The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Reporting

In 1991, Michael W. Hudson, a reporter for the Roanoke Times, was interviewing a legal-aid lawyer for a series about poverty in that small Southern city, earnestly asking questions and scribbling copious notes, when the lawyer abruptly stopped the conversation. It’s good to write about poverty, the lawyer said, but you’re missing the most important thing. Hudson, then in his late twenties, was something of a rising star at the 120,000-circulation daily, having done long investigative series, to some acclaim, on the state’s dysfunctional juvenile justice system, abuses in regional adult group homes, and screw-ups at Virginia’s child support enforcement agency. He had written of murders, sex offenders in the state prison system, and much other mayhem. He was well sourced among proecutors at the Commonwealth Attorney’s Office. He had grown up in the region and thought he knew more than most about the grimmer aspects of life in western Virginia.

“But the thing about poverty,” this legal-aid lawyer said, is that’s not just about a lack of money or even a job. It’s about how you get out of poverty. And basically, as the lawyer explained, there are only three paths: a house, a car, or an education, or a combination of the three. A house allows you to build equity; a car allows you get to work; and, of course, everyone knows an education is important. The trouble is, the lawyer explained, if you’re poor, none of these can be bought without credit. And the low end of the financial-services industry was the problem. Pawnbrokers, check-cashing stores, consumer-finance agencies, for-profit trade schools, and the second-mortgage business were all lightly regulated and dominated by hard-money types, many of dubious ethics. So when poor people tried to get a leg up, they found themselves with a loan with unmanageably high interest and fees and were pushed further back down, this time with destroyed credit. It happened over and over, the lawyer said. Hudson thought that was too bad. He also thought, “Great story.”1

The discussion with the poverty lawyer made a deep impression on Hudson, a practitioner of accountability reporting whose career roughly coincided with the apex of the practice in mainstream media. The trajectory of his professional experiences as a reporter illustrates the tradition of investigative reporting, which has deep roots in American journalism but became a mainstream practice only relatively recently. The stories Hudson covered started him down a path that led, over the course of the next fifteen years, into the heart of the financial system that would ultimately collapse.

In 1991, he applied for a fellowship from the Alicia Patterson Foundation, a Washington, D.C., funder of muckraking journalism projects, which allowed him to take year off from the paper and immerses himself in the poverty-lending business, also known as consumer credit or “specialty finance.” He would enter a different world, a veritable Disneyland of sharpies and tough guys. The consumer-credit business bore only a passing resemblance to traditional banking, which emphasized underwriting and risk analysis. Consumer credit was closer to street-corner commerce, the domain of hustlers and confidence men. This was where the most desperate meet the least forgiving. He encountered an endless string of borrowers who, one after another, confirmed what the poverty lawyer had told him: lenders had misled them on them their loans, and not just on the details but the basics: interest rates, penalties, and fees. Other complaints centered on “credit insurance,” a basically worthless product that lenders said was mandatory—it wasn’t—and “prepayment penalties,” which forced borrowers to pay big fees to get out of a loan, adding to their debt if they refinanced. One woman didn’t even know her loan was a mortgage—that her house was being used as security—until after the vinyl siding was already up. She nearly broke down in tears, she told Hudson, but didn’t put up a fight. “Then you couldn’t complain, could you?” she said. “You couldn’t say: ‘Well, take it off.’”2

Over the years, Hudson would become a student of the low-end lending business and its unique culture, one based almost entirely on sales. He encountered legendary players with nicknames like “Doc” and “the Mormon,” and famous “one-call closers,” including Duayne Christensen, a hard-partying former dentist who looted the savings and loan he ran while illegally prescribing narcotics to the comely “consultant” he had hired; he died after slamming his Jaguar into a bridge pylon. Hudson read up on Bill Runnells, president and CEO of a company called Landbank Equity Corp., based in Virginia Beach. An eighth-grade dropout, Runnells was a former Bible salesman, professional gambler, and loan shark who kept his head shaved smooth and wore sunglasses day and night. Upon founding Landbank, he created its mascot, “Miss Cash,” who appeared on billboards and in TV ads. “When banks say ‘no,’” LandBank’s ad said. “Miss Cash says, ‘yes.’”

Despite his record and louche appearance, Runnels secured funding from legitimate banks and savings and loans, then took advantage of Virginia’s high poverty rates, lax lending laws, and famously accommodating legislature to sweet-talk borrowers into accepting loans at eye-popping rates. Among his innovations: the fifty-point loan, half loan and half fees. When a bill to limit finance-company fees came before Virginia’s part-time General Assembly, Runnells hired the state senator who would cast the deciding vote to do his legal work. The senator voted “no.” A voucher for $3,000 to the senator was later found among Landbank’s papers. It read: “This was one we agreed to pay after he stopped legislation in Richmond.” In the end, Runnells ran off with the investors’ money, leading authorities on a two-year global manhunt before being captured. He was sentenced to forty years in prison. Before he left, though, he spoke to a reporter. Runnells discussed his lending philosophy, which can still stand as a watchword for the subprime lending industry as a whole: “When you’re broke,” he said, “you’ll borrow money at any price.”3

Mike Hudson first became interested in newspapers from watching his dad, Grant Hudson, coach the local high school basketball team, the Highland Springs Springers, near Richmond. Mike would carefully read the game stories in the Richmond News Leader and the Richmond Times-Dispatch, comparing the accounts with each other and with what he had seen. Hudson worked on his school paper, then at Ferrum Junior College, near Roanoke. He worked part-time at a local thrice-weekly, the Franklin News-Post, the kind of place where if someone grew a particularly large tomato or killed a big snake, they brought it to the paper. Then Hudson would photograph it and write the caption. He covered his dad’s games. When Hudson got his associate’s degree from Ferrum, he covered his own graduation, scribbling notes in cap and gown.

He got an internship at the nearby Roanoke Times and began to gravitate toward stories that revealed the inequitable aspects of life in Roanoke: social-service programs that didn’t work, police brutality, housing discrimination, and consumer scams. He went to finish his full bachelor’s degree at Washington and Lee, in Lexington, Virginia, where he took courses taught by Clark R. Mollenhoff, who was all about bucking the establishment. As an investigative reporter for the Des Moines Register, Mollenhoff had won the Pulitzer Prize for national reporting in 1958 for an exposé on racketeering and fraud in Jimmy Hoffa’s Teamsters union.

