Ideoblog

Gretchen Morgenson on the meaning of "is"

The Columbia Journalism Review has an “Audit” interview with Gretchen Morgenson. Here’s an interesting excerpt:

TA (“The Audit”): How do you walk the line between being a columnist and a reporter. Do you get questions from sources who say “well, how can you do this if you’re saying that in your column?”
GM: I’ve never had that question from a reader…
TA: Just us journalism-criticism types, huh?
GM: No, well the [Times] public editor [Clark Hoyt] did a column about it a couple of weeks ago, and I thought it was interesting that he said he had never had a complaint from a reader on that subject. My feeling is it is not a problem because my columns are so heavily reported. It’s not like I’m just sitting here gazing at my navel and coming up with a thesis about something. I really have not gotten one comment from a reader about it. 

Well, I haven’t written to Gretchen, and I doubt whether she’s read my blog heavily reporting on her misguided screeds (see my Gretchen Morgenson archive). But did do a blog entry on Hoyt’s column:

Clark Hoyt, the NYT’s public editor, writes today about “the question of how much people who report the news should also tell you what they think about it.” The specific issue is whether reporters should cross the line into analysis and opinion. I have discussed this problem before with reference to the NYT’s most prominent reporter/opinion-monger Gretchen Morgenson. As I wrote a couple of years ago about a Morgenson report/opinion on executive pay:

is this commentary, like the executive pay rants Morgenson does every Sunday, or is it news? Or is the Times' point that we're not supposed to get that straight?

 I then sent the following email to Mr. Hoyt:

Mr Hoyt I thought you’d be interested in this, re today’s column: http://busmovie.typepad.com/ideoblog/2008/11/multitasking-at-the-times.html. I hope you prevail in your battle on this issue. Larry Ribstein

Here's Hoyt's response, again quoted in full:

Dear Larry Ribstein, Thank you for sharing your post about Sunday's public editor column. As you know, this is the second column I have written on the general subject of news reporters writing columns of opinion. It's a subject on which I have strong views, and I may well be addressing it again. I would also like to offer a response to the first comment on your post: Perhaps I did not make clear enough that the guideline mentioned by Bill Keller and Craig Whitney after last Monday's meeting -- that a reporter should not write a news article and a column on the same subject on the same day -- was a change from present practice. The November 9 news article and column by Gretchen Morgenson that were cited by your reader were not on the same subject. One examined how Merrill Lynch came to be undone by its plunge into risky mortgage instruments, while the other was a column calling for greater transparency in the government's bailout of the financial sector. It is quite possible, therefore, that even if the new guideline, had been in place on November 9, it would not have applied in this case. Sincerely, Clark Hoyt

The CJR interview refers to Mr. Hoyt’s story as having appeared a couple of weeks ago. So the interview took place well after my exchange with Hoyt.

Now, Gretchen says that “I’ve never had that question from a reader.” Assuming she is referring to questions directed specifically to her, that may or may not be true. Also, not clear what she means by "that question." But obviously the (false) implication is that nobody’s complaining about her dual role (despite two stories from her own Public Editor).

This is a very direct example of the careful twisting that goes on regularly in her column. Again, see my archive of posts. 

Gretchen Morgenson: journalism's stopped clock

Joe Weisenthal writes about the latest Morgenscreed in today’s NYT – financial institutions aren’t lending their TARP money the way they’re supposed to. Gretchen closes by favorably quoting a Dallas money-manager, Fred Rowe, as saying the banks “are acting like war profiteers. If I were in charge, I would haul them all down to Gitmo, put them in a room and say, ‘You have used the taxpayer’s money to pervert our objectives. It is morally wrong and we are not going to stand for it.’”

As Weisenthal points out, this seems at odds with Morgenscreed’s earlier complaint that bank lending policies were too lax. He gives her credit for being right then. Readers of this blog’s detailed analyses of Morgenscreed’s columns know that she’s not right very often, so I suppose I should give her credit. Let’s say the best case for Morgenscreed is that a stopped clock is right twice a day.

But like the banks I’m not in much of a credit-giving mood. To begin with, Morgenscreed wasn’t quite right back in 2007 when she was complaining about lax lending. Like many others, she saw cracks in the subprime market. But she cited little support for her cries about a coming disaster, as I pointed out back then.

Moreover, Morgenscreed’s idea of a disaster back then was that

If home prices do not appreciate or if they fall, defaults will rise, and pension funds and others that embraced the mortgage securities market will have to record losses. And they will likely retreat from the market, analysts said, affecting consumers and the overall economy.

In other words, she was worried then, as now, about a normal market adjustment to the defaults – a pullback of credit. Give her no kudos for seeing the disaster that has unfolded.

