Friday, November 7, 2008

WHY THE MEDIA BUNGLED THE FINANCIAL STORY

Katherine Thompson, Editor's Weblog - 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. . .

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 organizations of the predatory lending practices 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 fulfill its role? . . .

Schecter 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. . . 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

Another criticism leveled 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 Market Watch 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 organizations to thoroughly investigate these companies, the 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. . .

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