Gretchen Morgenson is a leader of what might be called the accountability school of business journalismóa school with, in our view, all too few members. Luckily for readers, however, Morgenson has an usually prominent platform: As an assistant business and financial editor at the The New York Times, she writes both a weekly column and news and investigative stories under a regular byline.

Her skeptical and arms-length approach to financial institutions is by now well-known among regular business-press readers, and her work can be said to have set the public agenda on issues ranging from executive compensation to Countrywide Financial. One trait that sets her apart, we think, is that she grabs hold of an issue and doesnít let go. We think drumbeat investigative coverage is an effective but underused journalistic tool.

A Times staffer since 1998, Morgenson won the Pulitzer Prize in 2002 for beat reporting for coverage of the dot-com crash. Previously, she wrote and edited for Forbes, Worth and, surprisingly, Vogue, for five years at the start of her career.

The Audit caught up to her this week:

The Audit: How do you think we did covering the run-up to the crisis before 2006? And take that as broadly as you want.

Gretchen Morgenson: I think one of the things thatís very difficult for financial reporters is that they can cover things that they can see and that are measured by [something], like the Dow Jones Industrial Average or home-price appreciation. They can cover that stuff fairly well because they see the daily close or month-to-month changes or the quarterly changes, earnings, etc.óthings that are supposedly measurable, right? Itís the horse race, and thatís the kind of thing that everybody is pretty good at.

But I think that when it comes to the bond market, which is far more opaqueódifficult to follow, difficult to trackóbut way more monumental and significant, then we kind of fall down on the job because it doesnít have a daily market mechanism that we can measure ďooh, itís up!Ē or ďooh, itís down!Ēóthat kind of thing.

So anything that involves fixed-income is just by its nature more difficult for people in our business to cover. And that is really what is central to this thing.

Ö I think people covered the house-price appreciation, the bubble, the boomóI think people covered that pretty well. There were a lot of stories about ďthis canít go on,Ē everybody knew it was almost like the new dot.com. People at cocktail parties were talking about the value of their home. Thatís a dead give away that itís a mania.

So I think that was well-covered and certainly by real-estate reporters. But what I donít think was well reported was the Wall Street-enabler aspect of it, and the role of securitization, and certainly the questionable practices. I donít think people understood the degree to which mortgages were being given to people just as long as they were ambulatory or breathing. That was something I think that could have used a lot more coverage earlier on in the game.


TA: One of the questions I get from readers a lot is, How much responsibility does the press have? The press couldnít have prevented thisÖ.

GM: No, no no noÖ. I get some of this from readers, but I end up emailing them the stories that they either never saw or forgot about. I think thereís a lot of that: ďOh, youíre so smart. Where were you?Ē There were some reporters doing pretty in-depth and questioning, probing work on this stuff, but I think itís very easy to say that nobody was on the scene. The press canít prevent these kinds of things. Yeah, they can expose the practices and that should have been done more assiduously. But it was this huge momentum that was fed by this demand from investors and this fee machine on Wall Street and among the mortgage brokers and bankers and lenders. So, I canít imagine how reporters would stop that.

TA: When you find an issue or something thatís not right, you keep pounding on it. Iím thinking of Countrywide, executive compensation, going back years and years.

GM: This [mortgage crisis] was a very complicated story from the very beginning, not only because it was about bonds, which are more obscure and difficult to follow and track and mortgage, which are difficult to hedge and predict. But you had all these different players. You had subprime first, then you had Alt-A, then it infected prime, then you had the securitization and the different aspects of that that made this far more complicated than just a dot.com story where it was companies that were able to tap into the capital markets with no product, no earnings, no nothing. That was a pretty straightforward story.

This was a story with so many different facets, and then on top of that you layer on the credit-default swaps and you layer on the CDOs and the CDO-squareds that were putting synthetic mortgages into securities. I mean, this was just a complex story to the max. And so, you couldnít possibly do it one time or two times. You had to stay on it to explain to the reader why it wasnít going to go away, why it was going to be with us for a very long time.
 

TA: And how do you convince your editor to give you forty inches on collateralized-debt obligations in 2004?

GM: Öwhen itís not as evident that itís going to be a problem. You have to have a lot of mojo with your editor, right?

This was a story you just couldnít do a couple of. And you know, one thing that Iíve learned at the paper here in my ten-plus years is you canít just do one or two stories on these things and get any traction.

TA: Even at The New York Times.

