Tuesday, June 16, 2015

Some Criticisms on the Reporting of the AIG Case in Today’s Washington Post and New York Times

I have not yet had time to read Judge Wheeler’s opinion in a Court of Claims case in which he decided that the Federal Reserve had exceeded its legal authority in obtaining an equity interest in AIG through a trust but did not award any payment to Starr International Company (effectively, as I understand it, Maurice Greenburg). Nevertheless, I am disappointed with two articles I read about this case this morning: one in the Washington Post and the other in the New York Times.
The Washington Post article is by Steven Pearlstein. While the article appears on the “Wonkblog” online, it is on page A3 of the print edition, i.e., it appears as a regular new article. Nevertheless, it is quite clear that Mr. Pearlstein is not writing as an objective reporter. It is obvious that he believes the judge’s decision is wrong. For example, he writes that the judge substituted “his judgement for that of the treasury secretary and the five-member Federal Reserve Board.” He also criticizes the judge for not noting “a key point. Although the government, as bank regulator, could control the behavior of the banks, without an ownership stake it would not have had control over an unregulated global insurance holding company to which it had just made the largest loan in recorded history.”

Pearlstein is wrong about the AIG’s regulatory status. AIG was a thrift holding company, then subject to the Office of Thrift Supervision (“OTS”) oversight and regulation. At the time of the financial crisis, this may have been overlooked because OTS was for the most part not taken that seriously as a regulator of thrift holding companies. Nevertheless, those managing the crisis may have been able to use OTS to control AIG’s behavior and other agencies could have lent staff to OTS with expertise. I do not know the limits of OTS’s holding company authority, but Pearlstein should have mentioned this possibility. . (In passing, I would note that some insurance companies bought small thrifts in order to be regulated by OTS as a thrift holding company. They did this in order to operate in the European Union without being subject to holding company regulation by an EU regulator. The EU accepted this, even though it was clear to many that OTS would not be doing much supervision.)
I am puzzled by Pearlstein’s exact status at the Washington Post. He was a regular columnist for the Post, but left a few years ago to become a professor at George Mason University, which is located in the Virginia suburbs of Washington, DC. While at George Mason (it is not clear whether he is still employed there, though he may be), he wrote occasional columns for the Post. Recently, I have seen news articles written by him, with a Washington Post email address after his name. If he is now writing news articles as a Post employee or contract worker, he and his editors should know the difference between writing an opinion column and a news article. I should not be able to read a straight news article about a court decision and know that the reporter disagrees with it.

Andrew Ross Sorkin in today’s New York Times has an article about the AIG decision where he ignores OTS, though what he writes is not inaccurate: “But the Fed did not have regulatory oversight of A.I.G., which is an insurance company, and therefore couldn’t maintain the same kind of control it did over the banks.” Sorkin also should have mentioned OTS.
I am not as critical of Sorkin as I am of Pearlstein, because the formatting of the article in the Times (jagged right margin) serves to indicate that this is an analytical piece reflecting the author’s views, not a straight news article. The line between what should go on the editorial pages of the Times and what analysis is appropriate for the news pages is very fuzzy. I have criticized Sorkin in the past for advocacy in an article he wrote about Antonio Weiss, which I thought should be better placed as an op-ed. I do not think, though, that he crossed any lines in today’s article, and attribute the OTS omission as an oversight.

No comments:

Post a Comment