Before long, Hudson would find himself challenging the status quo within Washington and Lee journalism circles, clashing with the leadership of the main campus paper, the Ring-tum Phi, and in particular with another rising college journalist, Mike Allen. Today, Allen is chief White House correspondent at Politico, a Washington-based news organization whose very name expresses its insider-orientation. According to an extensive 2010 New York Times profile of Allen, he is now generally described as the “most powerful” and “most important” journalist in Washington, principally because of his morning newsletter/blog, Playbook, which the Times describes as

Hudson was a year ahead of Allen and, while he liked him personally and thought he was a powerhouse reporter, didn’t like his style of journalism, which he found obsequious, even as it propelled Allen to stardom. With a stringing job at the Roanoke Times, where he was angling to work after graduation, Hudson didn’t try out for the Ring-tum Phi. Instead he became something of a gadfly. Hudson objected in the spring of 1985 when the paper ran a short story on page 4 announcing that the paper’s publisher, the University Publications Board, whose voting members are editors and business managers at campus publications, had named Allen and two others as the Ring-tum Phi’s “three top editors” and that Allen would have “overall responsibility for the newspaper.” Hudson spoke to two other editors and, in a letter to the editor, said the board had, in fact, rejected a proposal to name Allen top editor and instead had voted to give the three editors equal responsibility. Hudson wrote that it was only after Allen, the paper’s most productive staffer, “indicated he might not work at the paper” without a “promotion” (from coediting the previous year) that the two other editors agreed to Allen’s taking the title of executive editor. The story’s wording, Hudson wrote, was “literally true, but misleading if not deceitful.”

Hudson went to work at the Roanoke Times and was soon plunging into some of the harshest aspects of Roanoke life, doing series after series involving race, class, institutional failure, and public corruption. His multipart series exploring neglect and abuse in state-run group homes for adults started with an interview with a group-home operator, who admitted that he had slapped a retarded resident across the face. “He p———all over the living room furniture,” the operator is quoted explaining.5

But then he took up poverty and, following the legal-aid lawyer’s advice, began to look at the low-end credit business and subprime mortgages, which in the early 1990s were beginning to take off. Reporting on dozens of stories, he was struck by the ubiquity of the complaints about bait and switch: borrowers said they agreed to one thing but found—too late—they had been delivered another. Patterns consistently emerged. For instance, African American borrowers in Virginia earning up to twice as much as their white counterparts were still twice as likely to be rejected for conventional loans—a state of affairs that would become a hallmark of the mortgage crisis nationwide years later. And deregulation was making things worse. Hudson found lenders in South Carolina that charged usurious rates of up to 100 percent. One three-day series included photos, sidebars, charts, and graphs and ran some 13,000 words. The headline was “Borrowing Trouble.”⁶

Hudson spent months buried in loan documents and talking to plaintiffs’ lawyers, borrowers, regulators, and lenders. He did his share of breaking news stories. But he was absent from the office for days at a time and was generally given wide discretion by his editors, who trusted him to spend his time wisely and who also understood that sometimes big investigative projects didn’t work out at all. The paper was owned by a company then called Landmark Communications, now Landmark Media Enterprises, based in Norfolk and closely held by that city’s billionaire Batten family. The company owned a string of daily and weekly newspapers and broadcast TV stations and, for a while, the Weather Channel. The company was extremely profitable. It could afford people like Hudson.⁷

By the early 1990s, the idea of a staff reporter at a midsized regional daily launching a crusading investigation into lending abuse would not have seemed unusual to American newspaper readers, who took their local papers’ sometimes outsized ambitions as a matter of course. Buoyed by their status as quasi monopolies in most markets, some regional papers were stretching the possibilities of what newspapers were supposed to do. They spent lavishly on news budgets (if not on individual reporters’ salaries), created investigative teams, flew in writing coaches, installed computer-assisted reporting units, and sent reporters and editors to conferences and retreats where they would contemplate the fine points of the secret to powerful prose.

But the Roanoke paper’s decision to launch a major investigation into what was then still known as the “second-mortgage” business, part of the “poverty economy,” reflected the reemergence of investigative reporting after the 1960s, a renaissance that brought muckraking back into the mainstream media—business media very much included. Many of the media’s severest critics reject the notion that conventional newspapers could be an effective check on established power. In their classic critique, Manufacturing Consent, Edward S. Herman and Noam Chomsky put forward a propaganda model for U.S. media and propose that a variety of factors—concentrated media ownership, the advertising model, the PR power of large institutions—distort news organizations’ editorial lens. While the public interest is occasionally served, it is only within defined, narrow boundaries of acceptable debate: “This is not normally accomplished by crude intervention, but by the selection of right-thinking personnel and by the editors’ and working journalists’ internalization of priorities and definitions of newsworthiness that conform to the institution’s policy.” Further, the authors argue, the fact that professionals within news organizations may on occasion actually succeed in publishing reports that challenge dominant views actually helps reinforce the system by providing false assurance that dissent is allowed: “The beauty of the system, however, is that such dissent and inconvenient information are kept within bounds and at the margins, so that while their presence shows that the system is not monolithic, they are not large enough to interfere unduly with the domination of the official agenda.”8

Whatever the validity of the critique (and there’s a lot to it), most reporters, I think, would argue that what happens on the margins isn’t trivial since that is where accountability reporting usually operates. And what Herman and Chomsky don’t take into account is that the margins, over time, move; they expand and contract. Indeed, the short history of the U.S. business press shows that the boundaries can move a considerable distance and that their expansion has provided considerable benefits for the chicken workers, day laborers, and slum dwellers who appear in the stories or, at least, for the curious middle-class readers who, for a few moments, were connected to them. Indeed, the expansion of the boundaries made a democratization of business news possible. Where to draw the lines becomes a source of fierce newsroom debate, with some journalists, depending on their own values, defending the boundaries and even seeking to narrow them; others push against them. Looking over recent investigative journalism, it is surprising to see how far the boundaries of what could be covered were stretched in American journalism, business news very much included.

Historians trace what is called the “journalism of exposure” in the U.S. to pre-Revolutionary times. In his Evolution of American Investigative Journalism, James L. Aucoin notes that Benjamin Harris’s Pub-lick Occurrences Both Forreign and Domestick published what can only be called an early exposé, revealing that Britain’s allies, the Iroquois, were guilty of torturing French soldiers during the French and Indian War in the late seventeenth century. During the Revolutionary War, Sam Adams’s Journal of Occurrences fueled revolutionary feeling by publishing lurid tales of British abuses and corruption. Much later, the New York Sun probed bribery in the Grant administration after the Civil War, and Harper’s Weekly (featuring the devastating cartoons of Thomas Nast) and the New York Times under George Jones launched crusading investigations in the early 1870s into the corrupt Democratic boss William Tweed and his Tammany Hall political machine. The Times exposé got a boost when a disgruntled Tammany operative handed a copy of the ring’s secret accounting ledger to a twenty-six-year-old reporter named John Foord. It documented payments to fake contractors for work on nonexistent buildings, and the Times published it in full, setting a standard for documentation for news investigations.9