Morgenscreed also had a concern back in spring 07 with subprime lenders purportedly hiding defaults by rolling over loans. She pointed out that "it is worth remembering that the rollover of nonperforming loans was central to what made the savings and loan mess of the early 1990s so disastrous,"

Well, now, the big problem is that banks are not rolling over loans. She writes: 

There is an ugly precedent for banks refusing to renew loans during a time of crisis, said Frederick E. Rowe, a money manager at Greenbrier Partners in Dallas. That is what Texas institutions did during the savings and loan crisis in the late 1980s. The consequences were disastrous.

It’s great that Morgenscreed can pull the savings and loan crisis out of her little bag to support whatever she wants to preach at the moment. And convenient that she once again could find Frederick E. Rowe to give her a nice quote.

More Gretchenomics: Gretchen also has some interesting criticism of the Treasury: 

And the Treasury’s decision not to buy toxic mortgage assets with TARP money after it said it would do so has produced paper losses for the banks that hold these securities. The value of those securities rose when TARP was announced but fell significantly when the mortgage purchase program was abandoned."

If I'm understanding this, the "paper losses" were the gain the banks momentarily thought they would get by the government's overpaying for the assets.  

Further note: Well, now it looks like the government will buy the assets.  So I guess the shorts will have the "paper losses." 

Gretchen Morgenson: what the birds read

I mentioned over the weekend that I was getting my Black Sunday news from Dealbreaker, Calculated Risk and WSJ.com, and not from MSM like the NYT and WaPo. Now from Calculated Risk itself is evidence that I made the right decision: a report on the latest extreme idiocy from the NYT’s prominent financial journalist, Gretchen Morgenson. [Although CR calls this “the single dumbest thing Morgenson has ever written,” I gotta be skeptical. Peruse my year-long Gretchen Morgenson archive for other examples.]

It seems that Gretchen wants to force Fannie and Freddie to disclose details on every mortgage it guaranteed or purchased in the last 10 years. What would that entail?  CR runs the numbers: about $10.013 trillion in mortgage loans, or 62,581,250 loans based on an average of 160k per loan.

That’s so we taxpayers can see what we now own. Taxpayers could, of course, download these onto their little Excel 2003 spreadsheet – 950 spreadsheets at the maximum of 65,536 rows per spreadsheet; or a 625,812 page pdf at 100 loans/page (small font). No estimate on the cost of toner cartridges.

Conclusion:

You know you are in the presence of a not very well hidden agenda when someone proposes something this dumb. . . . All Morgenson is doing here is making a ridiculous demand that won't be met, so that she can then claim that Fannie and Freddie "refuse to disclose fully."

Morgenson's been engaging in this sort of stupidity for her entire dubious career. Instead of trying to actually help us understand finance, we get endless screeds on supposedly overpaid executives. Indeed, expect her to unload this weekend on John Thain’s parachute, with no understanding of what Thain managed to accomplish for his pay.

Maybe this weekend convinced at least some people that finance is too serious to be trusted to clowns like Morgenson. I doubt the NYT will ever dump her, but perhaps people will dump the NYT, saving it for bird cages and reviews of middle of the road entertainment.

The press, the trial lawyers, and corporations

Steven Malanga has a good post about the press’s highly differing treatment of corporate scandals and those involving the trial bar (HT PoL). He thinks it’s a combination of the trial bar’s skill at manipulating the press and the fact that the trial bar’s corporate victims aren’t very sympathetic.

Of course I’ve been covering the media’s anti-corporate bias for awhile, e.g., in my dissections of the NYT's Gretchen Morgenson. And I’ve got some theories here, including what blogs (such as mine, Malanga’s, Overlawyered and Point of Law) can do about this.

Sears as a private equity morality tale

Today’s NYT, in a news story tellingly written and co-reported by its agenda-heavy columnist Gretchen Morgenson, tells a tale of a grand old store being driven down by private equity. In Morgenson's version it’s all about Eddie Lampert’s misguided attempt to seek profit by cutting spending:

Since combining the two retailers, Mr. Lampert, 45, has raised prices even as he has cut capital spending and marketing budgets. The dearth of investment shows up in stores, many of which look shabby next to those of rivals like Target and J. C. Penney. Mr. Lampert’s major use of cash has been to buy back Sears Holdings’ shares.* * *

[T]he question remains. Would the performance of Sears have improved if Mr. Lampert had not cut the company’s capital investment? In 2004, before the merger, Sears and Kmart managers spent a combined $1.1 billion on investments like new-store openings and renovations. In 2005, Mr. Lampert took that number down to $546 million, and in 2006, capital investment at Sears Holdings fell to $513 million.. . . .

So it seems to be all about private equity trying for a quick buck by plundering a grand old company.  While this is a consistent theme in private equity journalistm, it's an unconvincing one.  Private equity managers live or die on the value they're able to deliver, including by reselling its restructured properties.  What's missing from the standard criticism of private equity is how these gurus think they can fetch high prices for plundered properties.

