The Newspapers Are All Right

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The news last week was that The Washington Post had embarked on a major expansion.  New York Times executive editor Jill Abramson told an interviewer that, with 800,000 subscribers and a high renewal rate, she expects the Times will be publishing a print edition for decades to come. Rupert Murdoch’s Wall Street Journal seems to go from strength to strength.

Major metropolitan papers, nearly all of them sold at too-high prices before the impact of search advertising was understood, are still looking for owners with profitable strategies, the Chicago Tribune and the Los Angeles Times, both now on the block, in particular. The Boston Globe, where commodities-trader-turned-sports-magnate John Henry took the title of publisher last week, identified one possible direction when it hired the National Catholic Reporter’s Vatican specialist to cover the Catholic Church.

A good deal of excitement is to be found on the Web. Last week Vox Media hired Ezra Klein away from the Post to create a general news operation to augment its series of specialty sites. Klein is one of several star journalists who recently have struck out on their own, including technology experts Kara Swisher and Walt Mossberg from WSJ and Nate Silver, the political statistician, from the Times. (EP, a star of low magnitude, moved to the Web twelve years ago, following Andrew Sullivan and Mickey Kaus.)

But advertising revenues have remained meager for strictly digital sites. “We would never build  a media product based around [Web] traffic and advertising,” Jim VanderHei, CEO of the successful startup Politico, told The Wall Street Journal last week. “That is a fool’s play in this day and age.” Politico gains most of its revenue from an ad-rich giveaway paper in Washington, D.C., that contains some of its website’s contents.

Meanwhile, a steady stream of books flows out of schools of journalism, mostly from reporters unhorsed in the tumult. One such is Out of Print: Newspapers, Journalism and the Business of News in the Digital Age, by George Brock, head of the journalism program at City University London. It is interesting enough, as long as you understand the title one way instead of another (print newspapers learning to put down deep digital roots rather than giving up their paper editions altogether). A more interesting example is The Watchdog that Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism, by Dean Starkman, a long-time reporter for the WSJ, now an editor at the Columbia Journalism Review.

The causes of the deep recession are still not well understood. It was the banking panic, not the subprime bubble, which was so damaging. (For a primer, see Misunderstanding Financial Crises: Why We Don’t See Them Coming (Oxford, 2012), by Gary Gorton, of Yale University’s School of Management.) Ben Bernanke himself has pointed out that the value of the total quantity of subprime mortgages outstanding in 2007 was barely $1 trillion, and losses from them over the duration of the crisis were less than global stock markets sometimes lose in a single day.  Yes, $7 trillion in home-price paper wealth evanesced, but that was a consequence of the panic, not a cause.

When $8 trillion of paper wealth had vanished in the crash in a short time a few years before, the result was a short and relatively mild recession, Bernanke noted.  “Losses on subprime mortgages can plausibly account for the massive reaction seen during the crisis only insofar as they interacted with other factors – more fundamental vulnerabilities – that served to amplify their effects.”

So Watchdog is no help in that respect.  If anything, by conflating the subprime trigger with the underlying forces of the financial crisis, it makes the misapprehension worse. Nor does he give a clear account of what happened to newspapers after 2002, when, he says, “once-great newsrooms were cut down beyond recognition.” (Beware of tomes about the future of newspapers that lack a substantial index entry for “search advertising.”)

Where Starkman makes a valuable contribution is by tracing the history of reporting on subprime lending at the ground level.  There he offers a glimpse of how shoe-leather beat reporting at the consumer end failed to link up with high policy. It is an important part of the story.

It was in the late Eighties that the regional press began paying attention to mortgage-lending practices.  In those days the story was “redlining.”  A financial  boom in house prices had begun, fueled by a boom in financial asset prices; the only thing dumber than not owing a house was not owning two houses, insiders  joked.  But African-Americans living within communities which banks deemed unstable couldn’t obtain mortgages, no matter how good their credit ratings.

So the press went to bat.  First the Atlanta Journal-Constitution, then the Boston  Globe, weighed in with major series.  Researchers at the Federal Reserve Bank of Boston, under the leadership of Alicia Munnell, documented the practice. (It cost Munnell an appointment as a governor of the Fed after the banking lobby went to work.) Gradually the story morphed into an investigation of predatory lending practices – high pressure sales of home equity loans to equity-rich, income-poor families who had no realistic hope of repaying their loans. These were great stories and they substantially raised public awareness.

By the mid-nineties, the industry had a new name – subprime – designed to convey the message that much in the nature of home mortgage lending had changed. Indeed it had.  The hero of Starkman’s story is Mike Hudson, a reporter for the Roanoke Times when we meet him in 1991, interviewing a legal-aid lawyer for a series on poverty. The lawyer tells the young man he is missing the important thing, the path out of poverty, which consists of a house, an education, and a car, and ideally all three.

