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."