Joseph Pulitzer’s crusading St. Louis Post-Dispatch exposed everything from crooked real estate deals to protected gambling halls and brothels in the city in the 1870s. When Pulitzer moved to New York to take over the New York World, he took on William Randolph Hearst in a heated newspaper war in which exposés helped fill the demand for screaming page-one headlines every day. One World highlight was the undercover investigation by reporter Nellie Bly (née Elizabeth Cochrane) into conditions at the Blackwell’s (now Roosevelt) Island Insane Asylum for Women. It shocked New Yorkers with its first-person account of cruelty and abuse. Jacob Riis, a police reporter for the New York Tribune, brought exposure journalism to the city’s Lower East Side slums in the New York Sun in 1888 and in a series of books, including How the Other Half Lives in 1890.10

An early and rare exposé of financial manipulation and corruption was written by Charles Francis Adams Jr., who, with this brother, Henry, documented the floridly corrupt battle for control of the Erie Railway between Cornelius Vanderbilt, on one side, and Daniel Drew, Jay Gould, and Jim Fisk, on the other. Risking not just libel suits but physical injury (the Erie people “were not regarded as lambs,” he later wrote), Charles Adams took advantage of his social position to gain access to the top players both at the railroad and on Wall Street, including financier “Diamond Jim” Fisk, whom Adams interviewed in his office stronghold at the New York Opera House. In articles first published in North American Review and collected in Chapters of Erie and Other Essays, Charles Adams laid out the manipulations and backroom dealing on both sides in ironic, flowery language that was echoed decades later in the work of Lincoln Steffens. Here’s Adams’s description of Drew, the wily treasurer, who had maneuvered his way from cattle driver and tavern owner to a key position of trust at a major railroad: “Shrewd, unscrupulous, and very illiterate—a strange combination of superstition and faithlessness, of daring and timidity—often good-natured and sometimes generous—he ever regarded his fiduciary position of director in a railroad as a means of manipulating its stock.”¹¹ Vanderbilt, then one of the most powerful men in America, came off only slightly better.

A landmark in the expansion of investigative journalism to business news came with Henry Demarest Lloyd’s Wealth Against Commonwealth, published in 1894, based on an article, “The Story of a Great Monopoly,” published earlier in The Atlantic. The book, a sort of proto-muckraking, is part exposé and part diatribe against Rockefeller’s Standard Oil. Like Tarbell’s work, it relied on public records to describe how the concentration of industrial power had distorted markets and bent the government. Unlike Tarbell, Lloyd doesn’t predominantly rely on facts to explain lawless behavior underlying the evolution of trusts but instead uses facts to bolster what is essentially a polemic. “Nature is rich; but everywhere, man, the heir to nature, is poor,” the book begins, which gives a flavor of the style that follows. The work was groundbreaking in its time and influenced Tarbell, who consulted the aging reformer on his Sakonnet, Rhode Island, estate in 1902. Both could agree on one thing: that Rockefeller was a great man. “They differed only in the degree of greatness they would accord him,” Kathleen Brady recounts. “Lloyd placed him among the five greatest of history; something Tarbell averred was a little strong.”12 It is a measure, however, of the difference in their approaches that Lloyd viewed with alarm the very idea that Tarbell would consider speaking to Standard Oil executives, especially Rogers, during her reporting. It was only after he read the first installment that he wrote to her with effusive praise.

The muckraking era was brief, most often dated from 1903 to around the start of World War I. By 1906, Tarbell and other McClure’s staffers had left the magazine, defecting to the rival American Magazine over disagreements with McClure’s grandiose business plans, and the magazine itself was sold to creditors in 1911. The causes of muckraking’s demise are much-debated among historians; theories range from financial pressure brought by the magazines’ lenders to simple changes in public taste and the arrival of a more conformist age in the wake of the First World War. Muckraking’s own excesses certainly played a role as its popularity attracted hacks, hustlers, and careerists looking for a sensational exposé. Still, the era was incredibly productive—by one count, 2,000 investigative articles appeared in American magazines in the period—and set new standards for editorial ambition, fidelity to facts, storytelling, and providing a check on power. It remains a high point of journalism’s identification with and advancement of the public interest.¹³

Aucoin and others see a drop in mainstream investigations after World War I, with some exceptions, such as probes by the Post-Dispatch’s Paul Y. Anderson into the oil leases that led to the Teapot Dome scandal and indictments of Interior Department officials. The fall of muckraking reporting was reflected by the great H. L. Mencken, who denounced newspaper crusades in a 1914 column as “gothic” and “melodramatic” efforts aimed solely at boosting circulation. A 1924 Atlantic article declared them “passé.”¹⁵

Bruce Shapiro, in Shaking the Foundations, a collection of 200 years of American investigative works, argues that journalists continued investigative reporting after the muckrakers, though, importantly, not as much among major newspapers. Notable work was done by magazine reporters—Vera Connolly, who wrote about conditions on Indian reservations in Good Housekeeping in 1929; John Bartlow Martin on a mine disaster in Harper’s in 1948—and book writers, such as Stetson Kennedy, who published his exposé on the Ku Klux Klan, The Klan Unmasked, in 1954. The left-liberal press also carried the investigative burden: PM in the 1940s, for instance, probed domestic fascism as well as American firms’ and executives’ ties to Nazi-controlled firms; Fred J. Cook revealed J. Edgar Hoover’s ineffectual record against organized crime—“The Big Ones Get Away”—in the Nation in 1958; Ralph Nader published early critiques of the auto industry, “The Safe Car You Can’t Buy,” in that magazine in 1959.

In the decades after the muckrakers, certainly, routinized investigations faded from the mainstream arsenal, and journalists who overstepped conventional boundaries were marginalized almost as a matter of course. We only know this because a few, by dint of luck and enormous talent, managed to overcome setbacks to transcend their in-house detractors: Drew Pearson, as a Washington correspondent for the Baltimore Sun in the early 1930s, wrote (with Robert S. Allen, his counterpart at the Christian Science Monitor) a scathing critique of Washington’s compromised political culture, Washington Merry-Go-Round, but had to do so anonymously. When its authorship was discovered, Pearson was promptly fired. George Seldes quit the Chicago Tribune to a write a critique of the press, You Can’t Print That!, in 1929 and became one of the century’s most important independent journalists. From 1940 to 1950, he published In Fact, an investigative newsletter and a predecessor to the legendary I.F. Stone’s Weekly, which used obscure public documents to expose wrongdoing and tell larger truths. Jack Anderson, who was hired by Pearson and succeeded him in the syndicated column, would occupy something of a netherworld: read by millions but not fully mainstream during the 1970s and 1980s.16

The decades after the muckrakers, and certainly the period after World War II, are widely recognized as a time of press complacency and coziness with authority. The groundbreaking journalism that managed to emerge in the postwar era is most often associated with books written by people who weren’t primarily journalists: Michael Harrington’s The Other America (1962); Rachel Carson’s Silent Spring (1962); or Nader’s Unsafe at Any Speed (1965). The political, social, and cultural upheavals of the 1960s, of which these books were an early symptom, brought a new sense of skepticism among many Americans. Investigative reporting began to reemerge in the early 1960s, propelled by changing public attitudes and professional mores. As noted in chapter 3, the media scholars Katherine Fink and Michael Schudson report that after this time there was a dramatic increase in “contextual journalism,” the longer, more deeply reported, more analytical stories that were less reliant on official sources and less tethered to the daily flow of events.¹⁷ In a sense, contextualized journalism can be seen to have risen on the storytelling foundation laid by the likes of Luce and Kilgore.