It’s at that point that Hudson becomes interested in the netherworld of pawn-brokers, check-cashing stores, consumer-finance agencies, for-profit trade schools and second-mortgages lenders which, to that point, were the sources of credit for the poor. Starkman follows Hudson as he discovers the increasingly strong links between the low-end lenders and their high-end sources of funds. Hudson writes most of a book, Merchants of Misery: How Corporate America Profits from Poverty, in 1996; in 2003 he writes an epochal indictment of Citigroup’s subprime acquisition binge for Southern Exposure, a muckraking magazine based in Durham, N. C.; in 2004 he is writing about Ameriquest Capital Corp. for the Los Angeles Times.

By 2006 he has been hired by the WSJ to broaden its coverage of mortgage markets, which are clearly beginning to come apart.  Starkman’s description of Hudson’s eighteen months there on the eve of the crisis – “unproductive, frantic and short” – has the ring of truth.  Today Hudson is a senior editor for the Consortium of Investigative Journalists at the Center for Public Integrity, a non-profit news organization funded mostly by foundations.

It’s a great story, but there it ends. There is very little about the beat reporting that took over the story in 2007 (Starkman calls it “access journalism”) and which has done a pretty good job with keeping abreast of the crisis and subsequent developments. He’s full of admiration for Financial Times reporter Gillian Tett’s early coup on how a big bank developed the market for collateral default swaps (Fool’s Gold: The Inside Story of J.P. Morgan, and How Wall Street Greed Corrupted Its Bold Dream and Created a Financial Catastrophe), and he says that Andrew Ross Sorkin’s Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System — and Themselves is “perhaps the leading post-crisis book;” but there’s precious little about the other high-end daily journalism that helped explicate what happened next, beginning with the neglected confessional Busted: Life Inside the Great Mortgage Meltdown, by Edmund Andrews, of the Times, which surfaced the role of Fed Governor Edward Gramlich in unsuccessfully seeking to rein in runaway subprime lending.

Instead, wrapped around the story of Mike Hudson and the rapidly changing organization of mortgage lending in the years after 1977 (when securitization of debt was first introduced), there is a somewhat potted history of the US financial press  in the twentieth century in the United States, especially the WSJ. Starkman knows a lot, but he tries to tell it all, with the result that the very good book at the center of things never quite gets out.

It’s a hell of a thing that the techies invented the Web and search advertising and took away our golden age of newspapers, and that everyone involved, high and low, has had to scramble to find new ways of going about the news business. But investigative journalism has hardly disappeared. Many of the best accounts we have about the crisis have come in the form of quickly-written books by newspaper reporters: Tett of the FT,  Sorkin, Joe Nocera (with Bethany MacLean of Vanity Fair) and Gretchen Morgenson  (with Joshua Rosner, a mortgage consultant) of the Times, Neil Irwin of the Post, David Wessel, Scott Patterson and Gregory Zuckerman of the WSJ. I don’t like Rupert Murdoch much, but to pretend that the WSJ team didn’t greatly outperform the other papers in covering the crisis and its aftermath is to live in a fantasy world.

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I don’t follow the Bitcoin story closely, but I suspect Felix Salmon was dead right last week when he reckoned that the world’s financial regulators will eventually have to put the payment system out of business. (By all means click through to on his link to Nick Dunbar.)

If it weren’t for the libertarian founding impulse, Bitcoin might grow to become many, many times bigger than Google. Remember Steelyard Blues, the 1971 movie in which Donald Sutherland, Peter Boyle and Jane Fonda outfit a Flying Boat in order to fly to a land where there would be no police?

As Salmon says, financial systems must be regulated, not just to keep tabs on the crooks, but to prevent (or last least greatly mitigate) the periodic panics that inevitably arise in systems of credit.

Still, only a new and better virtual currency will beat one that already has come into existence. Credit cards have been a great fix to this point, but there is no reason to continue much longer to pay the 2-3 percent round trip between the merchant and the bank. I expect the Federal Reserve Board, the Treasury Department, other various other regulatory bodies, the Internet Engineering Task Force and, of course, the National Security Agency are all working overtime to develop the kernel of a virtual currency.

In due course, we’ll all probably all park our cash at the Fed, and make our investments very differently than we do today with the banks. Kenneth Rogoff said as much (at 43:40) at the International Monetary Fund the other day.

(The copy editor says, correctly, that each of the preceding six sentences is worth a column of its own. He continues, less accurately, “You can’t make sweeping statements like these and not back them up.” He adds, “You may well be right in each case, I have no idea – which is why I want you either to elaborate or not assert in the first place.”  In keeping with the overall spirit of this weekly piece, the Salmon item was too interesting not to call to readers’ attention. So there the matter stands.)