Big Fat Story
The CNBC host stands accused of sparking a stock collapse.
Critics derided Mad Money’s Jim Cramer as a panic-monger when he told the Today Show on Monday: “Whatever money you may need for the next five years, please take it out of the stock market right now, this week.” Cramer, who warned the Dow could plummet as much as 20%, insisted he was only urging viewers to invest responsibly, not stuff their life savings under the mattress.
The SEC is pondering who to prosecute for the Bear collapse
If an airline goes down we expect the authorities to investigate. But when one after another bank fails it is a different matter. Jim McCarthy argues that the end of Bear Sterns was due to innuendo fueled by irresponsible unattributed rumor mongers in the press. “For an American public already deeply skeptical about the news media, it isn’t enough for reporters simply to say, “Trust us but don’t investigate,” he writes.
Former Lehman CEO Dick Fuld says rumors killed his company
Testifying before Congress, the ex-CEO of Lehman Brothers, Dick Fuld, blamed the investment bank’s demise in part on press leaks and “a storm of fear” that scuttled efforts to save the company. According to Fuld, Lehman was close to bringing in Korea Development Bank to rescue the company when reports of the negotiations caused its share price to tumble past the point of no return. Rep. Henry Waxman (D-CA), who chaired the committee hearing, was less than convinced of Fuld’s version of events, describing Lehman as “a company in which there was no accountability for failure.”
Photo: Susan Walsh/AP
Is the Press Spooking the Market?
Investors are a jittery bunch at the best of times, and the market mayhem has made them more prone to panic than ever. Does the press have a responsibility to hold off commenting in these sensitive times?
Technical difficulties at a newsroom nearly caused United to crash
When a headline on trading screens last month told investors United Airlines was filing for bankruptcy, it was news to the company’s top execs. The inaccurate story almost became a self-fulfilling prophecy as freaked-out investors sold off shares en masse, causing the airline to lose about 75% of its value in just 60 minutes. The source for the panic turned out to be an article dated 2002 from the Chicago Tribune, which Bloomberg News accidentally cited in a news alert as a current piece. The airlines’ stock bounced back after Bloomberg hastily issued a correction, but it still ended the day down 11%.
Photo: Ric Francis/AP
Are short-sellers setting up the press to cause stocks to sink?
Not everyone suffers when a company collapses. Investors who sell short stocks they predict will fail can pile up profits if a company’s share price collapses at the right time. The financial motive to spread false information in order to tank a stock is powerful, and the SEC is currently looking into whether rumors contributing to the collapse of Bear Stearns were deliberately planted in the press by short-sellers. Meanwhile, the federal government isn’t taking any chances on Bear Stearns’ fate occurring elsewhere—the SEC imposed a temporary ban on short-selling last month.
Media cheerleading of the market may have helped its slide
“As in the savings-and-loan scandal of the late 1980s, the press was a day late and several dollars short,” writes Washington Post columnist Howard Kurtz. He faults reporters for not treating their business sources with greater skepticism and for setting aside negative stories on companies out of fear of knocking down stock prices. Kurtz accuses the press of building up corporate executives as economic geniuses even while they ran their companies into the ground. In one egregious case, he notes that Fortune magazine profiled Lehman Brothers ex-CEO Dick Fuld as “The Improbable Power Broker” in 2006, just two years before the company collapsed.
Photo: Keith Bedford/Reuters
Citizen journalists on CNN’s iReport.com spread a rumor last week that Apple founder Steve Jobs, already a cancer survivor, had suffered a heart attack, caused Apple stock to drop 5.4% before the company could reassure shareholders the news was a hoax. The stock recovered by the end of the day. The SEC is investigating whether the CNN iReporter who spread the rumor was trying to deliberately drive the share price down in order to short it.
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