Indeed, a reading of investigative reporting of the last half century shows that work as sweeping and ambitious as the muckrakers’ would become incorporated and institutionalized in the mainstream of American media editorial culture. What’s more, newspapers could now afford it. Already prosperous in the 1950s, the newspaper industry over the next decades would see steady and constant rises in annual advertising, from around $5 billion in 1960 to more than $50 billion 2000 (in inflation-adjusted terms it about doubled over the period). Circulation revenue increased tenfold to $10 billion.18

Even as the number of newspapers declined since the 1920s and circulation dropped in absolute terms since the 1950s,¹⁹ great newspaper chains expanded and consolidated into quasi monopolies. Newspaper companies—McClatchy (Sacramento Bee, Raleigh News and Observer), Tribune, Times Mirror (Los Angeles Times, Baltimore Sun), Advance Publications (the Plain-Dealer, New Orleans Times-Picayune)—held a vicelike grip on advertising markets essential to everything from local grocery stores, department stores, and government agencies to millions of regular people trying to sell a used car. They were cash cows. Even locally owned papers—the Anniston (Alabama) Star, the Providence Journal—were profitable from the 1960s to the end of the 1990s. Margins of 20 percent (about those of Apple and Google today) were expected, and even 30 percent was not out of the ordinary.

Some media companies, such as Knight Ridder (Philadelphia Inquirer, Miami Herald, Charlotte Observer), became renowned for reinvesting in newsrooms and turning out exemplary regional papers. Others, like Gannett (USA Today and dozens of local papers, including the Montgomery Advertiser and the Rochester Democrat and Chronicle), were content to squeeze profits and became a watchword for mediocrity. In the end, quality was determined by ownership. But the resources were plentiful, and accountability reporting became one of the beneficiaries. Readers began to expect investigations are part of their Sunday fare. News organizations made room for a new breed of reporter, and establishment journalism made way for what was a new and, in some ways, an antiestablishment form. It was not always an easy fit.

In 1964, the Pulitzer Prizes, administered by the Columbia University Graduate School of Journalism, added a new category, “Local Investigative Specialized Reporting,” which was won that year by the Philadelphia Bulletin for a probe into police collusion in a local numbers racket. Subsequent winners would explore stories as familiar to us today as they would have been to the muckrakers: wrongful murder convictions (Miami Herald, 1967); fraud and abuse of power in a local steamfitters union (St. Louis Globe-Democrat, 1969); and the exploitation of prisoners for drug experimentation (Montgomery Advertiser and Alabama Journal, 1970).

The high-water mark of American investigative reporting remains Watergate and the Washington Post’s landmark probe led by reporters Bob Woodward and Carl Bernstein; their editors, primarily Ben Bradlee; and the paper’s publisher, Katharine Graham. It is true that the years have brought new examinations and a more nuanced, less heroic understanding of the Watergate probe, but it continues to stand as a monument to the potential of the news investigation to expose wrongdoing, hold power to account, and trigger political and electoral reforms. The fictionalized film account of the investigation, All the President’s Men, solidified the story’s iconic status even as it took poetic license with critical facts. “Watergate,” Michael Schudson writes, “overwhelms modern American journalism.”20 So powerful is the legend surrounding the story, so mythic the image of the press uncovering a real-life criminal conspiracy at the highest levels of government, that the debates still rage over the role of the press in the fall of the Nixon presidency. Indeed, a cottage industry has sprung up to debate what are described as “myths” about the press’s role in general and the Washington Post’s role in particular. Schudson argues that even to the extent that the “press” advanced the Watergate story, it was by virtue of the Post acting alone (and, he argues, anomalously), while the rest of the Washington press corps did little. Others contend that much of the story wasn’t “uncovered” by the Post but leaked by law enforcement or other investigators. Max Holland argues that W. Mark Felt, the high-ranking FBI official who revealed himself in 2005 to be the whistleblower known as “Deep Throat,” was motivated by internal bureaucratic goals.²¹

But without relitigating the disputes, no one seriously argues that journalism, even if only the Post for a time, was not instrumental breaking and perpetuating the Watergate story at key moments. That the newspaper was part of an exposure dynamic that involved law enforcement and other institutions, that it was propelled by leaks from official investigators, and that other bodies eventually forced Nixon’s resignations do not diminish the Post’s achievement.

In the wake of Watergate, newspapers around the country installed dedicated investigative reporters and teams: the Boston Globe, Philadelphia Inquirer, Chicago Tribune, Chicago Sun-Times, Miami Herald, Minneapolis Tribune, Indianapolis Star, St. Louis Post-Dispatch, Atlanta Journal, Cincinnati Enquirer, Daily Oklahoman, and Nashville Tennessean, among many others, not to mention the New York Times and the Wall Street Journal. The year 1974 was a landmark for investigative reporting. The year after the Post was awarded its Pulitzer Prize for Public Service for its Watergate series (for work published in 1972), investigative work won four Pulitzers: Bob Greene’s Newsday team won for its “Heroin Trail” series, Chicago Sun-Times reporters won for stories that reopened a 1966 murder case; a New York Daily News reporter won for revealing abuses in New York’s Medicaid program; and reporters for the Providence Journal and Washington Star-News shared the national reporting award for probes finding irregularities in, respectively, President Nixon’s tax returns and the financing of his 1972 reelection. Time magazine declared 1974 “The Year of the Muckrake.”22 With the formation Greene’s team, the mid-1970s saw the start of an era of neo-muckraking, different from the past in that mainstream media, not entrepreneurial magazines, carried the public-service load. Investigations proliferated. No paper was too small to engage in this kind of hard-hitting journalism, and no topic was too big to take on. By 1975, investigative reporters had their own trade group, Investigative Reporters and Editors, based at the University of Missouri’s journalism school, complete with conventions and conferences attended by thousands, with vendors’ booths hawking everything from database services to hidden cameras.

