The financial crisis exposed Wall Street's weaknesses in visible and dramatic fashion. It has also exposed the weaknesses of the media, but in a way that is much more difficult for the public to discern. Members of the media sometimes report on their own industry's problems but more often they don't, largely because they are blind to them. (Btw, no cracks about professors being blind to the problems with higher education. I've written a book on the subject of how much we suck and hope one day to find a publisher with the testicular fortitude to publish it.) I've done quite a bit of media since Lehman Brothers and AIG bit it and what I've seen is enough to make me question the efficacy of the so-called fourth estate. Thank goodness for bloggers ... I mean real bloggers and not traditional media types with blogs.
Here is a case in point. On Tuesday past (25 November 2008), Wall Street Journal columnist Dennis K. Berman published a column called "One Cure for Financial Mistrust: Create New Banks." This is the type of piece that makes my blood boil as it is nothing more than an op-ed dressed up like news. The argument was that the government ought to put up $10 billion, solicit private subscriptions for another $50 billion or so, and start a new bank or banks because the old ones can't be "trusted" anymore. In support, Berman made some allusions to the first (1791-1811) and second (1816-1836) Bank of the United States but got some of the facts wrong. Worse, the piece was premised on the mistaken belief that the financial system is based on "trust." The biggest blunder was that Americans create scores of new banks, called de novo banks, every year and are in the process of creating more community banks as we eat the bird today. (Most community banks, by the way, have weathered the crisis beautifully.) Finally, while it would be an exaggeration to say that government money is retarded, it is safe to say that most people do not believe that government money is smart money, so government participation in an IPO would likely backfire.
Imagine my delight, therefore, when CNN's Situation Room contacted me to go on the show to discuss the piece. I demurred as I was at home grading but they begged and we compromised and I ran into Philly to tape the segment. I patiently explained that Andrew Jackson did not create the second Bank of the United States but rather killed it by not renewing its charter, that community banks stand ready to lend to people and businesses with good applications, that scores of new banks form in the U.S. every year, and that while the chartering process could be sped up and streamlined we do not want to let just anyone have a bank. I invoked Tony Soprano (The Sopranos boss) and Avon Barksdale (a drug kingpin on The Wire) on that one. And I also explained that government participation in an IPO would not necessarily be a buy signal to private investors. (In a developing country it would because of the expectation of graft but here that is less likely. In the early nation government participation in the Bank of the United States was a buy signal because the great Alexander Hamilton was behind the project.) Most importantly, I debunked the myth that the financial system runs on trust. Rather, it runs on collateral and contracts and, in some cases, a repeated prisoners' dilemma. After all that, after dragging me away from grading on their urgent behest to set the record straight, CNN didn't run the interview. Not one second of it according to the transcripts. In retrospect, they were looking for a yes man, for someone to say, oh gee Berman is so smart why didn't we think of that, duh!
After taping, I stayed in the city in order to do a live appearance later for Fox News. This, too, was disastrous. They plugged my book but they owed me that from an earlier appearance where they promised it but did not deliver. That one would have paid off big in terms of sales -- I was literally bombarded with requests for my presentation -- but it appears I got nary a sale from my very brief live appearance this week. The opportunity costs were enormous: forty minutes of makeup for like 2 minutes on the air and an abrupt cut off. And why? Because the host didn't like where I was going, which was to argue that at this point the Fed ought to be using Hamilton's nee Bagehot's rule and lending to everyone with sufficient collateral to put at a penalty rate. Once again, I suspect Fox thought I was going to say something different than I did. When I flummoxed them they cut away and didn't even say thanks. I should have known as this was the same outfit that claimed in a voice over that I called financiers "witch doctors." I never did that. Alchemists maybe, but never witch doctors. ;-)
The takeaway from all this is Americans need to read substanstive documents if they want to have a deep understanding of the current crisis. TV and the WSJ are not enough and in fact a case could be made that the pablum they shovel out in censored measured doses actually infantilizes the audience.
There are some exceptions, of course, like the article "The Housing Bubble and the American Revolution" in this Sunday's New York Times "Week in Review" section about the financial crisis of the 1760s. Of course even The Times got my name wrong, replacing my middle initial E with a W!