian hedge funds, and London financial institutions have come undone on this issue."
Washington Post columnist David Ignatius, former top editor of his paper's financial section, applauds the work of the Post's Steven Pearlstein, calling him "my sup-prime hero. He saw this very early, and very clearly." Here's Pearlstein sounding the subprime clarion on March 14:
What we have here is a failure of common sense. With occasional exceptions, bankers shouldn't make—or be allowed to make—mortgage loans that require no money down and no documentation of income to people who won't be able to afford the monthly payments if interest rates rise, house prices fall or the roof springs a leak. It's not a whole lot more complicated than that.
Ignatius isn't the only one rooting for the home team. Wall Street Journal columnist David Wessell says his paper's coverage "began early and has ranged widely from the top (the Fed) to the bottom (a single block in Detroit.) This is a story that demands aggressive reporting to show how the rise and fall of subprime is disrupting individual lives and aggressive reporting and analysis to explain how and why we got here. Just doing one part well isn't good journalism; we've tried to do both." Wessell provides this annotated Journal reading list.
His Journal colleague Alan Murray writes, "This is a case where blogs have really become the leading edge of reporting. I find much of the best stuff on this in the Deal Journal, which Dennis Berman is leading and covers the Wall Street angle, and Real Time Economics, which Greg Ip is leading and covers the policy angle. On the Citi story, Robin Sidel, Aaron Lucchetti and Monica Langley have done a great job, although Eric Dash's story this morning [Nov. 6] on the two Princes was excellent."
Journalist-investor Jim Cramer applauds homeboy Doug Kass of TheStreet.com ("probably been the single best guy on this"), who alerted the market about the "subprime fungus" on Feb. 8, and homegirl Erin Burnett of CNBC "who was drilling down on this story before anyone."
Gretchen Morgensonwins nominations from Wall Street Journal reporter Glenn Simpson for her "unique mix of investigative reporting and slashing commentary on toxic waste from Wall Street" and from Chicago Tribune editorial writer Patricia H. Widder.
Who else has been good? "Not me," writes Newsweek's Robert Samuelson, who also praises the Journal, adding, "my hunch is that the full story is still unfolding and much of what we will ultimately understand is still shrouded in the mists."
If you'd rather whistle past the graveyard, check in with Cramer's devil-may-care colleague James Altucher, who writes a Tuesday FT column. In his Aug. 14 contribution, Altucher looks on the sunny side of life, writing:
US household assets are $54,000bn. Liquid net worth (cash, mutual funds, bonds etc) is $27,500bn. Household debt is $13,000bn. In other words, the US household balance sheet is looking great: $54,000bn in assets ($27,500bn liquid) to cover $13,000bn in debt. Heck, we're under-leveraged as a country right now and should probably take on more debt. …
But what about the subprime mess? Isn't that going to bring the net worth of the US to $0 or even negative? Right now the entire subprime market is about $800bn and let's give full credit to the traders and media and say 50 per cent of that is at risk. So $400bn. Will $400bn worth of homes go into foreclosure? Of course not. Defaults are good for nobody. Things will and are getting restructured.
For the sake of my early morning mental health, let's hope Altucher is right.
Addendum, Nov. 7: Other worthy subprime coverage includes the Calculated Risk blog (recommend by Paul Krugman, Al Bellenchia, and Paul Holden); thehousingbubbleblog.com (David Lamb and Frank Giovinazzi); an Atrios posting from last year (Vance Lehmkuhl); Bill Fleckenstein at MSN Moneycentral (Ari Kalechstein); and Marek Fuchs (Paul Pendergrass). From me, a belated good word for Bloomberg News. Last, "Mysterioso" recommends the FT.com's Alphaville for those who love their financial thrills minute by minute.
Seconding Altucher is John F. Walson, who writes:
I am not certain that this [Brookings article] counts as journalism given the venue in which it is published, or whether it is whistling in the graveyard, but it is an accessible and cogent breakdown of the subprime mess. The percentage of the overall residential mortgages-credit that are subprime (about 13 percent) and the percentage of those subprime mortgages that are "seriously delinquent" (about 13 percent of that 13 percent in 2003, higher perhaps now) strike me as the most important numbers in terms of phrasing the Important Question:
Will defaults in around 1 to 3 percent of residential mortgages cause a massive credit crisis?
Even with a 25 percent default rate on subprime mortgages when all is said and done, the overall percentage of mortgages affected is only 3 percent. Hundreds of billions of dollars, yes; a substantial portion of the available credit, no.
5:10 p.m.: Lawrence Ingrassia of the New York Times alerts me to several early subprime crack-up warnings by the aforementioned Morgenson, Kareem Fahim and Ron Nixon, and David Leonhardt and Motoko Rich.
Nobody can read everything. Send your nominations for excellence in subprime journalism to firstname.lastname@example.org. (E-mail may be quoted by name in "The Fray," Slate's readers' forum, in a future article, or elsewhere unless the writer stipulates otherwise. Disclosure: Slate, the Washington Post, and Newsweekare owned by the Washington Post Co.)