Will Bloggers Rescue the Lehman Story?
No Associated Press content was harmed in the writing of this post
Last year I wrote about Mark Mitchell's story of Deep Capture, a complex tale of financial corruption centered around the use of illegal naked short selling and phantom stock. It was (and is) a difficult story to write about because of its absence in the business press. One of Mitchell's key points is that a small, insular and strictly conformist group of outlets determine what is acceptable news to report on, and the vast majority of other outlets take their cues from that. Meaning, a story like Mitchell's could be squashed or marginalized relatively easily; it would not require a vast conspiracy. How then can a reader decide if it is delusional, paranoid ranting or an explosive investigation that elites wish to suppress?
Events since publication have tended to support Mitchell's reporting. A temporary ban on short selling was instituted for some companies in order to "protect the integrity and quality of the securities market and strengthen investor confidence." Last summer the ban was made permanent. (This could be yet more evidence of Wall Street's privileged status: Naked short selling that brings down Novastar Financial is the all-knowing Market wisely engaging in creative destruction; naked short selling that threatens Morgan Stanley is evidence of "hidden manipulation".) Add Patrick Byrne's successful lawsuit against a hedge fund he accused of naked shorting and Deep Capture looks more and more reliable.
I have been somewhat reminded of it in the wake of the Manhattan U.S. Bankruptcy Court's report on Lehman Brothers. It is an absolutely mammoth exposé; surely it will monopolize business news cycles, right? Well, Ryan Chittum at the Columbia Journalism Review evaluated the coverage, then concluded: "If you've wanted to know about the Valukas report and its implications, you've been better served by reading Zero Hedge and Naked Capitalism than you have The Wall Street Journal or New York Times." (He also singles out Baseline Scenario for distinguished coverage.)
Like Deep Capture, this story makes smaller, iconoclastic voices look better. Newspapers, magazines and other traditional outlets have had a distressing tendency lately to blow it on the most important issues. As people discover they can be better informed by going to alternative outlets they will gravitate to them. As it begins to sink in that mainstream publications for whatever reason (excessive deference to advertisers, devotion to conventional wisdom, institutional inertia) will periodically fail on a spectacular scale they will find these smaller, independent voices a necessary complement.
Also like Deep Capture, the Lehman story has its critics at the margins of the financial press. Auditioning for the role of Gary Weiss in this saga is John Carney of Business Insider, who wrote a jaw-droppingly stupid piece (via) on why we should do nothing about it. It seems to be written in such transparently bad faith as to defy criticism, with casually unsupported assertions like "criminal prosecutions are rarely the best way to uncover facts" (he evidently does not think Thomas Jefferson's thoughts on trials and the law apply to business as well, but then Jefferson seems to have fallen into disfavor on the right).
His basic argument seems to be that businesses that break the law will eventually go bust, and being an executive in a bankrupt firm is sufficient punishment even if they have committed felonies. In the midst of all that shoddy analysis he does perform one service, though. He identifies the scapegoat, should the need for one arise (link added):
If we had to bet, we'd say that the best bet for prosecutors looking to flip a senior executive would be Erin Callan. She held her title of chief financial officer briefly and was forced out of the office by Fuld. She likely harbors some ill will toward the executives who failed to stand behind her. What's more, she has announced that she is retired from the securities industry-which means she doesn't need to worry about finding a new job if she were to rat out her fellow Lehman executives.
Can't you just feel the seething contempt? The sense of her being set up was strengthened when digby pointed to this piece by Alexandra Frean detailing just how much of an outsider Callan was. If things start to get ugly look for her to be singled out and demonized.
The Bankruptcy Court report is over 2,100 pages. People have just started going through it, getting reactions, digesting it and generally figuring it out. There is no reason for it to sink like a stone or to hurry past it. Sure, it may not have the sizzle of a Congressional sex scandal - a Democratic one, anyway - but this would seem to be an ideal situation for the slower, more deliberative possibilities of print. The signs so far are not encouraging, though.