S&Ls: Blaming The Media

Who's to blame for the savings and loan scandal? The owners and regulators of the industry have had their turn, in a new Hotline poll, the public faults both George Bush (by 59 percent) and Congress (64 percent). Now, inevitably, anger is building at the media for failing to sound clear warnings about the worst financial mess in the nation's history. That failure is "a scandal in itself," concludes Ellen Hume, executive director of Harvard's Shorenstein Barone Center on the Press, Politics and Public Policy, and there should be "embarrassment and soul-searching at the highest levels of journalism."

It may not have been journalism's finest hour, but the criticism is a bit simplistic. The story wasn't exactly missed; it just never sank in. There were reasons why many reporters didn't understand it and why warnings that were printed got ignored. In large part, the reasons are endemic: the story wasn't right for television since it had no vivid images. It was boring, since it turned on obscure regulations and difficult financial concepts rather than clashing personalities. Even the rogues who looted thrifts to buy fast cars and faster women were just a sideshow. Somehow, the story never reached critical mass.

That wasn't for lack of coverage. It has been nearly 10 years since David Stockman, director of Ronald Reagan's Office of Management and Budget, first warned that "any honest evaluation" of the industry "would show that its equity has been wiped out." He spurred a major debate and a 1982 law freeing S&Ls from most of their old rules. Almost immediately, financial writers began warning (in Forbes, Fortune and The New York Times, among others) that the industry's new freedom held the seeds of disaster. Since then, whole forests have perished that people might read about the S&L crisis. A year ago a computer search for that phrase turned up 2,500 newspaper and magazine stories. There have been hundreds more.

By the end of 1984 trouble was clearly brewing. NEWSWEEK'S Periscope section warned that "A lot of thrifts are shooting craps with federally insured money" and that the risks "could ultimately cost the government billions of dollars. " Other publications carried dozens of similar stories. But the industry itself, along with many of its regulators and the congressmen who got its political donations, argued that there was no real problem. Edwin Gray, head of the Federal Home Loan Bank Board, proved unexpectedly pawky in warning of the dangers, but Congress repeatedly refused his pleas for more funds to police the thrifts. Gray's successor, M. Danny Wall obligingly downplayed the growing crisis. As recently as August 1988, while S&Ls were toppling into insolvency all around, Wall was saying the cost would be no more than $31 billion. (Officials at the Federal Deposit Insurance Corp., which was to inherit the mess, privately called him "M. Danny Isuzu.") With the 1988 election at hand, the Reagan administration chose to ignore the controversy. And with both parties tainted, the politicians tacitly agreed to let the issue lie.

Why did the press go along? Not everyone did: starting in 1985 local reporters in California, Texas, Florida and Maryland were aggressively digging into scandals in their own communities. At the weekly Russian River News in Guerneville, Calif., for instance, editor Steve Pizzo and news editor Mary Fricker were intrigued by the sudden blooming of their local S&L. With the help of Paul Muolo of the National Thrift News, they chased the story until the thrift collapsed, and have since expanded their research into a book, "Inside Job: The Looting of America's Savings and Loans." But lacking political fireworks, the national media were slow to pick up the theme. Such major papers as The New York Times and The Washington Post played the story mostly on the business pages, and the TV networks took their cue. It didn't help that the Times and the Post drew firm lines between their business and political beats. One business reporter who tried to follow the trail of S&L PAC money in Congress remembers being called off the story--not to protect the pols, just as a matter of turf.

The political writers simply weren't interested. A Houston Post reporter, Pete Brewton. recalls trying to ask about the scandal when Lloyd Bentsen came to town. The national reporters traveling with Bentsen tolerated two questions before changing the subject. Editors too were wary: most of them aren't comfortable with finance, let alone apocalyptic forecasts that might not come true. Even the business writers who understood the story hesitated to push it too hard. "We've been trained not to cause runs on banks," says Hobart Rowen, a Washington Post columnist who printed some of the earliest S&L alarms but kept them consistently low key.

No point men Fair enough, and perhaps reforms can be made to correct those shortcomings. But don't expect the media to take the lead in the next big crisis. For all the Watergate legends, journalism can't solve problems that courts, legislatures and presidents refuse to deal with.

Many who clamor for more aggressive coverage are really asking something else: that the media should actively crusade for just causes that nobody in government wants to push and the voters haven't cared about. That's a seductive idea, but it pushes journalism past its proper bounds. Apart from the sheer difficulty (does anybody really think voters who were bored with Iran-contra could have been excited by the S&L scandal?), reporters are no wiser than anyone else about what should be done. Any such media crusade would trigger a backlash--not asking who's to blame for inaction, but assailing media conspiracies and the arrogance of the selfrighteous press. In the end, voters have their own responsibility. The press can lead the horse to water. The horse has to decide whether to drink.

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