Frontline’s Astonishing Whitewash of the Crisis

[MinM]

Friday, April 27, 2012
Frontline’s Astonishing Whitewash of the Crisis

Several of my savviest readers wrote expressing disappointment and consternation with the Frontline series on the crisis, “Money, Power, and Wall Street.” The first two parts of the four part series have been released, and it’s probably safe to say that this program is far enough along to be beyond redemption.

It’s a recitation of conventional wisdom, with just enough focus on some of the numerous things the banks and the authorities did wrong so as to make it seem daring for mainstream TV. But anyone who has been on this beat will find the first two segments cringe-making (one advantage I had was that of reading the transcripts, which makes it much easier to parse the construction). Despite the obligatory shots of Occupy Wall Street protestors, displaced homeowners, and stymied officials, much of the story line is remarkably bank-friendly.

The first segment is particularly troubling. It heavily cribs from the Gillian Tett book Fool’s Gold, which to be blunt was not very well received by reviewers. Fool’s Gold discussed the development of the credit default swaps market from the perspective of JP Morgan executives and staffers, with the result that it verged on hagiography. Oh, those great, intrepid, innovative bankers who just wanted to make the world better, and maybe make a buck or two in the process.

The book at least explained that the reason for the creation of the CDS was to solve a rather big problem for JP Morgan, that it was carrying a ton of loan risk and could use a way to lay it off (the broadcast, by contrast, made it sound like this was a market just waiting to happen, as opposed to one JP Morgan, and later its competitors, cultivated).

And no one clearly explains that CDS, as currently used, are certain to produce periodic blowups of undercapitalized guarantors (the monolines and AIG are prototypical). Tett and pretty much everyone in the segment perpetuates the industry PR that CDS are derivatives. A derivative is an instrument whose price “derives” from an actively traded underlying instrument. CDS, by contrast, are the economic equivalent of unregulated insurance contracts. The pernicious feature of CDS is that the CDS protection writers (the guarantors) aren’t regulated for capital adequacy, the way other insurers are. They instead are required to post collateral to reflect the current value of the contract. But that is no guarantee that the CDS protection writer will be able to pay out. When a default or other credit event occurs, the price of the CDS spikes up, and the guarantor may not be able to make good on the new, higher collateral posting. And requiring CDS protection writers to put up enough margin to allow for “jump to default” risk would make the product uneconomical.

But none of this is explained. Tellingly, there are clips of Brooksley Born, but no mention of her failed effort to regulate CDS. It is instead presented as a benign product that JP Morgan understood (did they sponsor this broadcast? Blythe Masters gets a big promo) and no one else did...

http://www.nakedcapitalism.com/2012/04/frontlines-astonishing-whitewash-of-the-crisis.html

[MinM]

1. Frontline: Breaking the News Corp. Phone Hacking Scandal

Frontline: Breaking the News Corp. Phone Hacking Scandal

March 22, 2012, 4:09 pm ET

We may never have heard about the still-unfolding News Corporation phone hacking and bribery scandal were it not for “a Manchester lawyer, … a reporter for The Guardian and a few members of Parliament,” who somehow managed to bring a feared global media giant to its knees.

FRONTLINE correspondent Lowell Bergman recounted how a few chance incidents sparked an international scandal on NPR’s Fresh Air today. FRONTLINE’s film on News Corporation, Murdoch’s Scandal, airs Tuesday, March 27 (check your local listings).

Bergman also discussed what happened to some of those who took on News Corp., including Mark Lewis, the lawyer who would ultimately represent more than 80 victims of phone hacking:


He and a woman who he was going out with and worked with were put under surveillance, as was his ex-wife and child by a private investigator hired by News International. It isn’t that they just go out and hire private investigators. We now know that some of these private investigators worked in the newsroom. Or were told, ‘Become journalists. Join the journalism union.’ They were integrating these investigators into their newsroom operations. These surveillances were ordered. In fact, James Murdoch has now publicly apologized to Mr. Lewis and Tom Watson, a member of Parliament, for putting them under surveillance...

http://www.pbs.org/wgbh/pages/frontline/media/murdochs-scandal/breaking-the-news-corp-phone-hacking-scandal/

http://rigorousintuition.ca/board2/viewtopic.php?p=454692#p454692