The failure and federal takeover of the California-based IndyMac Bank July 11 signaled a coming financial apocalypse, according to network news reports that predicted âhundreds if not thousandsâ more bank failures but largely failed to put the event in historical context.
âWe saw something today not seen in decades in America,â ABCâs Charles Gibson incorrectly reported on the July 14 âWorld News.â A brief glance at even recent history shows bank failures are not a new phenomenon, but that didnât stop journalists from hyping this one.
In the 10 days following the Federal Deposit Insurance Corporation (FDIC) announcement that it would take control of IndyMac, the three news networks â ABC, CBS and NBC â aired a combined 41 stories on the subject. Sixteen of the stories predicted catastrophic events to follow IndyMacâs downfall, both for IndyMac customers and other Americans whose banks the networks predicted would also face failure.
âSome analysts out there have been calling for literally hundreds if not thousands of regional banks to end up in the situation that IndyMacâs in right now,â Chris Thornberg, founder of Beacon Economics, said on NBCâs July 14 âTodayâ show.
On the July 14 âGood Morning Americaâ on ABC, correspondent Bianna Golodryga cited one unnamed analyst who predicted that âas many as 300 banks could fail within the next three years.â
Many reports cited an FDIC list of 90 âtroubledâ banks, suggesting the unknown occupants of the list would be next to go under â although IndyMac wasnât even on that list before it failed. The FDIC keeps the list secret to avoid the kind of public hysteria that would lead to bank runs.
But ABC took failure predictions far enough to name several banks its own analysts predicted were in trouble on the July 16 âGood Morning America,â in direct contrast to the FDICâs protection of troubled banks to avoid unnecessary panic.
âThe IndyMac closing led to further speculation about other banks and thrifts that might be in trouble, fueled by widespread media coverage â especially among television
stations â about lists of problem banks developed by research firms and analysts,â Reich told the American Bankers Association.
âSeemingly oblivious to the fact that they could drive otherwise healthy banks to fail and push troubled institutions away from potential solutions toward ruin, TV reporters staked out banks on these rogue lists, interviewed customers and stoked public fears,â Reich said.
He added that âthis behavior goes beyond irresponsible. Itâs reprehensible,â and likened shouting âFailure!â in a bank lobby to shouting âFire!â in a crowded theater.
Some journalists resorted to absurd imagery to drum up fear about bank failures. On the July 14 NBC âNightly News,â anchor Brian Williams asked reporter Steve Liesman if, âother than my basement, is there any safe haven?â
âThereâs always the mattress,â Liesman responded, adding, âbut we canât recommend that so much.â
But the absurd imagery of hiding money in a mattress wasnât the worst of journalistsâ scare tactics. Some used IndyMacâs failure as another way to connect current economic conditions with the Great Depression, a recently common trend among network reporters.
At least six of the stories referred to Depression-era symbolism, included distraught IndyMac customers hearkening back to the days of the Depression, and even referencing the Christmas classic âItâs a Wonderful Lifeâ with its famous run on the local bank.
A July 12 ABC âWorld News Saturdayâ report by Yunji De Nies featured an IndyMac customer making the connection. âI didnât know this kind of stuff to happen anymore,â Andrew Milukoff said. âI mean, it was 1929, I didnât know it could happen today in this day and age.â
The CBS âEvening Newsâ featured another IndyMac customer, Lisa Hester Lerner, on July 15. âI think itâs mass hysteria. I think this is similar to what happened during the Great Depression, and everybody wants their money and they want to touch it and hold it and see it.â
But it wasnât only disgruntled customers making the comparison. Journalists did it too.
âLuckily, most Americans donât know much more about bank failures than we all learned from watching the Christmastime classic âItâs a Wonderful Lifeâ with Jimmy Stewart,â NBC âNightly Newsâ anchor Brian Williams said July 14.
He was referring to the 1946 film about small-town banker George Bailey, who must keep the town of Bedford Falls afloat amidst a ârun on the bank.â As with any bank run, customers with money in the institution became nervous about its solvency, and all began withdrawing their money at once, putting the bank in actual risk of failure.
The failure of IndyMac, however, is hardly on par with bank failures in the Depression. Historical context makes that obvious.
A Skewed Perspective
Offering historical context has not been high on journalistsâ agenda. There were some mentions of the Savings & Loan crisis of the 1980s and other rough years for banks, but most failed to put the IndyMac failure in realistic perspective.
Reports compared IndyMacâs failure to the Great Depression, but didnât mention there were 4,000 suspended banks in 1933, according to the book âThe Banking Panics of the Great Depression.â Five banks have failed in 2008.
Between 1921 and 1933, author Elmus Wicker wrote, âthe total number of commercial banks in the US was reduced by one-half.â By contrast, only 55 banks out of almost 8,500 insured by the FDIC have failed in the last 12 years, according to FDIC statistics.
Itâs not only the Depression comparisons where journalists have failed to put IndyMac into appropriate historical context. Only seven of the 36 stories included attempts to offer perspective on recent history.
