Subpar Subprime Coverage?

By Jonathan Higuera
February 13, 2008 02:25 PM

The general pattern of media coverage that preceded the current subprime mortgage meltdown can be described thusly: spotty coverage, failure to connect the dots, bad actors looked at individually, not as a whole, and full-blown coverage only after the damage had been done.

It’s not entirely unlike the coverage that preceded the Savings and Loan scandal of the 1980s, which failed to generate hardly any media attention prior to the bankruptcy of countless S&L institutions.  Some describe the mainstream media’s performance in that crisis as neglect.

While subprime didn’t suffer from the same dearth of coverage, the media did fail to dig deep enough to understand the depth of the coming problems. And when sporadic reports did make the link, it was far from the crusade needed to prompt regulators or politicians into action quickly and in a meaningful way.

Failure to connect the dots
That’s how Mike Hudson, who broke a story in early 2005 on Ameriquest’s aggressive tactics in selling subprime loans, described the media’s performance. “There’s been good reporting all along the way, but it’s been intermittent. There just wasn’t a sustained look at the subprime market and the sustained questionable lending practices.”

Had the issue earlier received one-fifth of the media attention it has garnered in the past year and a half, the meltdown could have been averted or lessened considerably, he maintains.

The coverage didn’t hammer away at the connection to Wall Street and the capital markets until too late in the game.

“There are a lot of good reporters out there, but most business reporting is about covering what’s good for investors. There’s less emphasis put on consumer reporting,” Hudson said.

Many of the stories published portrayed the problem as afflicting mainly less than credit-worthy individuals, so the work didn’t generate the attention it should have.  Middle-class investors did not see the problems looping back to them. Ironically, investors were hurt by that omission, says Hudson.

And even in cases where abusive lending practices received considerable media attention, such as the federal probes and subsequent settlements with Household Finance Corporation, Ameriquest and Citigroup, the problems were largely seen as aberrations.  The media failed to view such cases as symptomatic of an industry rife with predatory lending practices.

Eddie Roth, an editorial writer for the Dayton Daily News in Ohio, has written more than 60 editorials on predatory lending practices in the past six years, and he says the media did the best it could given the obstacles it faced.

For one, the borrowers often hurt the most were ones that didn’t make good sources for reporters. They were less sophisticated, often living close to the edge economically anyway.

“What made them vulnerable as consumers also makes them not very good sources,” he said.

Secondly, the financial services industry employed an army of lobbyists and publicists that often squelched the political and regulatory will to be more aggressive in putting a stop to questionable tactics.

“Whenever someone proposed something, even modest consumer protection, it was turned around by the industry as something that would dry up the credit market and deny someone the opportunity to buy a home,” Roth recalled.

Despite such hurdles, the media wasn’t completely absent. In 2000, New York Times reporters Diana Henriques and Lowell Bergman wrote a story on the fleecing of subprime borrowers that led to a segment on CBS’ 60 Minutes. The story outlined why Wall Street investment firms had become interested in lending companies that served the subprime market. It also told stories of borrowers burned by the experience.

Perhaps it was too early.

S&L redux
The parallel to the S&L scandal is alarming, says Stephen Pizzo, co-author of “Inside Job: The Looting of America’s Savings and Loans.” He began writing about suspicious deals by his local S&L bank as early as 1983.

He maintains the repeal of the Glass-Steagall Act in Congress in 1999 set the stage for the current crisis, which will dwarf the S&L scandal in total financial impact. Glass-Steagall served to separate commercial banking from investment banking, prohibiting commercial banks from making investments in the same manner as a Wall Street banking firm.

“It’s a flat learning curve,” said Pizzo. “They did it (deregulate) again. And only five years after the S&L scandal.”

Another hindrance to more in-depth media coverage could have been the lack of data, said Roth. Because the industry had fought so vigorously for confidentiality in its settlements, the media often did not have access to data that could have aided them in uncovering disturbing patterns.

Future coverage areas
The digital revolution that enabled the home lending market to explode could also be used to curb future abuses.

There’s not a single loan application that isn’t somewhere in a database. Fighting for public disclosure of these datasets is vitally important if the business media even has a chance to shine an early light on developing problems.

Maybe it’s asking too much of the media to be the watchdog that ferrets out financial problems such as these. After all, we’re not regulators. But at a time when the media’s role in a workable democracy is being called into question, let’s realize that we have the power to spotlight these types of issues.

“If you are right and you stay on it, it becomes part of the daily conversation, part of the accepted agenda in a community,” said Roth. “But you have to be right.”

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