The media stands accused of failing to foresee the global financial crisis, of a lack of understanding of the issues, and even of having a hand in the problems we now face. The Editors Weblog has been following the debate, beginning with an interview with the Managing Editor of the Financial Times, Daniel Bogler, who highlighted the problem of the media "fanning the flames" of the crisis. Is the media responsible, or are these accusations merely a knee-jerk reaction?
Danny Schechter is a respected investigative journalist and the author of Plunder, a searing indictment of the modern banking system, the role of government in finance, and the greed-is-good mentality. Schechter's book was published one week before the collapse of Lehman Brothers on the 1st of September, and it examines the very problems that were about to unfold. The Editors Weblog spoke to Schechter about the media's failure, the ethics of advertising, responsible journalism, and the cult of the CEO.
Two key failures
Schechter believes that there were two key areas where the media failed. He says that there was little or no examination into the new breed of exotic financial products that caused many of the problems, such as CDO's, and that the media ignored the warnings from community housing organisations of the predatory lending practises in some of America's poorest communities. "This was a big media failure, we were not warned about it" says Schechter. If Schechter's assertion is correct, why did the media fail to fulfil its role? Newspapers, and the media in general, are supposed to be the fourth estate, a watchdog for citizens. Is it a lack of knowledge on the workings of high finance or has the media lost its way and become part of the problem?
Why did the media fail in its early warning role?
Schechter believes that the media failed in its role because of vested interests. He points out that one of the key sources of revenue for newspapers is real estate advertising in weekend supplements and classifieds, as well as advertisements for credit card and refinancing companies. As a result, he argues there is a connection between the real estate and newspaper industry, their future and success are intertwined. Schechter says, "The newspaper industry is the marketing arm of the real estate industry. In some cities you actually had newspapers getting a piece of the action of sales through the ads that they generated. So they were actually part of the corruption of this whole relationship. So of course there was little real scrutiny about what was actually happening in the neighbourhoods where houses were flipping, where people who couldn't afford to buy houses were buying them with bogus mortgages. Newspapers were making money on the sales of these homes."
Schechter argues that after the dot.com bubble burst back in 2000, all the advertisements from these new emerging businesses stopped, so the $3 billion in lost advertising revenue for the media industry had to be found somewhere. Schechter puts forth that credit card companies and refinancing firms stepped into the gap. He points out that the majority of people do not automatically spend money that they don't have, but it was marketed to them through the media in advertising and life-style supplements. Most of the money that the media makes in advertising is in the last quarter in the run up to Christmas, newspapers run articles on the best presents to buy, and so forth, all of it driving a concept of "buy and shop" which "stimulates consumption." Schechter says, "for me, on the consumer front newspaper's are a marketing instrument and on the investment front it's a confidence building instrument. The media was part of this whole sales machine, and it happened at the same time that newspapers were cutting back on investigative reporting, and ironically expanding business news targeted at the business world; not at the general public, not on the economy and how it affects you and me."
Has financial journalism lost its teeth?
Another criticism levelled at business reporters is that they are too close to Wall Street and the City, and have too much respect for the institutions they are supposed to be examining. John Friedman of MarketWatch was at the press conference announcing the Bank of America's acquisition of Merrill Lynch and wrote, "the media were so polite and deferential to the two CEOs; they behaved as if the press conference were a victory lap for the financial services industry." Schechter believes that "business men are seen as heroes" and it's all part of the "cult of masters of the universe"; he cites the endless sycophantic articles about Bill Gates of MicroSoft and Richard Branson of Virgin. He argues that there is a kind of "cultural embedding, as financial journalists cover business, they become part of the scene, they identify with the players, go to the parties, they are increasingly in a world of fewer and fewer people that is cut off from the mainstream of American life." He believes that many financial journalists want to be like these Masters of the Universe that they write about every day.
Schechter also says that there is no real pressure at the top of media organisations to thoroughly investigate these companies. Thee reason being that they would be investigating their advertisers. As a result, there is no impetus behind financial reporting, no push for the truth and the heart of the story, not enough cynicism.
Furthermore, with the advent of multi-platform publishing and shrinking newsrooms, journalists are frequently, "fireman, going from one fire to the next. When you are doing that, there is very little time for reflective analytical reporting."
Where is the counter-narrative?
During an interview recently on the Editors Weblog, the FT's Managing Editor Daniel Bogler said, "It's unfortunate that the financial literacy and understanding of how things work in the City and of basic accounting and so on, is actually very thin in financial journalism." Schechter agrees with Bogler's point saying, "You have people who are not really very well educated covering these issues. Hence they go to a briefing and a company gives them a story, and they don't really have a counter-narrative."
Reviewing his argument, Schechter's assessment of the media is damning indeed; but it is not unilateral. Schechter points out that many newspapers and bloggers are asking the right questions and searching for the truth in this financial crisis. He cites the UK's Telegraph and Guardian newspapers, saying they "have been way ahead. I find the coverage of the British media better, and increasingly much more critical of what is happening."
Omission and Commission
Looking back over the rapid collapse of the world's financial markets, and the uncertainty ahead, Schechter says it is, "a financial system failure, a regulatory failure and a media failure. Everyone is willing to talk about the first two, but they are not willing to discuss the last one. We are all in this. It's a media failure of omission and commission."