“I think that one of the things in this crisis all along has been it’s like a mystery novel,” David Wessel, the economics editor for The Wall Street Journal, told The Observer last Friday. “Every time you turn the page you’re in a new chapter, and you’re being introduced to new characters and new plots that you hadn’t expected. It’s hard to understand what’s going on.”
That was what the coverage of the Bear Stearns implosion was about: a scramble to understand.
Some pulled it off magnificently, if belatedly; others opted for the comfort of hyperbole; all were, for a time at least, rolled by the Bush administration.
Luckily, regardless, the nation emerged as anyone would expect: another week older and deeper in debt.
To simply leaf through the headlines of the different sections of the March 18 Journal was to lose all faith in the American way of doing things. The terrorists must’ve been kicking themselves for not being the first to think of subprime-mortgage-backed securities as a sure way to cripple the U.S. The sky was falling; not a drill this time.
Even the mercilessly nonthreatening Personal Journal section screamed in its main story, “Is There Anywhere Safe?” Oh, dear. And the middle story on the front page—perhaps the most-read newspaper page in the entire financial universe on any given morning—led ominously: “The past six days have shaken American capitalism.”
Said who? Well, said Treasury Secretary (and former Goldman Sachs chairman) Hank Paulson and Federal Reserve Chairman (and former chairman of Bush’s Council of Economic Advisers) Ben Bernanke; and a few others, including those directly involved in JPMorgan Chase’s Fed-guaranteed takeover of Bear Stearns at bargain-basement prices.
James Dimon, JPMorgan’s chief executive, was lionized in The New York Times and The Journal (and in the editorial pages of The Observer) as a sort of savior of capitalism itself. New York magazine hit newsstands on March 24 referencing the day of the sale of Bear Stearns as “the day Dimon helped save Wall Street.”
And he saved it in typical sleep-when-I’m-dead, God of Fiduciary Thunder style. From The Times on March 18: “On Sunday, Mr. Dimon, weary-eyed after three days and nights of frantic negotiations, stunned Wall Street with the news that JPMorgan would buy Bear Stearns, the troubled investment bank, for a fire-sale price of $2 a share. With that one jaw-dropping deal, Mr. Dimon, like the bank’s namesake before him, has become a principal player in the biggest financial drama of his age.”
Such coverage relied upon two things: the seeming inexplicability of it all; and the trumpeting from the likes of Messrs. Paulson, Bernanke and Dimon about its gravity.
THE ROOTS OF Bear Stearns’ collapse and of the current crisis are actually easy to grasp: The debt from subprime mortgages, which were fantastically easy to get in the housing boom’s heady days, was securitized, and those securities were traded like stocks.
Analysts touted the subprime-mortgage-backed securities even though they were inherently risky (after all, they were backed by literally subprime borrowers); and investment banks and other investors snatched them up or facilitated their snatching. When the debtors started defaulting, the crisis snowballed. Bear Stearns, to paraphrase Michael Corleone, got mixed up in the rackets and got what was coming to it.
David Leonhardt, in a front-page Times story on March 19, broke down the crisis’ roots quite well, though he wrapped his simple explanation in complication: “Raise your hand if you don’t quite understand this whole financial crisis,” his story led. (Mr. Leonhardt did not respond to e-mails for comment.) The story quickly became The Times’ most e-mailed; the unquestioned agenda-setting of the national newspaper of record ensured that the crisis’ subsequent coverage would be couched in an aura of incomprehensibility. It was all so hard to understand; leave it to the pros. They know what they’re doing.