Mortgage Crisis: Did the Media Get it Right?

The media is often criticized for the way it handles the news. Part of the current debate involves whether or not the media coverage actually contributed to our present mortgage crisis.

Back in May of 2005, as real estate prices peaked, the Wall Street Journal ran a prominent article that described the state of the housing market as a "binge" that was precariously overheated and inflated. Around the same time, the New York Times also reported on the mortgage lending environment, comparing it to the Silicon Valley fever that fueled the eventual "dot com" collapse on Wall Street. Articles appeared in other major publications, as well, including pieces in USA Today, a publication that's more apt to be read by average mainstream Americans.

Reporting for the average person

But whether the media adequately covered our mortgage crisis may revolve around whether or not they actually told the story. The more fundamental problem could be that, while economists and real estate pros may have understood the news, average listeners, readers, and viewers were unable to relate to it and see the everyday ramifications. The same is true of any complex news item. Talking over everyone's head is not good reporting. It obscures the reality of the facts for average people. Reporters, like teachers, need to present the material, but also ensure that it's presented in a way that can be easily assimilated.

Remembering the Savings and Loan scandal

The Savings and Loan (S&L) scandal of the 1980s, for example, looted pension plans and savings accounts for countless older Americans, and contributed to one of the worst regional real estate recessions in our history. Meanwhile, most Americans still have no idea what happened or why, because covering such a complex issue requires explaining it to the public in a way that average Americans can fully understand. Most people under the age of 40, who bought value-inflated homes with risky mortgages in the run-up to our current crisis, have no idea that the S&L crisis and subsequent housing collapse even happened. Mention the notorious "Keating Five" to them, and most will guess it's a rock band, not a pack of white collar scoundrels. It's not the volume or frequency of the news that matters, although that helps. But what's critical is that the core message hits home with its audience.

Hindsight is 20/20

Our media profits primarily from sensationalism, not objective and clearly articulated information. Now that millions of homeowners are faced with foreclosure, the media carefully spells out the underlying causes and explains things like exotic negative-amortized mortgages in a language that even eighth graders can understand.

When news sells, the media makes sure we get the picture. Before economic calamity hits, don't expect alarms to go off on the evening news. Explaining how to use smoke detectors is really boring, but a burning building is exciting and dramatic. That's especially true when it comes to nerdy financial market news and valuable economic insight.