âNot since the savings and loan crisis of the 1980s has a bank this big fallen so hard, so fast,â ABC correspondent Yunji De Nies said on âWorld News Saturdayâ July 12. âCustomers are stunned.â
The CBS âEvening Newsâ also made the comparison to the Savings & Loan crisis. A graphic on the July 14 broadcast noted that 1,000 banks failed during the crisis. The FDIC reported that between Jan. 1, 1986, and Dec. 31, 1995, a total of 1,043 institutions were closed by the FDIC and the Resolution Trust Corporation (RTC). The institutions held $519 billion in assets.
There were some bright spots of historical context among expert contributors, however, like Mellody Hobson, president of Ariel Investments and a contributor to ABC.
Addressing the dreaded FDIC list of 90 troubled banks, Hobson told âGood Morning Americaâ July 16, âHereâs the thing to keep in perspective: A decade ago back in 1994, there were 575 troubled banks.â Hobson was citing an 84-percent decrease in the number of troubled banks.
âThis is a normal part of the business cycle and the economic cycle in this country,â Hobson said. âAnd I feel that we are sparking some fears here that may lead people to do things that would then lead the banks to fail.â
While CBSâs reporters were busy comparing IndyMacâs failure to the Great Depression, the networkâs âThe Early Showâ featured FDIC Chairman Sheila Bair on July 15 to answer some questions.
âTo put this in context, during the S&L debacle there were over 2,000 banks that were closed over a period of time,â Bair said. âThe peak was 534 closures in â87. Weâve had five bank closings this year.â
âI wonât say that banks donât have challenges right now; they do,â Bair added. âBut historically, weâre operating at fairly low levels.â
Financial adviser Ray Martin told âThe Early Showâ July 14 that IndyMacâs failure âisnât an occurrence thatâs so unique,â noting that 127 banks have been taken over in the last 15 years. âIndyMac is so large, with [$]32 billion in assets and 265,000 deposit customers, itâs a headline maker,â Martin said.
NBCâs Steve Liesman was one of the few reporters to offer historical context of his own accord. On the July 14 âNightly News,â Liesman told anchor Brian Williams that âwe havenât been through a crisis like this â well, it was back in â91 when we did go through one that was, by the way, much worse.â
âSo far, though, itâs been quite a bit less than weâve had in the past,â Liesman said of the 90 banks on the FDICâs troubled list.
More likely to blame a bad economy than the actual culprit for anything that goes wrong in business, the media were no different when it came to IndyMacâs failure. Even though the bank is under investigation for fraudulent lending practices, the networks tried to pin its failure on the economy or merely ârecklessâ lending practices.
On âThe Saturday Early Showâ July 12, reporter Anthony Mason called IndyMac âanother casualty of the housing crisis.â
âThe Early Showâ co-host Maggie Rodriguez tied the IndyMac troubles to âdramatic losses in the stock marketâ on the July 17 broadcast. And she was hardly the only journalist to paint the bank failure as a sign of a troubled economy.
On the ABC âWorld News with Charles Gibsonâ July 14, anchor Charles Gibson saw it as a sign raising questions about the âhealth of Americaâs banks. We saw something today not seen in decades in America,â Gibson incorrectly reported. âMight other banks be in trouble?â he asked.
Contributors joined in as well. Christopher Thornberg of Beacon Economics, a real estate research and consulting firm, said the failure was a sign of impending recession â a theme the media have been pushing for years.
âYet at this point in time, this is an economy thatâs clearly tipping into a recession and itâs gonna be a â a pretty nasty one,â Thornberg said on the July 14 âNightline.â âAnd what this implies is that thereâs a lot of regional banks who are gonna be in big trouble over the course of the next couple years, so you really got to watch out.â
But the Federal Bureau of Investigation doesnât seem to think IndyMac was just another victim of a bad economy, a housing crisis, or even an impending recession. The FBI is investigating IndyMac and 20 other banks on suspicion of not just irresponsible, but fraudulent lending practices.
The FBI has its suspicions, but only nine of the 41 stories questioned IndyMacâs behavior as a lender that offered risky subprime loans. Five stories mentioned that IndyMac was under investigation by the FBI for potential fraud.
âAnn, late word confirming IndyMac is part of an FBI criminal investigation into 21 banks,â reporter Jane Wells said on âNightly News.â âThe FBI is trying to figure out if thereâs possible fraud involving some loans, home loans IndyMac made to so-called risky borrowers.â
âThe Early Showâ host Harry Smith accused the bank of making âcrazy mortgages, no-look mortgages, no-paper mortgagesâ on the July 14 broadcast. Expert contributors on ABC and NBC sad âbad loansâ brought down the ârecklessâ lender.
Dave Ramsey, host of âThe Dave Ramsey Showâ on the Fox Business Network, told ABCâs âGood Morning Americaâ July 17 that the economy may not be to blame for IndyMacâs failure.
âMaybe some crooks,â he said.