In this case, the typical line on private equity is even less apt than usual. The real story is about private equity being too ambitious in an attempt to prop up a fading star.

I called this shot a couple of years ago. At that time I asked:

Why leave the real estate portfolio in the combined corporate entity -- i.e., why not spin it off into a tax-advantaged REIT or a limited partnership, and chuck the double corporate tax? * * * Jesse Eisinger, writing about the deal in today’s W$J, persists in seeing Sears as a retailer. * * * Where are all these new Sears shoppers coming from? Nostalgia freaks? Dawn of the Dead zombies? * * * Why not just become a real estate portfolio right now?

Last November I updated this with a discussion of a WSJ story noting that "Sears shares have plunged nearly 50% from the April high. . .. Apart from the general malaise affecting the sector, Sears lacks a compelling strategy to attract more customers to its stores."

Morgenson’s story repeats this tale of woe:

Customers are avoiding Sears stores in droves. Indeed, at many Sears stores, clerks at times seem to outnumber shoppers. * * *

Sears Essentials flopped. It was not because Kmart shoppers rejected Sears products, but because the experiment seemed to consist only of tossing Kenmore stoves and Craftsman hammers into an old Kmart store, rather than creating a vibrant new shopping experience * * *

Meanwhile, it's getting clearer that the real estate play was the best move:

[DB analyst Bill] Dreher added that the Sears chairman could be moving to take the company private and use the cash generated by Sears Holdings’ retail operation to finance ESL Investments. Mr. Dreher estimates the liquidation value of Sears Holdings to be about $150 a share, after tax, including the value of its stores and leases and its well-known consumer brands. Craig Schmidt, an analyst at Merrill Lynch, and Gregory Melich, an analyst at Morgan Stanley, value Sears real estate at around $16 billion. The company’s market capitalization is $14 billion, as of Friday’s close. One investor who has bet against Sears said he believes the real estate may be worth just $10 billion.

Alas, as Morgenson's article points out, the decline in the commercial real estate market probably defeats that strategy now. So Morgenson concludes: "If Mr. Lampert finds it difficult to sell in an anemic real estate market, he will have to improve the retail operations to generate shareholder value."

In other words, the real story here is that Lampert’s best strategy from the beginning probably would have been to just shutter Sears. Think about what the storyline would have been then from all the private equity haters. Instead, Lampert tried to make the retail story work, always a dubious proposition, in my view.

But to complicate things further, it is worth adding the point that Ted Frank made in commenting on my November post: "that 50% decline [in Sears stock] is still a 600% increase since your original post."

Funny that Morgenson, who is always complaining about the failure of today’s corporate management to deliver value to shareholders, chooses to complain as well about a private equity guy who tried mightily to do just that, while in the process trying to save an important symbol of America’s corporate past, and a lot of jobs as well.

While I’ve written many posts on Morgenson’s particular failings as a business journalist, this particular failure to get the story straight on private equity is unfortunately one that’s shared widely in the business press.

Shaming and securities regulation: a new role for Gretchen?

Liebman and Milhaupt, Reputational Sanctions in China's Securities Market, according to the abstract

examines a fascinating but unstudied aspect of Chinese securities regulation, namely, public criticism of listed companies by the Shanghai and Shenzhen exchanges. Based on both event study methodology and extensive interviews of market actors, we find that the criticisms have significant effects on listed companies and their executives. We evaluate the role of public criticisms in China's evolving scheme of securities regulation, contributing to several strands of research on the role of the media in corporate governance, the use of shaming sanctions in corporate governance, and the importance of informal mechanisms in supporting China's economic growth.

Is this a new career path for Gretchen Morgenson? My extensive analysis indicates that her weekly haranging of American firms is often misguided. But China could be a perfect fit.

Checking in on Gretchen

I haven’t been paying much attention to Gretchen Morgenson lately, but like the tree falling in the proverbial forest her journalistic efforts have continued unabated. Today she’s again attacking Sunrise Senior Living.

I discussed her previous attack on the same company for alleged insider trading by members of the board. She had scant factual basis for the charge, but she did have a grudge against the main offender – Thomas Donahue, CEO of the US Chamber of Commerce. As I noted:

Donahue and his organization are frequent critics of corporate reform, and particularly of SOX. So it would help Morgenson's cause to discredit him. And so she tries to do in this column, by essentially accusing him of insider trading. She says: "While no one has been charged with trading on nonpublic information, the timing is interesting."

She uses today’s column as an excuse to repeat the charges, though she adds no new basis for them, and notes no legal action based on them.

