NYT Reporter Says Media Predicted Financial Crisis

By Chris Dell
cdell@mail.smu.edu

Who’s to blame for the disastrous collapse of America’s financial system?

It certainly isn’t The New York Times, according to Diana Henriques, financial reporter for the newspaper. Henriques spoke Tuesday at the William J. O’Neil Lecture Series in Business Journalism, which took place at SMU’s Crum Auditorium.

“Throughout 2007 we ran a drum beat of warning stories about these accelerating risks,” Henriques said. “We were clanging the fire bell right through 2008. I make no apologies for how my paper covered this financial hurricane.”

Henriques cited a handful of articles which forecasted the impending mortgage crisis as many as five years ahead of the collapse, including a Sept. 17, 2006, editorial by The New York Times.

“The housing boom would never have lasted as long as it did if mortgage lenders had to worry about being paid back in full,” the article stated. “In a market so vast and dynamic, everyone knows that if mortgage defaults should rise, damage could reverberate throughout the financial system.”

Since 2006, mortgage defaults have gone through the roof and the economy has been rocky. The problem originated when mortgage lenders bought home loans and sold them to private investment banks, which packaged them together and sold them to investors.?

When homeowners made their regular payments and home prices rose, everyone in the chain profited. But grim reality struck when defaults began piling up and the loan packages — called mortgage-backed securities — were realized as practically worthless. Many banks have shut their doors, and the economy, as a whole, has been greatly impacted.

So, who was to blame for the crisis? Henriques said the media wasn’t totally blameless. News programs made the mistake of placing too much importance on the stock market, suggesting “it is the only market that matters.”

Henriques said if the bond market had been a fixture on the nightly news, perhaps the impending crisis would have been recognized sooner. She stated by the time the financial turmoil affected the stock market, it was too late for regulators to react.

She also said there was a conflict between what the press felt obligated to tell the public and what the public wanted to hear. People who were benefitting from the housing bubble certainly didn’t want to hear that the day of reckoning would come.

“There really are times when people don’t want to hear what the press says,” said Mark Vamos, the William J. O’Neil Chair of Business Journalism, who attended the speech. “In the bubble, there were a lot of people getting rich … They were using their [home equity] like ATMs.”

Henriques argued business leaders need to be trained on how to talk to the media. She said Treasury Secretary Henry Paulson and other figureheads in American economics weren’t able to clearly explain the crisis to the public. That has led to misunderstanding between the people making financial decisions and those that are affected by them.

“In general, business people aren’t prepared to interact with the media,” said Frank Roby, CEO of insurance brokerage Holmes Murphy Texas. Roby attended the lecture and said leaders of individual businesses, not just leaders of the financial system, should be trained to interact with the media.

Finally, Henriques argued, “The public is trained by its leaders not to listen to mainstream media. They say it’s just another special interest group, which is trying to push its own agenda … The public did not believe the messenger telling them about the massive financial crisis.”

Henriques was the latest speaker in the O’Neil Lecture Series, which invites a distinguished business journalist to the SMU campus each semester. William J. O’Neil studied business at SMU and went on to a successful career as the founder of Investor’s Business Daily. Vamos, who coordinates the lecture each semester, was hired as the program’s first chairperson in May 2007.