A galvanizing moment in this neo-muckraking movement came in 1976, when an investigative reporter for the Arizona Republic, Don Bolles, was mortally wounded in a Phoenix parking lot by a remote-controlled bomb taped to the bottom of his car. The precise motive for the crime was never fully discovered, but Bolles had done many stories on organized crime, including one that named 200 known mob figures operating in Arizona. His last words in the parking lot were, “They finally got me—Emprise—The Mafia—John Adamson. Find him.” The murder sparked a cooperative journalism effort known as the Arizona Project, headed by Newsday’s Greene and drawing three dozen reporters and editors from twenty-three newspapers to continue Bolles’s work and investigate his death. It produced dozens of stories. Adamson later confessed to planting the bomb and implicated an Arizona contractor in ordering the murder and another man in helping to carry it out. Adamson and the contractor ultimately served long prison terms. “Emprise” was the name of a company Bolles was investigating, and it was later convicted of concealing its ownership of a Las Vegas casino. It was found to have had nothing to do with the murder. Bolles’s damaged car, a 1976 Datsun, was later put on display at the Newseum in Washington.²³

By the end of the 1970s, as newspapers consolidated their status as local quasi monopolies, their willingness to embark on aggressive investigations became a key benchmark of newspaper quality. Investigative highlights from this period include a Deseret News series on radioactive fallout of atomic weapons tests (1979); a Port Arthur (Texas) News probe of local polluters (1979); a Bridgewater (New Jersey) Courier-News investigation of payments by a state school to an attorney (1980); revelations by the Louisville Courier-Journal of irregularities in Kentucky’s coroner system (1981); an investigation of Alabama’s troubled coroner system by the Anniston Star (1984); the revelation by the News-Sentinel of Fort Wayne, Indiana, of fifty-two deaths related to a religious sect’s teachings against modern medicine; and an exposé by the San Jose Mercury News of the overseas investments of Ferdinand Marcos (1985). Even the investigative reporters’ own trade group, the IRE, found itself the target of an exposé of sorts in 1977, a Page One Wall Street Journal story revealing that the newly formed muckrakers’ group had accepted donations from ethically dubious sources: a foundation created by a financier imprisoned for securities fraud and a Chicago lawyer with Mafia clients. IRE responded weakly that it didn’t know the identity of the donors.24

Business journalism was a full participant in the investigative movement and eventually could rightly claim some of the most potent works in American journalism history. Business news’s particular strengths—its sophistication about corporate culture, its grasp of business idioms, its technical expertise in financial and accounting matters—were brought to bear in startling exposés from the 1960s on, including a remarkable Wall Street Journal series in 1964 on how a string of favorable regulatory rulings allowed Lady Bird Johnson to turn a $17,000 investment into a multi-million-dollar media empire. What’s more, the fact that the exposés were from mainstream business news publications gave them added weight and resonance. Unlike, say, an alternative paper or Rolling Stone, these publications could not be accused of having a built-in animus toward business or of pandering to a readership of one political orientation or another.

In 1983, to take one example of hundreds, George Getschow, writing in the Wall Street Journal, explored the work camps run by day-labor employment agencies in the Southwest and the labor conditions that amounted to slavery, with workers charged almost as much for room, board, and work tools as they earned in salaries.25 A story the next day described a camp in Louisiana that plied workers with alcohol and sedatives—and charged for them whether the workers wanted them or not—before sending them off to offshore oil rigs. On entering the camp, they were required to sign over power of attorney. One man told Getschow he never saw a paycheck for the four months he worked offshore and received only a few dollars of pay after the company sent his wife an alimony check and charged him for whiskey, wine, and sedatives like Elavil and Atarax, dispensed, the Journal found, by the camp director, who wasn’t a doctor and didn’t have a license. The slave-labor-camps series, a finalist for a national reporting Pulitzer in 1984, is reminiscent of the journalism of muckraker (and future socialist) Upton Sinclair in the early twentieth century.

The institutionalization of muckraking was accompanied by painstakingly intricate disputes over investigative theory and practice. In 1962 John Hohenberg, curator of the Pulitzer Prizes, wrote about the previous year’s public-service entries and drew distinctions between routine reporting and exposure, or “investigatory,” journalism. During the 1970s, some journalists sought to refine the definition to the exposure of corruption, graft, and abuse of power. In a 1972 article for Quill, K. Scott Christianson, a reporter for the Knickerbocker News-Union Star, in Albany, N.Y., defined it as gathering “important secret information that somebody is determined to keep secret.” In 1975, Greene added the requirement that the reporting had to be the journalists’ original work, not the findings of a government agency. One writer distinguished between “modern” investigators and early muckrakers by asserting that while the latter distilled and interpreted information that was already known, their modern counterparts engaged in “systematic investigations” or original reporting.²⁶

An early handbook, Investigative Reporting and Editing (1978), by Paul N. Williams, described investigative reporting as an “intellectual process … a business of gathering and sorting ideas and facts, building patterns, analyzing options, and making decisions based on logic rather than emotion—including the decision to say no at any of the several stages.”²⁷

Journalistic thinkers posited, with more or less a straight face, the “holy shit” theory of investigative reporting—defining it by the reaction among readers that they aimed to provoke. Beginning in the late 1960s there were a variety of efforts to catalogue and standardize investigative reporting methodologies. A team of journalists working for the American Press Institute in Reston, Va.—J. Montgomery Curtis; Ben Reese, a former editor of the St. Louis Post-Dispatch; John Seigenthaler Sr. of the Nashville Tennessean; and Clark Mollenhoff, Michael Hudson’s mentor, then with the Cowles papers—developed a formal system for investigating government or private institutions that included analyzing of the history of the agency, checking for possible conflicts of interest.28 A deadly serious 1976 handbook, Investigative Reporting, includes chapters such as, “Attracting and Evaluating Sources” and “What to Investigate.” At one point it declares, “There is no institution of any standing, anywhere, that wouldn’t be improved by a bit of investigation.”²⁹

After Watergate, social theorists began to discuss—and sought to demonstrate empirically—the social and policy effects of journalism investigations. The terms “agenda setting” and “agenda building” came to reflect the complex dynamic among the press, public opinion, and government and other institutions that created the conditions for reform.³⁰ In The Battle for Public Opinion, a 1983 study on how agenda building had worked during the Watergate investigations, Gladys Engel Lang and Kurt Lang analyzed the “collective process” required for reform.³¹

It is hard to know what Tarbell, McClure, and Steffens would have made of all the theorizing of a practice they did by instinct. (Given their own moralizing bent and devotion to scientific methods, they would probably have approved.) It is true that the literature of investigative reporting comes across as rather earnest and self-important. Textbooks speak of “mobilization models”—complete with flowcharts that purport to describe how news effects are generated. But the theoretical work was part of investigative reporting’s struggle for legitimacy within the professional culture. Advocates of investigative journalism sought to make investigations a permanent fixture in newsrooms by bureaucratizing and standardizing them.

