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 While the bursting of the tech bubble was a disaster for many, there were a few folks who benefited from the market's tumble. Eliot Spitzer, now cozily ensconced in New York's governor's mansion, comes to mind, as does The New York Times' Gretchen Morgenson, who won a Pulitzer Prize in 2002 for her "trenchant and incisive" coverage of Analystgate. Little wonder, then, that Morgenson is hearkening back to that golden era as she covers Wall Street's disaster du jour — the subprime lending market. According to Morgenson, analysts — yes, analysts — are the villains here.
Morgenson laid this out in a front-page, above-the-fold story, on Sunday, March 11, leading with a Bear, Stearns & Co. analyst who "wrote an upbeat report" on New Century Financial Corp. a few days before the subprime lender imploded. "What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts," the story's second paragraph intoned. "Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21." Uh-oh. A bad investment call? Get the conflict police! Weirdly enough, Morgenson quickly left the analyst angle behind as she laid out some of the causes and effects of the mortgage turmoil. She returned to the "upbeat" Bear analyst only long enough to name him, Scott Coren, and to note, with no elaboration or explanation, that "according to New Century, Bear Stearns is among the firms with a 'longstanding' relationship financing its mortgage operation." And so another conflict scandal is born, no smoking gun or loquacious e-mails required. By Tuesday, Massachusetts Secretary of the Commonwealth William Galvin, who rode Spitzer's coattails to global research settlement fame in 2003, was ordering Bear, along with UBS Securities LLC — a firm whose "tone" on mortgages, according to Morgenson's story, "accentuates the positive" — to turn over documents relating to recommendations on subprime lenders. "Recent revelations that research analysts issued positive reports on mortgage lenders … even as those companies faced more and more defaults suggests that the commitment of 2003 has not been met," Galvin thundered in a statement according to MarketWatch. Positive reports? Let's review. The New York Post Tuesday reported Bear's contention that Morgenson's characterization of Coren's research "was a complete misrepresentation." And it backed this up. Coren, the Post said, "had made a series of gutsy calls on the subprime mortgage sector." And that "upbeat report" on March 1 that Morgenson was so bothered about but provided little information on? Coren upgraded New Century from "underperform" (aka "sell") to "peer perform" (aka "hold"), hardly an endorsement. Plus, as Associated Press and MarketWatch pointed out in Galvin stories, the upgrade contained caution: "Given the roughly symmetrical risk/reward profile, we'd stay on the sidelines for now until we are able to see a complete and restated set of financial statements and management opens up its communications lines again," Coren wrote. Not exactly the second coming of Henry Blodget. Of course, anything is possible. Galvin may find e-mails in which Bear execs bully Coren to go easier on New Century to please its mortgage-trading desk. But as of now, it appears Coren is being vilified for being slightly wrong. Post-Spitzer, if an analyst makes a bad call, he must be corrupt. What's also odd here is Morgenson's fixation on turning the subprime meltdown into a retail investor-conflict story. (Her piece Wednesday on mutual funds that hold mortgage debt struggled to prove that "everyday investors are among those that will probably be hurt.") After all, there's a lot to legitimately pin on Wall Street in this mess; the investment banks supplied the cash that kept subprime lenders humming, then eagerly purchased their loans for securitization. But rather than explain all that, it's simpler to blame "villains" — analysts — that her readers, including pols like Galvin, already know. Galvin's investigation ensures that Morgenson won't be off this story anytime soon. In that way, it's the same playbook Morgenson and the Times followed in the Pequot-John Mack insider trading "scandal." It's ingenious. Write a casually accusatory story that prompts an investigation and then use that investigation as proof that your accusations are spot on. Even if they aren't. In short, don't let the facts get in your way.—Yvette Kantrow Categories Deal Video
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