Dean Starkman and The Watchdog that Didn’t Bark

New York Times financial reporter Diana Henriques says that the public was alerted years in advance to the 2007 financial crisis.

“The government, the financial industry, the American consumer — if they had only paid attention would have gotten ample warning about the crisis from us years in advance when there was still time to evacuate and seek shelter from this storm,” Henriques says.


Henriques is wrong.

So says Dean Starkman.

Starkman is author of The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism, (Columbia University Press, 2014).

He’s also author of an article in the New Republic last week titled — “Wrecking an Economy Means Never Having to Say You’re Sorry — Why Wall Street Should be Thrilled with the Government’s Billion-Dollar Settlements.”

“It was reading statements like (Henriques’) over and over by people, particularly those in positions of authority, who just didn’t seem to understand that there was a piece missing from this puzzle,” Starkman told Corporate Crime Reporter in an interview last week. “And those kinds of statements led to the initial article upon which the book was based. It was the idea that people in the business could be so firm in their belief that the work that they did was not just adequate, but heroic. And then on the other side, there was a widespread perception among everyone else that this came upon the public as a complete surprise.”

“When reporters say — if people only read what we wrote, they would have known, if they weren’t so ignorant about our great work, they wouldn’t make these accusations — to me, that smacked of intellectual bullying. That put on readers the obligation of reading this vast corpus of work before they could come to a judgment. So, I took it upon myself to read it in the most systematic way I could so I could make that judgment.”

“That lead to my first article on this — it was titled ‘Power Problem: The business press did everything but take on the institutions that brought down the financial system.’ It was published in the Columbia Journalism Review in May 2009.”

In his book, Starkman concludes that “the mainstream business press failed to meet even minimum standards of investigative reporting on financial institutions during the bubble period, let alone its own highest standards from the not too distant past.”

And why did it miss the story?

“This disappearance of investigative reporting had three causes — the rise of CNBCization and dominance of access reporting, deregulation, and financial distress among media outlets,” Starkman says.

Reason one — access reporting knocked out accountability reporting — also known as muckraking or investigative reporting.

Starkman says access reporting is — fast, short, relies on elite sources, has orthodox views, is top down, has quantity, is investor driven, addresses a niche market, is management friendly, reports through an inverted pyramid and is functionalist.

Accountability reporting on the other hand is slow, long, quotes dissident voices, has heterodox views, is bottom up, promotes quality over quantity, addresses the public as its audience, has a mass market, is management unfriendly, relies on storytelling and is moralistic.

“There was very effective journalism through the 1990s and into the early 2000s,” Starkman said. “And that was the most perplexing and frustrating aspect of the journalism piece of the financial crisis. During that period — the late 1990s and early 2000s — journalism did hold some financial institutions to account and did hold the financial system in check. The articles written between 2000 and 2003 — they were few and far between — but at least they were being written.”

“But then it disappeared, during the critical years, when things were completely out of control, and at their absolute worst.”

Not that everyone missed the coming financial meltdown.

There were reporters, like Michael Hudson, at small regional papers, who were doing bottom up reporting and were on to the criminals.

“It’s not as if it became more difficult to report or less obvious to the people who were on the ground,” Starkman says. “The Attorneys General, state bank regulators, and obviously, a certain type of journalist, activists — the Center for Responsible Lending — they were screaming bloody murder. To the people who were involved in the financial system, particularly at the mortgage industry level, things were completely out of control. And yet that basic fact, the essential corruption of the mortgage market, was not reflected in the mainstream media.”

In part, Starkman’s book is a history of accountability reporting. He lays out the history of some of the great investigative reporters of the last 100 years — Ida Tarbell, Lincoln Steffens, Ray Baker, Barney Kilgore, Robert Greene, Don Bolles, Susan Faludi, Seymour Hersh, Jane Mayer, Tony Horwitz, Alex Kotlowitz, James Stewart, Diana Henriques, Lowell Bergman, Donald Barlett, James Steele, Gretchen Morgenson, Mark Pittman, Michael Hudson — and countless others.

