When does a good story get in the way of informing readers? Editors of all major publications face this decision each day. A recurring topic at "A Dash" is how many bloggers play fast and loose with facts. The Internet gatekeepers push along the stories placing the burden on readers. No matter how intelligent the reader, no one is going to check facts, sources, and analytical techniques for various stories.
With print media in competition with blogs, the distinction is starting to fade. Cyberspace is full of unedited and often unchallenged text. It lasts forever.
Background: The New York Times Attack
Charles Duhigg studied history at Yale and got an MBA from Harvard on the way to becoming a reporter for The Los Angeles Times and then The New York Times. His feature article on Freddie Mac and Richard Syron attracted plenty of attention and comment today.
The main contention is that Syron got a memo in 2004 from his Chief Risk Officer, David A. Andrukonis, warning that the firm was financing questionable loans. The next year Mr. Andrukonis left "to become a teacher." Duhigg has plenty of anonymous sources who confirm that Syron had this information.
Since we accept the factual authority of The New York Times, we do not challenge that there was such a memo. We also do not doubt that sources were confirmed. This leaves room for plenty of other complaints.
Challenges from our Blogging Colleagues
The best job of analysis on this article came early in the day from Tanta at Calculated Risk, one of our featured sites. She was clearly on a mission. Among other points she noted the following:
- The Times short-changed Syron's resume;
- Too many anonymous sources;
- No recognition that this was one memo of many; and
- Faulty grasp of the role of the GSE's.
Nice work.
Matt Stichnoth, writing for Bankstocks.com, has some other good points. He draws our attention to the following:
- There was a big change from 2004 to 2005. These problems were not so obvious in 2004, and might not even have applied to loans at that time.
- Recognition of Congressional pressure for Fannie and Freddie to pursue social missions; and
- Recognition that the worst crisis in history might not have been totally foreseen.
Both of these articles deserve to be read in their entirety, as well as the original article.
Our Take
There is a common statistical problem involved here. In any large organization there are many people warning about many things. Sometimes the warnings are completely unnoticed. Sometimes they are evaluated but found to be unpersuasive.
If one starts with all of the situations where there is "a warning" the executive might have done very well. Who knows how many problems Syron correctly anticipated and solved or how many bogus concerns that he ignored.
If one begins with the conclusion, it is usually easy to spot something. Finding the warnings that should have alerted someone to the big mistakes is a classic revisiting of history. Some examples include the following:
- FDR did or should have known about the attack on Pearl Harbor.
- NASA should have known about the defective O-Rings before the Challenger disaster.
- President Bush should have known about 9/11 before the attacks.
We are surprised that these incidents were apparently not covered sufficiently in the Yale history program, nor the statistical problem in the Harvard MBA program.
There is also the policy perspective. The reason that GSE's had implicit government support is that they were following national policy, using prescribed rules (including degree of leverage), and overseen by appropriate authorities. It was a balancing act.
Whether these organizations, neither fish nor fowl, are appropriate mechanisms of policy is a question for another day. Second-guessing the executives confronted with difficult decisions is another matter altogether.
The Consequence of Journalistic Choices
We doubt that most readers, on their own, thought about the many points raised here or by Tanta and Matt. Since The New York Times has a much larger circulation than the bloggers, only a few will be alerted.
Our guess is that most will accept this as just another case of corporate greed. For every issue there is some simple heuristic, a lowest common denominator if you will, that resonates with those who have conclusions in mind when they read news. We are disappointed, therefore at the conclusion reached by another of our favorite sources. After noting that Syron has received $38 million in compensation since 2003 while the stock prices have declined, here is the conclusion offered:
Full Disclosure
While we have no position in Freddie Mac (FRE), we have a recent and very successful position in Fannie Mae (FNM) -- long stock and short the pumped August calls.
