Written by Julia A. Seymour
Journalists critical of pay at bailed out banks muster only 175 words to report compensation of Fannie execs.
The network news media cheered when Obama called for restrictions on CEO pay or bonuses that, according to reporters, exemplify the Wall Street "greed" that toppled the American economy.
But when $42 million in cash compensation packages were announced on Christmas Eve for Fannie Mae and Freddie Mac executives, the networks couldn't muster any anger toward the highly connected groups. Although Fannie and Freddie were two government-sponsored enterprises whose excessive risk taking contributed significantly to the housing crisis, the networks barely reported the story at all.
Salaries and bonuses at American International Group (AIG), Goldman Sachs, Citigroup and others have been criticized in dozens of network reports in 2009.
As Katie Couric noted on the CBS "Evening News" Oct. 21, "Taxpayers all over the country were outraged when they heard that companies they helped bail out turned around and gave their executives huge bonuses."
A few days earlier on Oct. 15, CBS's "Early Show" interviewed economist Peter Morici who said "it's absolutely unfair for Wall Street to be paying itself record bonuses. The taxpayers made these bonuses possible by loaning Wall Street money at near zero rates. This is all quite unseemly and inappropriate."
AIG in particular was the object of media scrutiny beginning in March 2009 when it announced plans to pay roughly $165 million in bonuses. The media's sense of outrage flared up against the bailed out company again in late 2009.
In just the past three months, AIG was mentioned in 21 critical reports about Wall Street bonuses. But The Wall Street Journal highlighted a major difference between AIG and Fannie/Freddie on Jan. 3 saying "at least AIG is trying to make money. Fan and Fred are now designed to lose money."
"Outrage." That's what the networks found when private companies that accepted bailouts compensated their executives. It's also what taxpayers would feel if the networks were actually reporting the latest developments with Fannie Mae and Freddie Mac, which have been protected for years by high profile Democrats Reps. Chris Dodd, Conn., and Barney Frank, Mass.
But since the Christmas Eve announcement of millions in salaries and bonuses and the Obama administration's pledge of "unlimited financial assistance" to the mortgage giants, ABC and CBS offered a total of three brief mentions totaling 175 words about Fannie Mae and Freddie Mac. NBC hasn't mentioned them at all.
Not a single one of those reports used the word "bonus" or mentioned the decision to extend the credit line of both government-sponsored enterprises (GSEs), which already required more than $100 billion from taxpayers.
Unlike the broadcast networks, CNBC's Rick Santelli was indignant about the stealth extension of funds to Fannie and Freddie. On Jan. 4, Santelli told viewers his New Year's resolution to "mention Freddie and Fannie and every day maybe ask what's wrong with S&P, Moody's and Fitch. Because for us to re-nationalize off balance sheets these trillions of dollars of lecherous accounting gimmicks without having it affect the U.S. credit rating in my opinion is reprehensible."
Talking about a Wall Street Journal editorial, Santelli remarked that Fannie and Freddie aren't SIV's (Special Investment Vehicles), but rather "Special Implosion Vehicles."
But Santelli's frustration was an exception to near silence by the networks.
Times, Journal Criticize 'Stealth' Announcement, Bailout
While the networks all but ignored the extension of credit to Fannie and Freddie and failed to complain about their compensation packages, the Wall Street Journal, The New York Times and Washington Post all reported the story.
The Times' "Deal Professor" Steven M. Davidoff wrote on Jan. 4 that "the government did something naughty on Christmas Eve." He pointed out the double standard: "When done by private companies, this type of stealth announcement provokes cries of bad disclosure practices."
The Wall Street Journal harshly called the government move a "taxpayer massacre" on Jan. 3.
"The loss cap is being lifted because the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. Most of their losses are still coming from subprime and Alt-A mortgage bets made during the boom, but Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses, up from $2.2 billion the previous quarter," the Journal editorialized.