GM: Yeah. Yeah, youíve got to keep hammering because people are busy they donít read it, theyíve got a family. Whoís got all the time to read all this stuff?

TA: What do you look for in stories? You donít do much beating around the bush or make folks read much between the lines.

GM: Well, Jim [Michaels, legendary Forbes editor and Morgenson mentor], he was all about not wasting the readersí time. He really didnít like that ďif on the one hand/if on the other handĒ type of journalism where you just kind of let the reader decide and hope that they draw a conclusion. Obviously you build your case, you have your facts, and the facts are so compelling that the conclusion is not deniable. Most important is explaining, because I think this complexity is often by design on Wall Street to try to make things more difficult than they have to be. And so just being able to explain it in plain English is a help to a lot of people. But I donít see any point in pursuing a story or doing a lot of reporting if youíre not really going to be able to persuade the reader that this is a story thatís worthy of their time.

TA: How do you walk the line between being a columnist and a reporter. Do you get questions from sources who say ďwell, how can you do this if youíre saying that in your column?Ē

GM: Iíve never had that question from a readerÖ

TA: Just us journalism-criticism types, huh?

GM: No, well the [Times] public editor [Clark Hoyt] did a column about it a couple of weeks ago, and I thought it was interesting that he said he had never had a complaint from a reader on that subject. My feeling is it is not a problem because my columns are so heavily reported. Itís not like Iím just sitting here gazing at my navel and coming up with a thesis about something. I really have not gotten one comment from a reader about it.

I think especially in this day and age when newspaper budgets are being cut and the amount of investigative journalism or tough, good reporting thatís being done is less and less, I think itís not really a central problem. Call me crazy.

TA: Some people talk about you being too crusading or that you see things too much in black and white.

GM: I donít think itís right because obviously nothing is in black and white. Itís part of this thing of not wanting to waste the readersí time. If you write in a way thatís not clear, that is muddying, that talks about the gray areasóitís never black and white, itís always gray, but you do have to take the reader down the path that your reporting (has led) and synthesize the information and draw the conclusion or at least paint the picture that youíve found from the reporting that youíve done.

TA: I think you helped, deservingly so, make Countrywide a poster boy for the mortgage crisisójust being relentless on that story. How did you come to focus on them?

GM: First of all, they were the biggest lender in the nation, and they were kind of an American icon in business. It was a boy-from-the-Bronx-made-good, bootstrap story. Doing the American dream of homeownership, the American Way. It had all of these iconic elements and had really up until mid-2007 were still purveying the idea that they were not a subprime lender, were not part of the problem, were above the fray. And the facts just did not bear that out.

The focus was really on the fact that they were the biggest and it was a company that had ridden the crest of the wave of the whole mortgage mania. It was not a heavily regulated entity. It was not a bank. Only became a bank late in the gameóit bought a bank. It was kind of the quintessential way to tell the mortgage-mania story was through that company.

TA: It wasnít like you got some tip that thereís corruption there and this is a rotten corpse?

GM: Well, I heard that too. But I wanted to make sure it was actually happening, but also you want to write about a significant company. You know as well as I do that you hear tips all the time about really kind of inconsequential companies and you just canít waste your time with that. There was a lot of corruption, obviously, in the mortgage industry.

TA: Any thoughts on what the business press is missing or what it should do next?

GM: I think this whole government response, thatís the new phase that we really, really have to be very vigilant about, and itís harder because itís all under wraps. Itís very secretive. Itís hard to penetrate that fog but it is really, really important now because the taxpayer is on the hook. Itís kind of now moved to Washington but itís still very much a business and finance story.

What Iím worried about is that it will fall through the cracks because maybe the Washington reporters arenít as knowledgeable about the securities that are involved or whatever. Itís so, so, so important because the taxpayersí money is on the hook here. Thatís where we need to focus our efforts.

TA: ďThe ReckoningĒ is the best series weíve seen this year; how did it come about?

GM: Well, thanks. We had projects that were underway but it all came together in that awful period in August when Fannie Mae was on the cliff and the markets were really, really roiled. There was a bailout every week and it just became clear that we had to explain this in real time.

We havenít gotten every story but weíve tried to tackle the bigger players, bigger companies, bigger regulatory elements and just to tackle them in a story-by-story basis. Itís so huge you couldnít do it in one story. You might have thought there would be a three-part series or whatever, but it just became so massive that it was something that you just had to take apart piece by piece and really help explain it to people. And it was so bewildering and it still isóyou could keep writing these stories, Iím sorry to say, for a long time.