The Business editors of the New York Times seem forever determined to whitewash and sanitize one of the core causes of the 2008 financial debacle and those who were central to the melt down.
Now some four years later we are lectured by an article "Reading the Fine Print in Abacus and Other Soured Deals" (Nov. 1, 2012) presented as the New York Times' top story in 'DealBook,' edited by their financial star reporter and CNBC host Andrew Ross Sorkin. The article reminded us that "A common refrain from the financial crisis is that poor disclosure was a contributor, if not the cause of the financial crisis" and that "buyers... were misled or not provided full information concerning their investments. The results were catastrophic when the market crashed."
Even catastrophic barely describes the dimension of the losses incurred by those who entrusted their investment decisions to the good name and heretofore solid reputation of the 'financial instrument' peddlers hawking the likes of Abacus, Timberwolf, Class V Funding III, and on, incurring write-downs of $420 billion, or 65 percent of their face value, while those C.D.O. instruments issued in 2007 alone were losing a staggering 84 percent of their face value. This, while making billions for those who shorted them with the informed foresight, whether it was Goldman Sachs and their John Paulson-inspired trash cans or others of their ilk who were able to pass off decidedly questionable financial products hiding the pitfalls in the boiler plate of the C.D.O.s, while using their once impeccable standing and reputation, not to speak of personal trust, to sell these instruments knowing that the buyers, both sophisticated and otherwise, would rely on the reputation and standing of the investment bank's portfolio manager's selection.
The instruments were extraordinarily complex and the seller knew that much would be based on the reputation and diligence of the seller rather than the buyers navigating its opaque 'boilerplate.' The authors themselves seemed at a loss to fully grasp the intricacies of the instruments in play, having identified the C.D.O.s, at the core of the debacle as Credit Default Obligations only later to be compelled to issue a correction in subsequent printings:
"An earlier version of this article misstated the name of the financial products that were in part blamed for the financial crisis. They are Collateralized Debt Obligations, not Credit Default Obligations."
If so the authors, then not who?
The New York Times Business section, other than Gretchen Morgenson and the erstwhile Business column contributor (now Op-Ed columnist) Joe Nocera, has had a long tradition of "explaining" to us all the virtues of the actions of such institutions as Goldman Sachs as innocent purveyors of Caveat Emptor (please see "The New York Times' Timely Whitewash of Goldman Sachs" June, 18, 2010) "The New York Times Sheds a Tear for Wall Street Paydays" (April 8, 2012). Yet only recently the editorial page has struck a decidedly different note in a Nov. 2 editorial "The Junk Is Back in Junk Bonds" highlighting the growing danger in the construct of their underlying assets, and the growing risk to those investing in them. This time at least the New York Times is taking the initiative to forewarn and not simply to provide an alibi.