In spite of the magnitude of numbers, names, and places, the BCCI affair and the savings and loan crisis can be reduced to a few basic themes. Reporters who discussed the coverage of these stories at The Annenberg Washington Program provided brief overviews of the scandals and tried to distill the issues for conference participants in much the same way they would for viewers or readers.
Although the scandal surrounding the Bank of Credit and Commerce International (BCCI) is perhaps the biggest banking scandal in history, it received limited media coverage. BCCI was a Pakistani-managed, Middle East-financed international bank with branches in 70 countries. Peter Truell, a reporter for The Wall Street Journal who has written some of the most significant stories on BCCI, described the essence of the scandal:
It is a story about stealing very large amounts of money and using it for a multitude of illegal purposes, perverting governments, corrupting politicians, corrupting regu-lators, corrupting bank regulators.
In assessing the implications of the scandal, Truell pointed to "an erosion of trust in public institutions." Although the BCCI scandal may impose a financial burden on taxpayers, its greatest cost to the public is the loss of trust in government.
Truell's observation is relevant to the savings and loan crisis as well. Paul Muolo, senior editor of National Mortgage News, who broke many of the first and most important stories on the savings and loan debacle, believes that deregulation invited fraud in the industry by permitting thrifts to abandon the home mortgage market for more questionable investments. When these investments failed, as many of them did, the result was "a fiscal Vietnam...the biggest financial disaster since the Great Depression," according to Brooks Jackson of CNN. The bailout will probably require American taxpayers to foot a bill that may reach as high as $500 billion.
The difficulty of obtaining information has been a persistent problem for news organizations investigating BCCI and the savings and loan scandals. Stephen Labaton, a correspondent with The New York Times, remarked that government agencies "are naturally slow, regulators are not always candid." Obviously, news organizations do not have subpoena power, which may be critical to untangling a complex criminal case; therefore, they must often await official action, which gives agencies the opportunity to delay, if not to obstruct, media investigations. Ira Silverman, a producer with NBC News, noted that in the BCCI affair, the Department of Justice repeatedly told reporters that it was under investigation, in an attempt to keep the media at bay. "They believe that if there is any public opinion or public interest in this, it will erode with time," Silverman said.
BCCI affords a good example of the manner in which the media may break a story, then revert to "pack journalism," following law enforcement officials and reporting indictments and press releases, instead of independently investigating the story. For instance, important leads involving BCCI's secret ownership of First American Bank in Washington, D.C., came to the attention of the Justice Department in a 1988 undercover investigation of BCCI, but were never thoroughly investigated. The BCCI-First American connection only came to light two years later when a little-known free-lance journalist, Larry Gurwin (a participant at the conference), exposed the secret banking relationship in a cover story in the Washington-based Regardies magazine. Gurwin developed his groundbreaking story by skillful use of the Freedom of Information Act to retrieve documents and by cultivating important sources from within the bank.
After the Gurwin story and a similar story in The Wall Street Journal, media coverage of the BCCI story came to a halt. Without new documents or witnesses, the BCCI-First American connection could not be proven. The story gained life again only after Manhattan District Attorney Robert Morgenthau, who vigorously investigated the allegations concerning First American, helped force the global seizure of BCCI. The closing of the Pakistani bank not only disgorged witnesses and documents, it also prompted congressional hearings and government investigations. The media responded with extensive coverage and investigations of its own. Morgenthau conceded, however, that as of July 1991, only 20 to 25 percent of the facts were on the table.
The "pack journalism" approach of the BCCI investigation also appeared in the media coverage of the savings and loan scandal. The crisis was first exposed in the media by three little-known reporters from small papers who pooled their information and discovered that massive fraud, much of it interconnected, permeated the savings and loan industry. One of those reporters, Paul Muolo, described to conference participants how he and his partners investigated the scandal:
The best way to cover these stories, again, is to connect the dots. It's connect-the-dot journalism, find the swindle in New York and compare it to the one in California and Texas; go through the records, get your fingernails dirty, bother your editors. . . . When it comes down to it, numbers don't lie. It's a cliche, but as Deep Throat said, "follow the money."
Although Muolo and his partners broke several significant stories about savings and loan fraud, the issues had no resonance with the mainstream press or the public at large. In fact, Muolo told conference participants that he had tried to give the story to the mainstream press, who ignored it, tending instead "to believe the party line in Washington that S&Ls were suffering because of failing and falling deals in the Southwest."
As in the BCCI affair, it was "official" action -- in this case a speech by President Bush -- that brought the savings and loan crisis to the attention of the American public and attracted more extensive media coverage. Shortly after his election in November 1988, President Bush announced that there was a savings and loan crisis and that the industry required drastic reform. This declaration, a statement of the obvious to reporters like Muolo, nevertheless set off congressional hearings and sparked a slew of Justice Department investigations into shaky institutions. Again, the media followed with extensive news coverage, including independent investigations of many aspects of the crisis. But too often media outlets merely sensationalized the indictments of savings and loan insiders like David Paul, CEO of CenTrust Savings in Miami, and Don Dixon of Vernon Savings and Loan in Texas, instead of focusing on the imminent collapse of the industry.
The evolution of these complex stories in the media illustrates the difficulty of investigative reporting. First, institutional considerations, such as editorial resistance to prolonged investigations, slowed the investigative process. Conference participants also noted that economic factors precluded intense media scrutiny; investigative reporting is expensive, especially for complex stories that require months of investigative work. Second, cultural considerations delayed timely dissemination of the stories: many media people believe that business stories, as opposed to "people" stories, do not make good copy for either print or broadcast news. Finally, however, the ambivalent role of the media, as the fourth estate -- a political check -- or a mere information stream, constituted perhaps the largest single obstacle to the coverage of both the BCCI scandal and the savings and loan crisis.
The BCCI story is important not just because a lot of people stole billions of dollars but because they got away with it right under the noses of the authorities and none of these watchdogs barked.... This is a story of the breakdown of our institutions.
Larry Gurwin
Senior Investigator
The Investigative Group, Inc.
