A Pulitzer winner discusses his work

TALKING BIZ NEWS EXCLUSIVE

On Monday, Jesse Eisinger and Jake Bernstein of ProPublica won a Pulitzer Prize in the national reporting category for their exposure of questionable practices on Wall Street that “contributed to the nation’s economic meltdown, using digital tools to help explain the complex subject to lay readers,” according to the judges.

It was the first Pulitzer ever awarded to an online news organization, and the first not to appear in print. The two collaborated with public radio’s “Planet Money” and “This American Life.”

Their story showed how Wall Street banks bought mortgage-backed securities that they had generated to maintain their profits and bonuses, propping up a faltering market until it collapsed under its own weight.

Before joining ProPublica in August 2009, Eisinger was the Wall Street editor at Conde Nast Portfolio, where he wrote a November 2007 cover story titled “Wall Street Requiem,” in which he predicted the demise of Bear Stearns and Lehman Brothers.

Before joining Portfolio, he worked at The Wall Street Journal, where he was the founding writer of two market commentary columns, and he played a leading role in exposing accounting fraud at Belgium-based Lernout & Hauspie. During his tenure at The Journal’s European edition, Eisinger won a “Best in Business” award from the London-based World Leadership Forum for his coverage of accounting irregularities at the Irish drug maker Elan Corp. Earlier in his career, he covered biotechnology and pharmaceuticals for TheStreet.com and Dow Jones Newswires.

Eisinger talked by phone Thursday with Talking Biz News about the Pulitzer-winning work. What follows is an edited transcript.

How did the idea first come up to look more closely at the mortgage-backed securities market?

Adam Davidson and Alex Blumberg at “Planet Money” had come to us, and they had done an enormously important piece of journalism with “The Giant Pool of Money.” It was incredibly prescient because it came before the events of September 2008. They wanted to pose the follow-up question that they didn’t have the time and capacity to do, which is “What did investment bankers know and when did they know it?” We thought that was a very interesting question, so we took it on. And the obvious place to look was collateralized debt obligations because that was the nexus of the financial crisis. That is what brought down Bear and Merrill and almost Citi.

So we started looking there, talking to anybody we knew in structured finance. And we kept hearing that we should look at this hedge fund, Magnetar, and its deals. None of this was public information. The prospectuses are very difficult to get, and when you get them they are incomprehensible. So even basic stuff like how many deals existed was very hard to come by. So it was a difficult, grueling effort.

How did you and Jake begin?

There were a collection of people involved in this business who didn’t really like what had happened. And some of them had gotten out of the business before it had gotten bad. And some of them tried not to participate in the worst of abuses. And some of them had remorse and wanted to confess their sins and get absolution. A lot of people, the vast majority of people, had no sense of having done anything wrong or a sense of regret. They only had a sense of privilege, that they were allowed to do this, and that the money they made was prefectly legitimate.

As we got more information, then we could start to go to the real principals, the perpetrators of the deals, the people who had pumped the market up. And we had enough information that they had to talk.

How much did it help to have a research firm crunch some data for you?

It helped a lot, but not for the first story. The first story was on Magnetar, and we didn’t have data for that. But then after that, we had envisioned the second story while we were working on the first. But no one had really every undertaken this study of what bought what in the CDO business. It was enormously helpful to have that data. We commissioned it, and that was a great help in grounding the story in some very solid information.

How did you break up the reporting and writing with Jake?

We didn’t. We went to almost every single interview together. In terms of writing, we divided up and tried to come up with an organization structure and outline, and then assign by saying things like, “I’ll take the top, and you take this section.” And these stories went through 20 to 30 edits each. By the end of it, you couldn’t have any pride or ownership of any sentence. It was very carefully edited by Eric Umansky and Steve Engleberg. It was carefully composed and debated. Steve would read it and would say that it wasn’t clear, so we would try to do it again.

How easy, or difficult, was it to get people on Wall Street to talk about this?

It was extremnely difficult. It was a lot of calls, lots of trying to persuade them by explaining what we had. We had a lot of hangups and doors slammed in our faces and e-mails that went unanswered. The big problem was that we couldn’t figure out how to give the banker an incentive to talk to us. Often you’ll be able to play people off each other with competitors, or you’ll have investigators and be able to triangulate information. Here we were struggling with finding anyone with an incentive to talk to us. Here it was a few years after the crisis, and no one was investigating. They didn’t have any incentive to talk.

We were really persistsnt, and people, even though they don’t have an incentive, they do like to talk about themselves and their work. And if you’re sophisticated, you’re honoring them by understandiung their business. And that’s how they opened up.

Some people were pissed off and thought it was an outrage and were stunned that it hadn’t come out yet. What was amazing was that there were so few victims who wanted to talk about this. We kept saying, where are all the lawsuits? In the Magnetar deal, one of the investors was an institutional investor in Minneapolis that pools money for Lutherans. We thought these guys were a victim and didn’t know how this deal came about. So Jake and I called and called, and tried to talk to them about something they took millions of losses on. But no answer. I went out there and sat in their lobby and asked them to come down and talk to me, and they said no and they sent security to ask me to leave. We could never figure out what they didn’t want to know why they lost money other than they didn’t want to come off as looking like they gotten taken by this hedge fund.

You also worked with public radio to tell this story. How did they fit in?

They were fantastic. We were really struggling to tell the story in a compelling way to entice the reader in. Alex Blumberg was writing the script for the “This American Life” episode, and he had framed the story in such a good way that we borrowed that for our version. He helped us think about it and frame it. They are wonderful storytellers. And that’s what we wanted to do. This is not a story that lends itself easily to a narrative.

The thing that I liked about the stories was that they explained something complicated in a way that anyone could understand. How did you two accomplish that?

We were cognizant of that goal, but really what it was that was Eric and Steve hammered all of the jargon out of us and made us explain what it was so that they could understand it as well as we did, but they had no background on this stuff. They made us explain it so we could get it across to them. They took months and drafts and drafts. But we all had the same goal in mind. The goal was to make it as clear as possible while giving justice to the complexity. It was very very hard. Wall Street is purposely wrapping itself in complexity and opacity. They didn’t want investors to understand them, they don’t want regulators to understand, and they certainly don’t want journalists to understand.

When did you two realize that you had a major story?

Only after the first story ran. When we pressed the button on the Magnetar story, I told Jake that it’s a 50-50 chance that this disappears into the ether because it’s about a hedge fund that nobody has heard of. But it was huge. And what we both realized was that there was an enormous hunger for people to explain the financial crisis, and it had not been fully explained or examined. That’s when I realized there was an audience for this kind of story.

How would you assess media coverage of Wall Street in the past few years?

It’s a hell of a lot better than leading up to the bubble. I think people are really skeptical now of the size and power of the banks. I think it’s pretty good. There are some big flaws of the coverage still. But The New York Times and the Huffington Post are doing great work, and McClatchy is doing it. Bloomberg has been great. Leading up to the crisis, there was a big collapse of any criticism. There needed to be a concerted effort to understand how Wall Street was making money and to look at all of the shadow banking, and journalism failed in all of that.

I would like to think I was one of the closest to that because I wrote about derivatives and that Bear and Lehman were about to fail because of their leverage. I saw glimmers of the crisis and wrote about it often, but I don’t think that we did enough. Not that anybody would have paid attention. I don’t think we could have prevented it.

Who is the better business journalist, you or your wife? (Eisinger’s wife is Sarah Ellison, the former Wall Street Journal reporter who wrote “War at The Wall Street Journal” about News Corp.’s takeover of Dow Jones & Co.)

She is, obviously. There is no question. She is a better reporter and writer!