The media and the financial crisis: Journalism failed
Columbia Journalism Review this month took the first steps toward transforming the ghost stories and urban legends of America's current recession into the formalized analysis of history. In "The List," a table of 727 stories from the business media, CJR tracks the history of the recession's coverage from its first rumbles and murmurs in 2000 to the cataclysms of 2007. In the process, the publication explores whether the media did, in fact, do everything that it could to protect its readers.
In its final analysis, the answer seems to be a resounding "no."
Part of the problem has been a sort of institutionalized Stockholm syndrome. Much of the financial media have been all too easily swayed by the arguments of the very people and institutions they were supposed to watch. In some ways, this is completely understandable. In the context of an $85 billion bailout, the hundreds of thousands of dollars AIG spent on corporate retreats amounted to pennies. When one looks at a trillion-dollar mess, a few hundred million in bonuses seems almost meaningless. Given those terms, the outraged screams of America's middle class seemed ignorant and shortsighted.
However, when one considers that the average American family lives on roughly $50,000 per year, a multimillion-dollar bonus isn't an accounting error; it's a judgment error. Moreover, when Wall Street's gargantuan salaries were fueled off a combination of taxpayer dollars and the ill-gotten gains of exotic financial instruments, it starts to seem like many of AIG's money men deserve not retreats and bonuses but fines and jail time.
More importantly, it starts to seem that insider knowledge about traditional ways of doing business becomes less a decoder than a blinder. To be fair, this failing isn't limited to the business press. As pundits were quick to point out, neither Treasury Secretary Tim Geithner nor President Obama really understood what so quickly became clear to Congress -- that if a company can't afford to pay its bonuses, it can't afford to give those bonuses. Period. End of story.
Another piece of the puzzle may be the question of audience. Prior to 2008, American business was far from a hot topic. Most people who regularly read articles about the finance industry were involved in it, whether as direct investors or as players. A few years ago, articles about exotic financial instruments may well have been used as a holistic sedative; even today, with the whole world watching Wall Street, such stories still cause spontaneous outbreaks of narcolepsy.
To a great extent, the American public put its faith in the hands of its high priests of finance. Many of us reasoned (correctly) that these issues were too complex for the average person and (incorrectly) that the professionals who handled them were likely to act in the best longterm interests of the larger community, not just their companies. Moreover, one of the unspoken tenets of capitalism is that success equates with morality. America sometimes rumbles about bloated fat cats, but we have a strong belief that rich people deserve to be rich -- that their superior intellect and favored status with God is borne out by their bloated bank accounts.
Of course, the past few months have laid some of these myths to rest. We now know that many of the financial industry's leaders weren't looking at longterm health (or even solvency), but were instead focused on quickly racking up sales and gaining bonuses. As Alan Greenspan admitted in October, even he failed to anticipate that longterm self-interest might not be a sufficient impetus to inspire banks to effectively self-regulate.
As more and more members of the general public feel obliged to watch the financial market, the question increasingly becomes who, exactly, they can look to. On the bright side, the freshly chastened news industry is now all too eager to find flaws with big banks. But it's worth asking if they have either the distance or the vocabulary to present these stories to the public; simply put, they may be too far inside the problem to adequately communicate it.
Unfortunately, they also are in the best position to tell the story. The key ultimately may lie in finding a way to marry the perspective and distance of financial neophytes with the information and context of professionals. Or, in other words, to present the financial news without becoming seduced by the financial profession. It remains to be seen if the media are, indeed, up to the task.