It’s important to note that they were not always successful. As we’ll see, institutionalization carries a price, and it is telling that some of our era’s great investigative reporters chose, or were forced, to work outside major news organizations. Seymour Hersh was in and out, mostly out, of mainstream media for most of his career before becoming a regular contributor to The New Yorker; Wayne Barrett, a muckraking urban-affairs reporter, worked the bulk of his career at the Village Voice; Wiliam Greider, the great economics-affairs writer, left the Washington Post for Rolling Stone; Lowell Bergman, a longtime network reporter and producer, works across multiple media, including for the public-affairs program Frontline. For advocates of institutionalized accountability reporting, it is problematic, to say the least, that so many of the country’s best investigative journalists worked outside the mainstream and that to do so they in some ways had to transcend it by becoming brands in themselves.

Even if there remained lines that institutionalized accountability reporting would not cross, it did take root within mainstream media, and its very presence there gave it a power it could not find in alternative outlets. As accountability reporting became more accepted, it was no longer limited to narrow topics, such as chasing crooked politicians or exposing nursing-home abuses. Katharine Graham recognized as much in her 1974 speech that distinguished between two kinds of investigative reporting, one exposing “hidden illegalities and public official malfeasance,” another that “zeroes in on systems and institutions in the public or private realm.”32 This more sweeping definition built on the work of the muckrakers—exposing wrongdoing but also explaining such broader topics as the rise of newly powerful institutions and the effects of seemingly arcane public policy on daily life and society.

The work of Donald Barlett and James B. Steele in the Philadelphia Inquirer and elsewhere illustrates the expanding ambitions—and achievements—of investigative reporting in the era. In the early part of their career, the two reporters pursued classic exposure journalism: abuses of a Federal Housing Administration mortgage program and waste in federal synthetic-fuels subsidies. In the 1980s, the scope of their work expanded; a 1988 series probed how special interests had distorted the 1986 tax reform.³³

By the early 1990s, they were taking on the economic system, explaining the effects of a decade’s worth of tax, trade, and regulatory policies and how they had changed, for the worse, Americans’ economic life. The series, “America: What Went Wrong?,” ran in the fall of 1991. The first installment was called: “How the Game Was Rigged Against the Middle Class.” It started this way:

Barlett and Steele’s language clearly echoes that of Tarbell and the muckrakers a century earlier. If anything, Tarbell is arguably the more measured and even-handed in the presentation of facts. While Barlett and Steele represent the outside edge of the breadth and ambition of mainstream media—their series took up twenty-five newspaper pages—the series they wrote was far from an anomaly. As we’ve seen, ambition—some would call it pretension—became a hallmark of the journalism of the period. Muckraking, in an evolved form, had been thoroughly absorbed into the mainstream. From the 1960s, at the latest, it was what American newspapers did.

And, according to opinion polls, the public embraced the trend. A Gallup poll in 1981 found that 79 percent of respondents approved of investigative reporting, and 66 percent said they would like to see more of it. Polls in 1986 and 1989 showed continued strong support, despite eroding public confidence in the media in general. A report based on the 1989 survey concluded:

The Philadelphia Inquirer’s “What Went Wrong?” series, for instance, generated 20,000 letters, notes, and telephone calls. After the ninth and final article was published, the Inquirer reprinted 15,000 copies of the series to be given away to readers the next day at the newspaper’s office in downtown Philadelphia. Early the next morning hundreds of people waiting to get a copy formed a line that wound around the building. The entire supply was quickly exhausted. In the days that followed, similar scenes would occur as the newspaper repeatedly went back to press to satisfy demand.

It’s worth pausing to remember that these newly formed journalism teams, as their forebears had, did help to “[raise] the level of public and private conduct,” as the muckraking American magazine actually claimed in 1907.³⁶ But for a 1977 Philadelphia Inquirer exposé, brutal conditions at a state mental hospital might have gone on indefinitely. Absent a Charlotte Observer series in 1980, the public might never have known that some textile mill owners had been concealing both the dangers of cotton dust from their workers and incidences of brown lung disease from state health officials.

Today, investigative reporting is the apple pie of journalism debates; everyone is for it, in theory. A 2008 survey found that “91% of all newsroom executives said they considered investigative or enterprise reporting either ‘very essential’ or ‘somewhat essential’ to the quality of their news product.”37 But while all professional news people must pay lip service to accountability reporting in principle, its expense, risk, and difficulty engender perpetual resistance within news bureaucracies. Even during its heyday, accountability reporting faced resistance from those who didn’t understand it, felt it beyond the scope of daily newspapers, or simply had a different conception of the news.

Many news executives, as we’ll see, profess to support accountability reporting but withhold resources, incentivize scoops and other access reporting, and express hostility to the idea of long-form journalism. Likewise, digital-news theorists acknowledge accountability reporting’s value but promote business models that cannot support it. Within newsrooms, investigative reporters have sometimes found themselves stereotyped as overly zealous, blinkered, unreasonable, and agenda-driven; as pack rats and flakes; and, perhaps worst of all, as unrealistic. Sometimes, of course, this is the case. Periodic scandals involving overzealous and flaky reporters offer cautionary examples. The tension is real. Investigative reporting almost by definition requires a certain amount of passion for the subject, determination to overcome resistance from the targets of the probe and risk aversion within news organizations, a single-minded focus over weeks and sometimes months, and, often, emotional identification with victims. The line between focus and obsession is not always clear. One result is that investigative reporters have been subject to marginalization within news organizations, much as the muckrakers have been driven to the margins of journalism’s historical memory.

And to be sure, many of investigative reporting’s most damaging wounds have been self-inflicted. The bureaucratization of muckraking brought many benefits, including professionalism, standards, and institutional support from increasingly prosperous and powerful news organizations. But it also brought its own set of career and institutional incentives that presented risks for readers. With proliferation came screw-ups, excesses, and embarrassment. One early faux scandal, “Billygate,” involved the President Carter’s brother, who had an unwisely tried to broker business deals with Muammar Gadhafi’s Libya without registering as a foreign agent. A frenzy of stories that purported to extend the story—including a supposed presidential cover-up—amounted to nothing. Another nonscandal of the era involved Carter aide Hamilton Jordon. In 1978 Steve Rubell, owner of the Studio 54 nightclub, tried to deflect authorities from his own troubles by alleging he saw Jordon snort cocaine at his club. A drug dealer called “Johnny C,” facing his own charges, emerged to back up Rubell and repeated the allegations for ABC’s 20/20. An exhaustive four-month investigation by a court-appointed special prosecutor, Arthur Christy, found the allegations to be baseless.38

And, as Aucoin notes, the turn of the 1980s brought high-profile libel cases that exposed reporting methods to years-long public scrutiny, including Tavoulareas v. Washington Post, Westmoreland v. CBS, Wayne Newton v. NBC, and Ariel Sharon v. Time. Individually and collectively, the cases damaged the reputation of investigative reporting and raised questions, some legitimate, about the newfound zeal among news organizations. In fact, the cases presented widely varying degrees of fault in the reporting and writing.