The rest of the column notes that the same company is hung up on a looming face-off between federal securities laws and state laws. Federal rules require audited financials for a proxy statement, which must be circulated in order to solicit proxies for an annual meeting. But Sunrise’s financials are hung up over an accounting restatement. Meanwhile, a Delaware state law deadline for holding an annual meeting is looming.

I wrote about a previous such "chicken game" in Delaware, which a Delaware judge resolved by hitting the accelerator: requiring the meeting per state law despite the non-compliance with federal law. I noted that “as the SEC and Congress seek increasingly to federalize corporate law, these confrontations are likely to become more common.”

The real problem here is the web of regulation and federal-state conflicts the company is caught up in, though of course Gretchen would rather have us see another morality tale about her beloved shareholders being trampled on.

Amid all of this, Morgenson notes that Sunrise’s shares are up 26% this year. Presumably Morgenson is going to keep after the company until that disturbing trend is reversed.

An update on the subprime meltdown

Tom Kirkendall reports on news that a lender sold its subprime portfolio for a 3.5% loss and wonders, is this a "meltdown"? That's what Gretchen thought a month ago, as I discussed. Of course the future is finicky and easy to get wrong. But as I wrote last month, Gretchen had little basis for her attempt to induce panic in the subprime, and even broader, market. Fortunately the markets beat her "subprime journalism." If Morgenson were a class act, she would update. If.

Subprime journalism

Gretchen Morgenscreed and her enabler, the NYT, are determined to test the lows in financial journalism.

Last week Morgenscreed did a column on the mortgage-backed securities market. It was about how the subprime lenders were effectively hiding the problems by excessively tolerating defaults. As I noted at the time, Calculated Risk eviscerated her column. Here's some tastes:

• CR: "I’m fascinated by the way an Inspector General report that found perverse incentives by well-meant HUD regulations and field office interpretations thereof is now being used to “prove” that servicers do not exercise good business judgment, or that servicers use loss-mit to “hide” delinquencies."
• In response to Morgenscreed's statement that "it is worth remembering that the rollover of nonperforming loans was central to what made the savings and loan mess of the early 1990s so disastrous," CR says, "It might be worth talking to the 99% of students of the S&L crisis who thought that there were a whole lot of other candidates for the “central” problem. Holy Selective Memory, Batman. (Hint: can you spell “commercial loans”?)" [I should note that invoking past crises is a trademarked Morgenscreed trait which I've called cooking the journalistic books.)"
• Responding to Morgenscreed's statement, "how many of these workouts actually succeed is a question for which investors and even regulators have no answer," CR says: "So since we have no answer, let’s assume that it’s a bad thing. Absence of evidence means never having to say you’re full of shit.

In the end, CR makes the point that the investors knew or should have known the risks. How obvious is this? It's a point that even Ben Stein makes in today's NYT column:

What is a junk bond if not a loan to a subprime borrower? Why do lenders think that those bonds are called “below investment grade?” It’s not just a formality or a quaint term. Over long periods, junk bonds really do default at rates far greater than investment-grade bonds. That’s why smart lenders used to demand very substantial premiums for making those loans.

Morgenscreed follows up on last week's triumph with a front page so-called "News Analysis," not to be confused with her regular column playing on the business page (more about that problem below). And she's up to the same tricks as last week. Invoking Enron and WorldCom, she shrieks about the coming disaster. Once again, she's speculating with little support. Again she seems to be worried that sophisticated investors were fooled into thinking they were investing in treasuries.

The gist today is that the mortgage market is on the verge of collapse, with serious consequences to the real estate market. Of course it would be bad if the market did collapse, but Morgenscreed has nothing to add to this blindingly obvious observation than more innuendo and speculation.

This, of course, is Morgenscreed's usual game of grabbing attention at any cost (see my Morgenson archive). Unfortunately, this time she's tainting a market that, by reducing the transaction costs of borrowing, has enabled many people to realize the dream of home ownership. Of course that shouldn't give the market a free pass to engage in fraud – but again, this is a pretty sophisticated market. I doubt Morgenson will have much effect on investors.  More likely, if she's lucky, she'll be able to generate a Senate hearing or two, and maybe some unnecessary and costly regulation.

Finally, there's no excuse for letting an opinion piece, nearly identical in tone and approach to her column just a week ago, pass as a front page news story.  How ironic that a rant about the next Enron should be misleadingly packaged and presented. What exactly is this "news analysis" thing, when Morgenscreed's opinion is elsewhere in the same paper.  Is she getting two "opinions" or what?  This is not the first time for this questionable practice. Is it too much to expect the NYT to follow the usual standards of the business and demand clear separation between opinion and news?

Morgenson on mortgages

I haven't been criticizing Gretchen Morgenson every week (you'll have to be satisfied with my archive of past critiques), but that doesn't mean she's getting off scot free. Here's a wonderful annihilation of her latest sorry excuse for business journalism ($).