Monday, November 19, 2007

Peter Eavis Is At It Again

Long term shareholders of Fairfax Financial surely remember Peter Eavis, journalist who repeatedly claimed the company was under-reserved, unethical, low on cash, and heading for bankruptcy. The allegations and the bias got so bad that Sanjeev Parsad from the Berkshire Board wrote a response letter to explaining the problems with many of his claims. But this didn't stop Eavis' reports from causing panic and hurting Fairfax's share price in the short-term.

That was back in 2004. Flash forward to today and we see the same thing, but with a different company. Almost a week ago Eavis published an article criticizing Fannie Mae's credit loss ratio accounting as "fuzzy math", and claiming "Uh-oh. It's Enron all over again." It was enough to send the share price diving nearly 20% and compelled the company to hold a conference call explaining the reason for the change. After the conference call though, Eavis maintained his original position and published his second article reaffirming his original claim.

In comes Tanta from Calculated Risk to the rescue with her response- Fannie Mae's Credit Loss Ratio: Fuzzy Math or Fuzzy Reporter?.
This is going to be a long post. It is going to attempt to answer the question stated in the post title. It is also going to function as further proof of the old axiom that you can create quite a ruckus in 150 badly-chosen words, but it takes ten times that many words (at least) to return some sanity to the discussion. “Gotcha” reporters of course know this, which is why they do what they do. Most people don’t have the time or desire to wade through the high-attention span Nerd part to evaluate the reporter’s claim. That it’s a deadly serious business for anyone who owns shares in a publicly-traded company being compared to a criminal conspiracy on the basis of a misunderstanding of accounting rules doesn’t seem to bother writers who just want a “scoop.”
After exposing the flaws in Eavis' argument, she concludes with the following:
I firmly believe in beating the press up a little when they do egregiously bad reporting, but that’s largely because I care about understanding what the real story is. And I hate being distracted by red herrings in my personal quest for understanding. Yesterday I spent over two hours rooting through SEC disclosures and listening to a 57-minute conference call trying to independently verify Eavis’s point; today I’ve spent a couple of hours writing this post. I am willing to believe that very few people have the time and the expertise to do what I just did. I therefore feel compelled to share my point of view with the rest of the world, in the interest of a worthwhile public discussion of financial and economic matters, which is the purpose of this blog. So I didn’t start out with the goal of catching Eavis being a lousy reporter; I started out with the goal of reading about Fannie Mae in a CNN Money article. But I believe that I did discover hyped, misleading, and ignorant reporting, and I believe it is fair to say so in public. (my emphasis)
I think Tanta summarizes the dilemma well. The truth takes more than 150 words, but most people still want their news in such shortened form. And as long people want the truncated version of things, then they will have to live with occasionally mixing up some of the bad with the good. Since I am in the midst of reading a book on Einstein, I will end with one of his relevant quotes: "Blind respect for authority is the greatest enemy of the truth."


SL said...

Today is September 30, 2008. Fannie Mae is now under SEC and DOJ investigation. From hindsight Peter Eavis was right back then. This is how difficult truth is about. He was criticised as ignorant and misleading..., but people who had paid attention to his warning and sold their Fannie stock is well served.

SL said...

Nnejad said...

You are confusing two matters. The first is whether the matter reported by Eavis was correct or not. If I had to take Tanta's logical argument on the matter or a brief two sentence passage in a Washington Post article as proof, I would side with the former until that investigation can prove otherwise.

On the matter of owning Fannie stock, then yes selling would of been the correct decision. But Eavis was advocating "sell" for the wrong reasons.

John said...

Dude, Eavis nailed it and you were wrong.

Eat your crow already.

Nnejad said...

All I said was Eavis' argument was flawed regarding the accounting change for their modified program. To be wrong, I would have to have made some statement about the overall value of Fannie or Freddie, an issue which I never take up. No, what you are doing is taking something completely irrelevant (the stock price of Fannie) and using that to judge the merits of Eavis' argument concerning the changed accounting methodology for these mod loans.

Anonymous said...

Decemeber 20, 2008
Peter Eavis may have been correct about Fannie Mae. When one smells corruption, it probably isn't a singular event. How can a reporter serve the public and do a commendable job? It certainly isn't from giving what appears to be biased or distorted information and possibly for the wrong reasons.
Whether Mr. Eavis, a Gerald Loeb award winner for his financial reporting, was right or wrong about Fannie Mae, his motives are now suspect. In the discovery for the Fairfax Lawsuit against a cabal of hedgefunds accused of stock manipulation for gain, Mr. Eavis' name and e-mails appeared in following investigative report:

When a reporter is too close to his source and believes everything the source says, he can be manipulated to the benefit of the source and cause harm to our markets and investors.