Neo-muckraking also encountered cultural pushback as the public wearied of the pieces’ sprawling length, grim subject matter, and formulaic presentation: anecdotal leads, bullet-pointed findings, and often clunky, earnest writing. Some critics complained that investigations were launched with journalism prizes in mind or to advance other institutional or career needs. Eventually, the multipart newspaper series would become the subject of mockery, some of it richly deserved.

Accountability reporting as a practice came under attack from the political right, attacks that continue to this day. The Wall Street Journal’s editorial page, for one, had far more sympathy for Tarbell and her early-twentieth-century muckraking than it would for her intellectual heirs eighty years later, referring at one point to “the faux journalists Barlett and Steele.” That particular piece (“Schlock Populism: Voters Ignore Gore’s Blather,” August 24, 2000), accused Barlett and Steele (along with a motley list including Kevin Phillips, Pat Buchanan, and Ralph Nader) of peddling class resentments. The conservative complaint was more fully laid out in a 1998 Journal op-ed on journalism prizes by James Bowman, the American editor of London’s Times Literary Supplement. Bowman mistakenly believed the Philadelphia Inquirer’s “America: What Went Wrong?” series had won a Pulitzer (it won many other prizes; the error was corrected), but his overall charge was that Barlett and Steel hid behind a guise of journalistic objectivity to advance a transparently liberal view of the world. “The self-evident absurdity of their conclusion, that the policies of the Reagan-Bush years were about to eliminate the American middle class, did not put off the Pulitzer judges, and the series turned into a book that had some influence on the 1992 election,” Bowman wrote.39 In fact, Barlett and Steele, like Tarbell, got some things wrong. But the facts they gathered to describe the shifting political and economic forces arrayed against the middle class were never in dispute, and, sad to say, their conclusions proved to be all too accurate. In 2012, Barlett and Steele published a new book, The Betrayal of the American Dream, documenting the trends they had detected two decades earlier.

In the 1990s, one could argue that the best accountability reporting could be found in business news, now fully established in the front ranks of American journalism. Indeed, as business itself became more empowered during this era of deregulation, business news became even more essential in checking corporate excesses. The former journalism backwater, which had once consigned itself to relaying information to market participants, used its particular expertise in accounting, finance, and corporate law to begin to probe beyond “hidden illegalities,” to use Graham’s terms, to zero in on systemic problems. The era produced stories that reshaped debates and reformed entire industries. Still, as we’ll see, even at its height, business reporting had its limits.

One of the most celebrated muckraking stories about business and the economy was a 1994 series on working conditions in various deadend jobs, “Nine to Nowhere,” by the Journal’s Tony Horwitz (December 1, 1994), who wrote one of the more memorable openings:

The business press also turned an investigative gaze on Wall Street. In a 1991 article in Fortune, Carol Loomis, an iconic figure in the business press, wrote a devastating exposé of the increasingly troubling practice among brokerages of cold-calling retail customers and browbeating them into problematic investments.40 The article zeroed in on Merrill Lynch’s unsavory tactics, including flat misrepresentation and fraud. The piece is especially significant in hindsight because, as we’ll see, the practice of scripted cold-calling spread to the mortgage industry and provided a crucial driver of the explosion in defective mortgages that lay at the center of the global financial crisis. With a couple of exceptions, reporting on such boiler-room tactics would disappear during the lead-up to the crisis.

Loomis also brought great sophistication to bear on a complex subject in cover stories about the dangers of derivatives in 1994 and 1995. One carried a photo of an alligator’s mouth and the headline “The Risk That Won’t Go Away.” The article, while not investigative, is valuable in pointing out dangers already looming that would lead to crisis a decade later:

Most chillingly, derivatives hold the possibility of systemic risk—the danger that these contracts might directly or indirectly cause some localized or particularized trouble in the financial markets to spread uncontrollably. An imaginable scenario is some deep crisis at a major dealer that would cause it to default on its contracts and be the instigator of a chain reaction bringing down other institutions and sending paroxysms of fear through a financial market that lives on the expectation of prompt payments. Inevitably, that would put deposit-insurance funds, and the taxpayers behind them, at risk.⁴¹

The business press also took on Wall Street practice of selling investments that would quickly collapse in value. During the Internet bubble, Fortune examined the record of companies offered to the public by Merrill Lynch in the mid- to late 1990s. The piece explained the rich incentives for bankers to make IPOs, no matter what the company’s prospects (5 to 7 percent of the total deal), as well as for company executives, who became millionaires overnight. The piece explored how the incentives for Merrill and other Wall Street analysts corrupted their research and showed that Merrill’s army of retail brokers were forced to peddle shares they knew to be wildly overvalued—and then dissuade retail customers from selling shares before the inevitable fall. The piece tracked down a former Merrill broker who quit in disgust. “‘Institutions would bail out right away,’ says the [former broker Richard Urbealis]. ‘But retail customers would be left holding the bag.’”42

Businessweek published a cover story in 1998—the height of the stock-market boom—demonstrating how companies manipulated earnings with ploys such as one-time write-downs of acquisitions (to disguise poor operating results) and “restatements” of earlier rosy earnings reports. The magazine pointed to the corrupt practice among Wall Street analysts of bending research reports to help investment-banking colleagues win business from companies the analysts purported to cover.⁴³

Also during the height of the Internet bubble, the Wall Street Journal’s Michael Siconolfi exposed the bribery-like practice of “spinning,” whereby a Wall Street bank allocates shares of a hot initial public offering to the CEO of an unrelated company in hopes of winning the second company’s business. The Journal described, for example, how the investment bank Robertson Stephens allocated 100,000 shares of Pixar Animation Studios, representing a $2 million profit, to the CEO of a small tech company, GT Interactive Software Corp., which then hired Robertson Stephens to advise it for $5 million. “It’s a bribe, no question about it,” the story quoted a rival banker on the record. The story named several banks involved in the practice, including Hambrecht & Quist LLC, then a hot boutique firm, and Morgan Stanley. The story also reported that the practice “may violate” regulatory antibribery rules and that neither the SEC nor self-regulatory agencies had even heard of the practice. The story prompted regulatory investigations, and spinning was later barred.⁴⁴

This laudable investigative work shows what the business press can do when it chooses to. Its writers were able not only to match the bankers’ financial sophistication but also to employ it to reveal common industry practices to fall far short of society’s “expectations of integrity and fairness.” Indeed, the stories showed the industry as a whole fell short even of its own standards for fair dealing in the marketplace. Furthermore, the best of these stories are original and don’t piggyback on regulatory or law-enforcement work; they qualify as investigations according to the definitions of Bob Greene and others. The fact that the stories came from mainstream business-news publications—that is to say, from within the financial establishment itself—gives them unmatched credibility and potency.

