The media DID predict the mortgage bubble

It’s seductively easy to blame the media for missing the current financial crisis and failing to inform the public. Jack Lessenberry, a distinguished professor of journalism and typically insightful writer, does just that in a recent column. I’m surprised, because it’s a lazy point and he couldn’t be more wrong.

To be fair, he’s using the media blame trope as a throwaway point, but it irks me.

That may be due in part to a failure of my profession, journalism. Those who are running our major news institutions evidently want you to believe that Matt Damon and Jennifer Aniston and J Lo are the most important people in the world.

I think it’s easy to blame the media, because a large portion of publications are devoted to celebrity garbage, but that’s hardly true of the financial press, which is (after all) where one would go to read about personal finance and the economy. If he’s arguing that People magazine or Star should have predicted the credit bubble, I don’t know what to say to that.

But in the financial press, and in the serious mainstream media, reporters have produced entire books written earlier this year (and before that) talking about why and how this would happen, and there are articles going back to 2002 on the concept of a housing bubble. (Here’s what we wrote in September 2005 and we’re just silly bloggers.

In only a few minutes, I found an article from July 4, 2004 referring to a credit bubble. Here’s a quote in that piece:

“The risks seem so obvious that it astounds me that more professionals in the real estate and banking sectors are not expressing worry in public,” says Eric Janszen, managing director Osborn Capital LLC. “I know many who do privately, and I have friends that work for investment banks who tell me in confidence that they are very concerned about what they call the ‘credit bubble.’”

Now, that’s just a trade publication, but the mainstream press began to pick up on the potential for a housing bubble roughly (it would appear) in the summer of 2005, and the bubble blogs began to proliferate a bit earlier.

Here’s a Bubble Meter article of May 2005:

One of the big questions is who is to blame for the housing bubble.

Here is my list:

1. Greenspan & The Feds for the cheap money supply (low interest rates)
2. Parts of the Real Estate Industry
3. Irresponsible Lenders for lending to people who really can’t afford it.
4. Fannie Mae & Freddie Mac for bundling up risky loans from
5. Asian Central Banks & GSE for buying all these bundled loans
6. Speculators & Flippers ( for being greedy and fueling this mania)
7. Some HomeBuyers for buying beyond thier means and being ill informed.
8. Parts of the Media for not informing the public about this issue sooner (finally they are communicating this)
9. Others ( yet to be determined, please discuss)

I do so love how he ALSO blames the media (back in 2005!). I guess the author hadn’t read that prescient article in MSNBC in 2002. 2002! A quote from that article:

Morgan Stanley chief economist Stephen Roach, well known for his bearish views, sketched a doomsday scenario in which consumer spending tanks and housing prices collapse, leading to a devastating deflationary price spiral.

“There is good reason to believe that both the property and consumer bubbles will burst in the not-so-distant future,” Roach said, writing in The New York Times. “If they do, there is a realistic possibility that the United States, like Japan in the 1990’s, will suffer a series of recessionary relapses over the next several years.”

Here are covers from the Economist (which called the bubble correctly) and Time magazine (which did not) addressing the housing bubble issue in the summer of 2005.

There’s more. A lot more. Was the media supposed to predict the future in 2005? Let me tell you something. I know someone who was predicting a bubble in 2002: David Tice of the Prudent Bear mutual fund. He has been running astounding charts since way back then, and he’s a frequent guest of the media. It is not possible to make people hear something they don’t want to.

The truth is that everyone with a brain knew. We just didn’t know exactly when the blowup would occur and, in the early days, we did not understand (or I didn’t) until early 2007 just how much leverage from absurd financial instruments had been chasing these absurd mortgages. Those who kept buying were ignorant or stupid or willfully blind. Lenders and banks should have shown restraint, but they aren’t good at that. Regulators were supposed to do their jobs and didn’t.

I suppose one could argue that the media was supposed to demonstrate how the regulators weren’t doing their jobs. Sorry, they did. Here’s coverage of Congress considering new oversight of Fannie and Freddie. Here’s an article that finds regulators tackling the problem. They clearly didn’t tackle it enough, but one can not say the same of financial journalism.