*Why the media blew it

As in, why business reporters didn't recognize that a financial meltdown was fast approaching? Actually, there were lots of reasons, according to Martha Hamilton, a former Wash Post editor and columnist, ranging from the reluctance of editors to run speculative sky-is-falling stories to the fact that many a business journalist got carried away with his or her own real estate opportunities and consciously or subconsciously didn't want the good times to end. (I realize this sounds dumb and irresponsible, but as a group business journalists aren't known for sticking their necks out.) As Hamilton points out in the January/February issue of CJR,, there were some warning signals sounded by the NYT's Floyd Norris, the Wash Post's Steven Pearlstein and Fortune's Allan Sloan, among others. But no one was really paying attention - too much groupthink in too many newsrooms - and besides, "it would have taken a miracle for business journalists to have foreseen the current crisis in its magnitude and depth," writes Hamilton. The end of Bear Stearns, Lehman, Countrywide and Merrill - how do you even fathom such a scenario? Not only were reporters unfamiliar with the mind-numbing financial instruments being used, but there was little way to identify smoking guns. And, of course, none of the players were willing to provide any tutorials. From Hamilton:

Still, I wish I had gone further and considered other options. I wish I had walked downstairs to where the Real Estate section was segregated from the rest of the business staff to find out more about the connection between the subprime loans they were writing about and these new types of securities. I wish I had learned back then, instead of in the course of writing this story, that the market for asset-backed securities, loans secured by mortgages or other debt, had grown by 45 percent the previous year, mostly because of loans backed by housing, and had surpassed the market for corporate debt for the first time in history. And I wish I had suggested a meeting of the real-estate staff, the reporters who covered the economy, and those who covered regulatory agencies, markets, and banks to explore the connections.

[CUT]

[Norris] wishes he had done more. “I did not take the time to understand the intricacies of collateralized debt obligations,” he says. “What I should have known, and didn’t, was that this amounted to financial alchemy to turn risky assets into risk-free assets, or at least to mostly fund risky assets with risk-free assets.” Norris says that he assumed that the rating agencies were correctly assessing risk, and also that he didn’t understand the extent of fraud going on in mortgage lending, with appraisers being paid to come in with higher assessments. “I would have studied [collateralized debt obligations] and collateralized mortgage obligations] and all those things much earlier than I did, and I would have understood them.” One other point he makes: “I think we were all a little too willing to assume Alan Greenspan knew what he was talking about. It seems pretty clear to me now that Greenspan worshipped free markets but didn’t understand them.”

*Tim Ferguson, editor of Forbes Asia, offers some additional factors: 1) fatigue with the permabears, goldbugs, etc. who have predicted calamity for decades; 2) undue/ignorant trust in the financial technologies that were making risk "manageable"; 3) lack of personal exposure—I don’t think most journalists, being these days sober souls, were in the subprime mkt or had much connection to people who were.