What’s more, as Frank Partnoy and others have documented, the mortgage era of the early 2000s was the culmination of over two decades of increasingly normalized reckless and lawless behavior on Wall Street, punctuated by the savings-and-loans scandal of the late 1980s, the derivatives scandals of the early 1990s—when Wall Street firms were found to have knowingly misled corporate clients such as Gibson Greetings and Procter & Gamble about the riskiness of derivatives—and the Internet bubble of the late 1990s, in which Wall Street “research” was later revealed by Eliot Spitzer to have been fraudulent.45 Wall Street’s culture was shifting. It was going rogue even as, or because, official regulatory scrutiny was weakening. Further, Wall Street misbehavior was no longer confined to the sophisticated players involved but was encroaching on public well-being. The S&L scandal cost federal taxpayers tens of billions. Losses from the Internet bubble affected, to a large and unprecedented degree, retail investors, many of whom had recently entered 401(k)s and the stock market.

On occasion, mainstream business reporting did transcend the normative limits of business journalism and struck at the heart of changing norms in the financial sector. In 1999, for instance, the New York Times published an extraordinary series of stories that probed allegations of criminality at Bank of New York, one of nation’s oldest and heretofore most reputable banks. Both reporting on and advancing a law-enforcement investigation, the series explored the unexplained movement of billions through accounts at the bank, tracing the source to giant Russian banks tied to larger enterprises controlled by Russian oligarchs. The series, headed by reporter Timothy L. O’Brien, ultimately helped to expose a money-laundering ring inside the bank, naming Bank of New York executives connected to the account, three of whom were indicted later that year. The bank settled federal money-laundering charges a few years later.⁴⁶

A forthright late-1990s investigation into the heart of Wall Street came from Forbes, which took aim at the corrupt relationship between a rogue brokerage, A.R. Baron, and a Wall Street icon, Bear Stearns, which acted as its “clearing firm,” providing back-office support for smaller brokerages to make sure “buy” and “sell” orders are properly executed and delivered and acting as a guarantor. Baron was later indicted on state racketeering charges and found to have committed the worst kinds of financial abuses, including pumping up worthless shares, using “boiler-room” tactics to browbeat often elderly investors into buying shares of fraudulent companies the brokerage secretly controlled, trading without customer knowledge, taking kickbacks from penny-stock promoters (“touts”), embezzlement from customer accounts, and more. One trader would testify to receiving kickbacks from touts of $120,000 in cash, delivered in a brown paper bag and weighing more than a “medium-sized ham.” Baron’s testosterone-fueled culture, testimony would later reveal, included wild sex and drug parties among employees and prostitutes at New York nightclubs. Baron would be the model for the firm featured in the 2000 film about a corrupt brokerage, Boiler Room, a movie that would later figure in the mortgage crisis.

Using documents from lawsuits and arbitration cases against Baron, Forbes showed the remarkable degree to which Bear served as Baron’s lifeline and enabler, demonstrating that Bear had known of Baron’s checkered past before taking it on as a client and knew of Baron’s unauthorized trading from the anguished pleas of Baron’s customers, who appealed directly to Bear to reverse them. Bear refused. Further, Forbes reported, Bear served as clearing firm for many of the worst operators in penny-stock sector, including Sterling Foster, Rooney Pace, D. Blech, and D.H. Blair, all notorious as predatory operations.

Forbes went even further to show that the corrupt brokerage head, Andrew Bressman, had a personal relationship with Richard Harriton, the Bear clearing chief. Citing confidential sources, Forbes said Harriton secretly benefited from trading in a Baron’s account and noted that Harriton’s son Matthew served as chief financial officer for one the “house stocks” that Baron had manipulated. The Forbes story concluded: “The whole situation stinks.”47 The author, Gretchen Morgenson, later moved to the New York Times.

Later that year, Baron was indicted by Manhattan district attorney Robert Morgenthau for “enterprise corruption,” New York State’s version of racketeering. Morgenson, along with Gary Weiss, a reporter for Businessweek, used the incredibly damaging testimony in the trials of Baron’s executives to tighten the connection between the racket and the Wall Street icon; one indicted trader testified Harriton and Bressman lunched weekly at a country club (an assertion Bear denied on Harriton’s behalf). Later that year, Weiss and Businessweek explored the ties among Bear, Harriton and his son, and another small brokerage later found to be a criminal enterprise, Sterling Foster, which was indicted on fifteen counts of stock manipulation. In the end, though Baron’s executives received lengthy prison terms, Bear Stearns escaped with remarkably light punishment. Bear later agreed to pay $38 million to settle charges brought by Morgenthau and the SEC. Harriton agreed to pay $1 million and was barred from the business.⁴⁸

Whether the Bear/Baron investigation represented a regulatory failure is a question beyond the scope of this inquiry. But it could be said to represent a journalistic missed opportunity. Extraordinary efforts by exceptional reporters laid bare a new and troubling paradigm in the financial sector: the connection between boiler-room operations facing the public and the Wall Street firms that profited from and enabled them. Opportunities for an authoritative look into Wall Street’s inner workings don’t come along often. The sleaziness of boiler-room brokerages, penny-stock touts, and public-company charlatans was well known, but their relationship to brand-name Wall Street firms, without whom they could not exist, was not.

A General Accounting Office study of leveraged buyouts that year would find the company achieved “mixed results” after the LBO. But certainly, for its new owners, Safeway was a financial success over the long term by many measures. Soon after the story ran, the company conducted an initial public offering at $11.25 a share (lowered from earlier projections), but by the time of the GAO report the shares had risen past $20. Peter Magowan in 1992 would announce a $100 million investment in the San Francisco Giants. KKR divested itself fully of Safeway in 1999 at a profit to its investors of some $7 billion. Today, the company is one of the top three supermarket chains by market capitalization. Still, the necessity of the Safeway LBO is far from a foregone conclusion, even viewed strictly from the company’s financial perspective. In 1988, as Faludi wrote in a sidebar to the Safeway story, Kroger Co. had faced similar dilemma. When a hostile takeover offer threatened a breakup of the company, Kroger managers resisted both it and a leveraged buyout. Instead, the grocer remained public but took on debt, paid its shareholders a large dividend, and gave employees a stake in the company. While Safeway cut its workforce by a third, Kroger trimmed its by only 3 percent. As of 2012, Safeway was the nation’s fifth-largest food retailer. Kroger was second.⁵¹