Sunday, March 30, 2008

Gretchen Morgenson's superficial rants

The New York Times business columnist Gretchen Morgenson inexplicably won a Pulitizer Prize five or six years ago which no doubt means that readers are stuck with her forever. Her skills as a journalist could be compared to those of the New York Times sports columnists who revelled in self righteousness as they covered the Duke lacrosse team case. Unfortunately there is no court of law that can exonerate the many constructive elements of the financial system as well as the whole concept of a free enterprise economy.

Today both lead articles in the Sunday Business section featured her byline.
---One, entitled "The Foreclosure Machine", moves to the point of the article in the second paragraph saying "Behind the scenes in these dramas, a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits." A little later in the article she nails these companies that are "raking" it in, citing one company that had a 13% increase in revenues in 2007 vs. a 1% increase in 2006. The point of the article is to excruciate these firms for exploiting the mortgage market problems for their own benefit. For Crying Out Loud. If companies in this line of work don't have higher revenues in this market with so many foreclosures when would they? That's their job. Is it unethical to build a business that at times has cyclical revenue increases and therefore makes more money. It should be noted that Morgenson spends much of the article pointing out that some lawyers and firms in this business charge fees that are too high or at times do not follow the law. That is a totally separate issue from whether this type of firm has more business in this market. Those firms or attorneys that do bad things or break the law should be examined and held accountable. However, indicting an entire industry niche with the zeal of absolute certainty is either naive or maliciously self serving or both. Morgenson rarely makes an attempt to be balanced. She's too busy playing "gotcha" in a world that she only superficially understands.
---The second lead article is "If You Can't Sell, Good Luck" which focuses on the lack of liquidity in the auction-rate securities market. After an introductory paragraph, the second begins with "Everybody knows, though, that only big guys get bailouts". Man, is she insightful, once again encapsulating all truth before making any point whatsoever. There's really not much to say to someone with this kind of rigid agenda, but here are few thoughts.
First, the great majority of buyers in the auction-rate securities market are institutional investors looking for extra yield and high net worth investors being offered the same opportunity. They know, or should know, that added reward signifies some added risk. There is undoubtedly a portion of this market in the hands of individual investors who were accepting the guidance of their broker. The market had worked for more than twenty years and in this crisis it broke down. That is unfortunate but this will be worked out over time with minimal if any principal losses and some brokers will be under appropriate scrutiny.
Second, is Morgenson looking at the JPM/Bear Stearns transaction when she refers to bailouts. It certainly would be a normal assumption that she is, and yes bondholders of Bear will be fine and as a result the financial system of counterparties did not fall into a period of chaos that would have hurt everyone, big and small, if Bear had collapsed. However the shareholders of Bear, plenty of big guys there, were wasted, with their stock going from $80 to $2 and now $10 in two weeks. Bear Stearns executives and employees owned almost one third of the firm and their net worth has been shattered. Major institutions held significant positions. Everyone was not bailed out.

An April 13th, 2007 post here summarized the horrendous unbalanced reporting by the NYTimes sports pages in the Duke case, in particular that of Selena Roberts. Roberts hung on for awhile, but is nowhere to be found now in the paper of record. One can only wish.

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