CBS could have turned to University of Maryland Professor Peter Morici for comment on the Fannie/Freddie moves, as it had for the private company bonuses. Had CBS asked him, Morici would have been consistent.
Just as he condemned the Wall Street pay, he told the Business & Media Institute the Fannie/Freddie Christmas Eve news was "outrageous," especially "when everyone had left town and the press had gone to sleep."
Morici said, "It was absolutely cynical and insensitive on the part of Treasury Secretary Timothy Geithner." According to Morici, Geithner and pay czar Ken Feinberg aren't doing their jobs and the administration "blinked" when it came to regulating Wall Street.
When asked why the network media have ignored the Fannie/Freddie story Morici replied, "I think that, first of all, it's not as big as what's going on on Wall Street and the timing was convenient." He continued, "It's very hard to regulate Fannie Mae and Freddie Mac if you're not regulating Wall Street."
"It's very clear which pay the power relationship runs: from Jamie Dimon's office to the president's," Morici said.
Dimon is the CEO of JPMorgan Chase and was the most frequent Wall Street visitor (6 times) to the White House according to visitor logs released for Obama's first six months in office. Rumors of Dimon as a "potential replacement" for Geithner have also surfaced.
Accounting Scandals, Risks Overlooked by the Networks
The networks failure to criticize Fannie and Freddie after the Christmas Eve announcements fit their pattern of reporting.
Despite accounting problems at both GSEs, including Fannie Mae's $11 billion scandal - 19 times bigger than Enron - the politically well-connected groups' reckless lending practices were mostly overlooked by ABC, CBS and NBC - while print media warned of the dangers for years.
When a billion-dollar bailout of Fannie and Freddie seemed likely in 2008, the Business & Media Institute examined the network coverage of the GSEs. At that time BMI found only four network news stories that included any criticism of Fannie or Freddie in six months of coverage.
Unlike the three networks, which had been praising Fannie Mae and Freddie Mac earlier in 2008, The Wall Street Journal had been sounding an alarm bell about the corruption and financial danger of the lenders' practices for more than six years. As of July 2008, the Journal had run at least 29 editorials or op-eds exposing the two businesses for political connections, preferential regulation, and Enron-like "cooking" of the books.
"The Washington political class has nurtured and subsidized these financial beasts for decades in return for their campaign cash and lobbying support," said one Journal editorial on July 12. That editorial also pointed out the lack of reporting on the issue, saying, "Maybe the press corps will even start reporting how this vast confidence game could happen."
The Journal wasn't alone. The Washington Post said on July 14, "Though the implosion of investor confidence in Fannie Mae and Freddie Mac last week was sudden, the worries driving it have been the subject of countless warnings over many years."
Network reports often ignored the government's culpability in the Fannie/Freddie disaster - after all they were Washington's very own Frankenstein's monster. Fannie was created by President Franklin Delano Roosevelt in 1938 to "boost" the residential mortgage market. In 1970, the government created Freddie out of fear that Fannie Mae would dominate the market.
Through the implicit (now explicit) backing of the Treasury department and access to preferential rates, Fannie and Freddie together did dominate and over-leverage themselves. In 1999, the New York Times warned that taking on such risk may "run into trouble in an economic downturn, prompting a government rescue."
James Lockhart, Wilbur Ross and Co. Vice Chairman and former Director of the Federal Housing Finance Agency, told CNBC viewers on Jan. 5, 2010 that the problem was a lack of regulation of Fannie Mae and Freddie Mac.
"We all know what the problem was that there wasn't legislation that was strong enough to support Fannie and Freddie. They were allowed to leverage themselves at 100 to 1. And if you're allowed to leverage yourself 100 to 1 you're gonna have some pretty big losses when something like this happens. And so we're paying for the fact that we didn't get that legislation passed," Lockhart said.
As for the solution, Lockhard argued that it must be private sector. "We have to wean the public sector out of housing."
The Business & Media Institute is a division of the Media Research Center, a nonprofit watchdog organization that strives to bring balance and responsibility to the media. Its other divisions include: