By: Joe Strupp
Did the growing mortgage credit crisis, which took a huge turn with last week’s collapse of Bear Stearns, get enough early coverage from newspapers?
Top business editors at several of the nation’s major papers say yes, although a few admit some of the more complicated elements may not have been broken out enough for readers.
As the fallout from the sub-prime mortgage debacle continues, some pundits have pointed their fingers at the media for possibly missing the story. Some critics, such as Nicholas Lemann, dean of the Graduate School of Journalism at Columbia University, blame the press for not reporting much of the story more widely. “The sub-prime mortgage story was just hiding in plain sight,” says Lemann. “It was a get-able story.”
But for those in the newsrooms, coverage, in some cases dating back to 2004 and 2005, warned readers that the expanding use of such volatile, adjustable mortgages was doomed.
“We did a pretty good job of looking at some of the rumblings and problems,” said Matt Murray, national news editor of The Wall Street Journal. “I think the media was aware of this; that, if not a bubble, a huge amount of inflation was coming. Credit was being overextended.”
Murray, who has been at the paper for several years but took his current post last year, said the paper had “several good landmark stories showing the potential risks and ways the market could come down.”
He offered up several examples of 2005 Journal warning stories, including a May 23 front page piece titled: “On the House: As Prices Rise, Homeowners Go Deep in Debt to Buy Real Estate — Economists Say Move to Tap Equity May Inflate Bubble.”
The piece, by James R. Hagerty and Ruth Simon, stated: “Economists say today’s debt-fueled investment binge in real estate is fanning the flames of an already overheated housing market, and making demand from people who actually need houses to live in seem stronger than it truly is.”
“I think this is one of those stories where somebody wrote an article in 2004 or 2005 forecasting this,” Murray said. “But some people just went on. I think lots of people on Wall Street knew this would burst. But the nature on Wall Street is that some traders think they have the model that is right.”
Larry Ingrassia, business editor of The New York Times, cited a March 2005 Times story that compared the growing mortgage lending problem to the previous dot.com collapse of 1999-2000.
The Page One piece by Motoko Rich and David Leonhardt opened with the lead: “Real estate-crazed Americans have started behaving in ways that eerily recall the stock market obsession of the late 1990’s.”
It went on to report that “Nobody can know whether the housing boom of the last decade will end as the dot-com frenzy did. But the parallels are raising alarms among many economists, even those who acknowledge that there are important differences between homes and stocks that significantly reduce the chances of another meltdown. For one thing, houses are not just paper wealth: you can live in them.”
“That was just one of many,” Ingrassia said. “One of the things we wrote about was being able to pay what you chose to pay — the piper was going to have to be paid.”
Chuck Hawkins, deputy business editor for the Associated Press — which provided such coverage for hundreds of newspapers — also defended past warning stories. “We did several stories early last year that raised red flags,” he recalled.
He also noted several events at the 2006 Society of American Business Editors and Writers conference that addressed the issue and how to cover it. “You had any number of stories mentioned at that meeting,” Hawkins said. “The cautionary stories were being written.”
Jim Henderson, managing editor/money at USA Today, also defended coverage. “We were writing stories on sub-primes and housing prices going up,” he said. “Loans being made to people who were not credit worthy, particularly in 2004 and 2005.”
But several editors admitted some of the elements of the story, such as the packaging of the loans for investors, was often complicated. “You could not figure out what was in it,” Henderson says of the mortgage-back securities that led to the Bear Stearns collapse. “I’m not sure the mainstream press covered that. It was so institutional and at a highly sophisticated level.”
Hawkins admitted that some of the warnings on skyrocketing home prices were not published enough in some cases. “What got drowned out was that home prices were going up and no one thought it would end,” he says. “You can write cautionary stories, but if you can close those kinds of loans, I don?t know if people are reading those stories.”
Ingrassia pointed out that the extension of the mortgage crisis to the higher securities firms was not completely seen until this past year. “What none of us anticipated until last year was the ripple effect throughout the financial world of this exotic financing,” he said. “We focused largely on the homeowner who was in a position to suffer. We did not fully understand the implications of how this high level of debt had coursed through the economy.”
Some industry observers pointed out that proper coverage does not always mean readers will listen to the warnings. “They put the story out, but it was not always widely taken,” said Rick Edmonds, a media business analyst at the Poynter Institute. “It was fairly widely reported.”
Looking forward, editors say there is a need to walk the tightrope between sparking panic and underplaying what is a major story for many readers.
“You can?t be overly alarmist, nor can you hold back,” says Ingrassia. “If it is going to look like it will get worse, we’ve all done these tricky types of stories and I think we just get the gist of it.” Adds Murray of the Journal: “Panic is not entering into our thinking. We report what we know and present the situation. I am always careful not to be too predictive.”