The Times and Anonymous Government Leakers

The anonymous source is one of the most overused crutches in journalism, whose use by a media outlet is usually justified by the public's right to know what its government is doing. So it went this morning when the New York Times's public editor Clark Hoyt explained away the panic caused by a July 10 article that relied on anonymous government sources: "U.S. Weighs Takeover of Two Mortgage Giants" (Fannie Mae and Freddie Mac), the headline read.

Public editor Clark Hoyt backs authors Stephen Labaton and Steven Weisman, who used the usual justification. They told him they relied on anonymous sources because it was necessary to get "information to the public about what government officials are considering doing with the public's tax dollars." And then Hoyt added, "That is what I think too."

Then he goes on to quote bank analyst Richard X. Bove of the brokerage house Ladenburg Thalmann. The story "clearly affected the market, but it was correct."

Er, the article wasn't correct. Subsequent comments by Federal Reserve Bank and Treasury officials said the government never considered taking over Fannie Mae and Freddie Mac. The Wall Street Journal story of the previous day (July 10), which spurred the Times to try to one-up their rival given they were a day late on the story, in fact went to great lengths to explain that the government was primarily concerned about ensuring Fannie and Freddie's continued access to debt markets. If that faltered, it could bring the entire world financial system to its knees.

There is, of course, always contingency planning at the Fed and Treasury for worst case scenarios, just as there is at the Pentagon. But the clear implication of the language of the July 11 Times story was that such plans were being actively considered.

So who is this Bove whom the Times' public editor used to defend the paper's use of anonymous sources that were subsequently proved wrong? Public editor Hoyt also uses him to back the paper's more sensitive coverage of the downfall of San Francisco's IndyMac, whose demise threatened to trigger widespread depositor panic at small banks all across the country. Commenting on a list of banks in trouble that was published on the St. Petersburg Times website, Bove said such lists run the danger of "frightening the public about the soundness of the banking system when it's unnecessary to do so."

So, panic over Fannie and Freddie is okay, but panic over small and medium-sized banks who aren't too big to fail is a sin.

Too bad that Hoyt didn't publish some of Bove's other ideas, which appeared in this Associated Press article over the weekend. Here's what Bove of Ladenburg Thalmann would like to see happen to Fannie and Freddie:

The government (should) create a new agency to buy both Fannie Mae and Freddie Mac, and then distribute their holdings to 12 government-created banks around the country. Those regional banks would be owned by thousands of local lenders, much like the 8,100 member Federal Home Loan Bank system, which also provides money for mortgage lending. The federal government would set standards for loans made under the new system.

This would, of course, wipe out the equity in Fannie and Freddie stock that is held by tens of millions of retirement accounts across the country. It would transfer that equity at no or low cost to small and medium-sized banks, many of which are suffering because they are dependent on lending to their local real estate markets and local builders, whose business has collapsed. Many may also be holding sub-prime mortgages on their books.

So, the only thing I need to know now is whether Ladenburg Thalmann, which acts as a brokerage and investment adviser for wealthy investors, has put many of its clients into the stocks of those regional banks.

Alas, the public editor of the New York Times didn't see fit to report whether his sole source had any conflicts of interest that ought to be taken into account by readers. Perhaps there are none. Perhaps the only statement that was needed, and one that would have bolstered the veracity of his explanation for the paper's earlier use of anonymous government sources, was one that assured readers that Bove's employer has no financial interest in the fate of small- and medium-sized bank stocks across the country, banks whose balance sheets might be bolstered by getting the profitable book of business now held by Fannie Mae and Freddie Mac (you know, the book of business that represents the 98 percent of Americans who are paying their mortgage on time; at last glance, the number of loans in foreclosure has gone from about .75 percent to 1.5 percent in the past year).

But we didn't get such disclosure. Instead, what we have is a public editor -- whose job is to highlight improper journalistic techniques -- using what appears to be conflicted sources to justify the use of anonymous sources.

Perhaps he should look for another line of work.

Posted by gooznews at July 20, 2008 02:22 PM