The Media's Top 10 Economic Myths of 2008 (No.8)

Network reporters should have been reading The Wall Street Journal, which had been sounding alarms about the corruption and financial danger of the lenders' practices for more than six years. The Journal has 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."

That Post article explained that the two entities had too much debt and not enough capital, operating "with financial cushions that were too thin to support their far-reaching financial risks." This was something former Federal Reserve Chairman Alan Greenspan told lawmakers in 2004, according to the Post. Greenspan argued for "preventive action" "sooner rather than later."

After Fannie and Freddie failed some in the media blamed free markets, but both Investor's Business Daily and The Journal explained that it was socialism that created the problem: "We haven't suddenly become socialists. What taxpayers need to understand is that Fannie and Freddie already practice socialism, albeit of the dishonest kind. Their profit is privatized but their risk is socialized," said a July 12 Journal editorial.

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8. Fannie's failure

Media myth: When it came to the demise of Fannie Mae and Freddie Mac, the network news never saw the trouble coming.

Originally published by the Business & Media Institute

Print journalists had been warning of trouble at government-sponsored enterprises Fannie Mae and Freddie Mac since 2002. But in 2008 ABC, CBS and NBC were clueless when it came to the extreme risk the duo presented to taxpayers.

The NBC "Today" show hinted at problems with the two government-sponsored companies 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, stock prices that have plummeted, connections to prominent politicians and a high-risk portfolio.

CNBC's Erin Burnett shed almost no light on the situation in a "Today" segment the same morning.

When co-host Matt Lauer asked, "How did they get themselves in this situation?" Burnett explained that Fannie and Freddie guarantee mortgages for other lenders so that if the loan goes unpaid, they take the loss instead of the original lender. But she neglected to mention the enterprises' government mandate to increase home ownership and the implied taxpayer guarantee that enabled the two public companies to dominate the market.

The media also underreported accounting scandals at Fannie Mae. In 2004, earnings restatements at Fannie Mae were $11 billion. That was 19 times bigger than Enron's, yet Enron is the scandal everyone remembers. [Click 'read more' to continue]