As for where the new accountability reporters will come from, Starkman is not optimistic.

“I wish I could be an optimist about the new era, but I’m not sure where the money is going to come from,” Starkman says. “That’s the main thing. One of the reasons investigative reporting was able to flourish in the post war period is because newspapers had surplus cash. They had so much money they could reinvest it in the newsroom without materially affecting their bottom line. But the newspaper business is half the size it used to be. It was approaching $60 billion a year for a while, and now it’s way under $30 billion, probably closer to $20 billion. We have lost all of the slack in the system that allowed newspapers to hire the reporters to dig deep and do the kind of work that was exemplified by Ida Tarbell. It took three or four years to do her work start to finish. And it was work that was transformative. It changed the world.”

Starkman is also critical of President Obama and Attorney General Eric Holder for not prosecuting the crooks responsible for the financial meltdown.

“Nothing shifts the narrative like a criminal indictment,” Starkman says. “One day, the facts are a jump ball. Who knows who is to blame? It’s complicated. Maybe it’s the borrower’s fault. Maybe it’s the bond buyer’s fault. It’s abstract.There are no actual individuals involved or named in the narrative until criminal charges are brought. Then the narrative shifts. It’s not only about parading people through the streets while people throw rotten cabbages at them. It’s about helping the public understand what just happened. Yes, it’s holding people accountable. But it’s also about telling the story of precisely what happened. The idea that the financial crisis is so wildly complicated that no one could ever understand it or figure out who is responsible is manifestly untrue.”

His article in the New Republic last week — “Wrecking an Economy Means Never Having to Say You’re Sorry — Why Wall Street Should be Thrilled with the Government’s Billion-Dollar Settlements” makes the point that the government is even settling cases where there are no civil lawsuits filed.

“It is probably one of the most disgraceful chapters in white collar enforcement in our lifetime,” Starkman says. “There seems to be a lack of arms length relationship between regulator and institution. These are essentially private deals struck between two parties — one of which happens to be the United States government. You can’t just settle something this enormous out of court. There is something wrong with this picture.”

“It’s not just that you have an obligation to share the fruits of your investigation with the public. But you have an opportunity to do that? Why wouldn’t you take it? Why wouldn’t you take this moment to help explain who did what when in these what you yourself are calling systemic frauds across the mortgage system?”

And why don’t they do it?

“There has been reporting on this. But no one has gotten the smoking gun. There are some important clues. In the early days, a wing in the White House led by Tim Geithner was saying that excessive zeal in prosecutions or regulation would pose a great hazard to the financial system and to the economy. Eric Holder slipped during testimony — I think it was before the Senate Banking Committee — where he said — yes, we have to take into consideration the threat to the financial system. He had to walk back those remarks. But he said it during this moment of candor.”

“Obama himself also early on came out and said that — just because something is wrong doesn’t make it illegal — trying to lay the groundwork for the inaction that was to come.”

“Further reporting has revealed that this is not an area of particular interest for Holder, period. Full stop. That’s bizarre for an Attorney General.”

“It’s a little bit like the decision not to hold public inquiries into the torture allegations. These were policy decisions — made for whatever reason. But these were actual decisions made consciously. There were decisions not to create a viable, fully staffed prosecutorial task force as had been in place during a much smaller scale scandal, like Enron or during the savings and loan scandal. And you can only conclude that they didn’t want to hold powerful executives and former executives accountable. Now we are into mind reading. We just don’t know. You can guess these are elites from the same schools and same circles, people who shuttle in between the regulator and the institutions regulated and back again.”

“It’s clear that white collar enforcement in the United States is at a low ebb. It’s absolutely incredibly important. We have seen an erosion in the faith of the public and in the justice system itself. And that’s a big problem.”

[For the complete q/a transcript of the Interview with Dean Starkman, see 28 Corporate Crime Reporter 34(12), September 8, 2014, print edition only.]

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