Networks, Once Silent on Fannie Mae, Blame Capitalism for Debacle

     As politicians point fingers over who created the financial mess that has taken down major Wall Street players and resulted in the government takeover of Fannie Mae and Freddie Mac, the broadcast media’s role in the disaster has been largely overlooked.


     It was the TV news media that practically ignored mounting problems – including accounting scandals – at Fannie Mae and her brother Freddie Mac until it was too late.


     This year between Jan. 1 and July 14, the network news media barely touched on problems with the two government-sponsored entities (GSEs) and neglected to mention its scandal-ridden past.


     NBC’s “Today” show hinted at problems with Fannie and Freddie on July 14 when Andrea Mitchell reported Sen. John McCain’s, R-Ariz., reaction to a bailout:


     “John McCain also says the survival of the mortgage giants is essential, despite some of their past practices,” said Mitchell. Viewers were left to wonder what those “past practices” could have been. Here are a few hints: billions of dollars in accounting scandals, millions of dollars in fines, stock prices that have plummeted, connections to prominent Democratic politicians and a high-risk portfolio.


     But a Sept. 23 Wall Street Journal op-ed written by Charles W. Calomiris, finance and economics professor at Columbia Business School, and Peter J. Wallison, a senior fellow at the American Enterprise Institute, laid the blame for the current financial crisis at the feet of Fannie and Freddie.


    “The poor choices of these two government-sponsored enterprises (GSEs) – and their sponsors in Washington – are largely to blame for our current mess,” Calomiris and Wallison said.


     As problems at Fannie Mae and Freddie Mac intensified in August and September 2008, the media switched to attacks on deregulation and Republicans.


     Jim Cramer, of CNBC’s “Mad Money,” said on ABC’s “Nightline” Sept. 17 that on cause was “whole nations basically that allowed regulations go by the wayside so anybody could do anything.”


     CBS News also blamed “too little government regulation” for Fannie and Freddie’s failure. On Sept. 8, CBS asked, “What brought these financial powerhouses to the brink of collapse? Critics say it was a combination of the companies’ political clout and too little government regulation.”


     As if blaming deregulation wasn’t enough, The New York Times online attacked Sen. John McCain, R-Ariz., on Sept. 24 for ties to Freddie Mac, but glossed over Sen. Barack Obama’s, D-Ill., connection to Fannie and Freddie. And never mind Barney Frank’s (see related story).


     The Times story buried campaign contribution figures for both candidates until the very last paragraph of the 1,401 word story. According to the article, since 2004 “Senator Obama has received about $126,000 in contributions from employees of Fannie Mae and Freddie Mac, while Senator McCain, over the last decade, has received about $22,000, according to the Center for Responsive Politics.”


     Obama was the number 2 recipient of contributions from Fannie and Freddie, compared to McCain’s 62 – but the Times didn’t mention that.


     The warnings didn’t start in 2008. In 2004, as The Wall Street Journal declared Fannie Mae was “cooking the books” to the tune of $11 billion dollars, ABC, CBS and NBC were almost silent. A search of LexisNexis for “Fannie Mae,” at the height of the scandal (June 1, 2004 to Mar. 1, 2005) turned up a paltry 37 stories.


     During that time CBS only referenced Fannie Mae five times – although in one the network did call the situation an “accounting scandal.” The words “Fannie Mae” didn’t show up once for ABC, while CNN registered only 31 hits – less than 3 percent of the coverage it gave the Enron scandal over a similar time period.


     Even in 2008, the network news media has mentioned Enron more than Fannie Mae or Freddie Mac combined.


     Unlike TV reporters, print journalists warned of Fannie’s and Freddie’s accounting problems for years, extended risk and cozy Washington, D.C. relationships for more than six years.


     As far back as 2002, The Wall Street Journal was comparing Fannie Mae to Enron in its editorial pages. A Feb. 20, 2002 editorial entitled “Fannie Mae Enron?” exposed the high debt and poor risk management of Fannie and Freddie.


      “The more we’ve since looked at Fan and Fred the more they look like poorly run hedge funds: lots of leverage and snarkily hedged risk. The word Enron ring any bells?” said the Journal editorial.


     It turned out that Fannie Mae’s financial fiasco was – at that time – 19 times bigger than Enron’s. Yet, the TV news media on ABC, CBS, CNN and NBC barely made a peep. Now with the federal bailout, that number is much higher.


     So why were Fannie and Freddie given a free pass by the broadcast media? It might have something to do with their mission of helping low-income families buy homes.


     In 2004, Newsweek’s Charles Gasparino said in a CNN appearance, “Well, Fannie Mae is a very politically corrupt – it may be politically corrupt, but it’s a politically correct company. I mean, they do all the things that, let’s face, liberal journalists like, like put home mortgages out there for poor people. And so right now, beating up on Fannie Mae is kind of politically incorrect.”


     Gasparino admitted that “This is a huge story, and it’s going overlooked.”


     Judging by 2008 media coverage of the issue, Fannie and Freddie are apparently still politically correct enough to not be blamed for their bad behavior.