FANNING THE FLAMES OF THE CREDIT CRISIS

Why can’t the financial media tell the whole story, and tell it accurately? Reporters, headline writers and editors often react to the raw news of the moment, giving too little perspective to matters that seriously need lots of perspective. The result---investors and home-owners get needlessly see-sawed, and intelligent decisions are harder to make. Sound familiar? Headlines have been all but screaming lately that housing prices are X% lower than they were last year at this time….that home sales are at their lowest level in Y years…that there are Z% fewer mortgage lenders now than a year ago. And on and on. What the articles do not say is that housing starts a year ago were extraordinarily high, thus a drop-off from last year to now should have been foreseeable. ---That home sales a year ago were off the charts, so its perfectly normal for the volume to drop in what has always been a traditional cyclical market. ---That a year ago there was such an excess of mortgage lenders floating around it’s no wonder some of them have failed, as businesses often do when there’s too much competition. So it should come as no surprise that the flood of “bad” news upsets the markets, and the ripple effects are felt all across the land. I don’t mean to minimize the problems (and I have and/or will explain them in past and future blogs.) There are serious problems out there in Credit and Borrowing Land, and lots of people will be impacted by them. But know well that the problems are made worse by shoddy media treatment. What I want to make clear to you is that many media outlets---for lack of experience, proper research, common sense, reasonable restraint or any/all of the above---are shouting “fire” in a crowded theater. (Many years ago the U.S. Supreme Court mandated that the freedom of speech does not extend to shouting “fire” in a crowded theater. No argument on that point.) Not only are they shouting “fire.” Many of them are pouring gasoline on the fire. Stories abound of banks supposedly in trouble because fearful depositors are running to withdraw their money. These stories are made more frantic by scary headlines, by pictures of customers standing in lines, by repeating worrisome quotes, and by using inappropriate headline words like “bankrupt,” “collapse,” “failure” and the like. Of course, to compare this year’s numbers with those of the past would take extra work---checking old files and doing things like arithmetic, which is not part of the newspersons job description. But the fact is that almost all of the necessary information regarding the health of financial institutions is available, for the present and for the past. Failure to set forth the appropriate background and perspective on a financial story cannot be excused by “lack of information.” It’s lack of research that’s the culprit. Publicly traded companies (such as banks whose stock is traded on one of the exchanges) must make their financial details known to the federal Securities and Exchange Commission. Non-public companies (including smaller banks and lenders) are licensed by the state and/or the federal government, and their data is thereby available to the public. Even real estate people are regulated by their state government, though this protection is varied and enforcement procedures can be lax. Recall the old saying in broadcast and print newsrooms: “If it bleeds, it leads.” A story that instills shock or fear is going to get a lot more attention than a story that says, albeit accurately, “things aren’t as bad as they might seem.” And face it, we’re so accustomed to being shocked and frightened that we might have lost the ability to discern scary stuff from solid in-depth reporting. Good financial reporting---ever more important in today’s world of 401k plans and IRAs---is a rare commodity, particularly in markets smaller than New York, Los Angeles, Chicago, Philadelphia, Boston and similar megalopoli. Here are some reasons why: ---Financial reporters and editors usually come by their jobs through other positions at their paper or station. They don’t come from MBA schools. They are reporters who may have, most recently, been doing movie reviews or police blotter stories or local school board coverage. That doesn’t make them bad reporters. But it certainly doesn’t endow them with the kind of knowledge needed to correctly analyze and properly report stories that can impact people’s financial well-being. You don’t want to get important financial news from someone who’s getting on-the-job-training. But you may not have any choice unless you seek out broader views in other available media. ---Financial reporters don’t hang around the financial desk for very long. It can be boring and career-stifling for the wrong kind of personality. There’s not much exciting you can say about a stock dividend or an annual report, and you’d rather have lunch with a local celebrity than with a CEO. Those who do hang around can get to be quite good at their jobs. ---Financial reporters are inundated with press releases (in print and on video), phone calls from publicists and invitations from corporate suits. All the better to influence what the reporters write. Everyone has an agenda, but even the most intrepid reporter can be swayed by persuasions, subtle or otherwise. When you next read or hear a business story in your local media, ask yourself how the reporter’s views might have been influenced in the course of his/her research. ---Financial reporters are just like all other reporters in one particular aspect: they crave seeing their byline attached to a “big” story. That means bragging rights in the newsroom, a faster track to higher pay, more juicy assignments, and a most stimulating ego massage. If a small or dull story can be made “big” by the right choice of words---be they correct or not---it’s tough to resist the temptation to go for the “big.” Who knows how this recent credit-housing-mortgage crunch might have unfolded if the news reports had been more restrained, more researched, more reflective? One thing we will know for sure is that crises like this one will recur again, and again, and again. I’ve been around long enough to say, “Will they never learn?” And I’m afraid “they” won’t. (Full Disclosure: I wrote a nationally syndicated newspaper column for eight years and spent nine years in the newsroom of a major market network-owned television station. High journalistic standards were almost always trumped by the “if it bleeds it leads” mindset. We, the public, are the worse off for that. Too bad. Don’t hold your breath waiting for a change.)