Always Consider Sources & Disclosures

This morning’s column began as a discussion about biases — how you need to know what may be influencing the sources you read; however, it has morphed into a look at transparency and conflicts of interest.

What prompted this was a post defending the payday lending industry that appeared on Liberty Street Economics, the blog of the Federal Reserve Bank of New York. As you can see here, I have previously found the writers there to be a good source of thoughtful and objective analysis, so that’s why “Reframing the Debate about Payday Lending” was rather disconcerting.

Note that payday lenders sometimes charge interest rates that approach 400 percent on an annualized basis.

It is noteworthy that major banks such as Wells Fargo, Bank of America, USBancorp, JPMorgan Chase and PNC — banks that in one way or another are regulated by the Federal Reserve system — were once involved in a form of payday lending call deposit advance. An advisory letter from the Federal Depo article was condescending, one-sided and misleading and a fisking of the post is worthy of another entire column. (See David Dayen’s post on The Intercept for a good beginning.)

Lacking the usual deep research details I’ve found in other Liberty Street posts, it was troubling. Four authors were listed, one of whom is Michael Strain, deputy director of economic policy studies at the conservative think tank American Enterprise Institute (AEI), a conservative organization who often plays fast and loose with the truth in pursuit of their conservative ideological agenda.

An AEI employee at a Federal Reserve post was a giant red flag.

I contacted the New York Fed to get more insight. They resolved some issues, but left others unanswered. Most importantly, the way the Fed manages conflicts of interest and disclosures needs some work. Some of this is picayune, but when it comes to the central bank, we have come to expect a high level of disclosure  and transparency.

The post is credited to four authors, listed in alphabetical order — Robert DeYoung, Ronald J. Mann, Donald P. Morgan and Strain. The New York Fed’s media relations office told me that the post was actually written by Morgan, who had sent a draft for comments to the listed co-authors. In other words, the other three weren’t really co-authors.

I don’t know if attributing authorship this way is standard practice in the economics profession, but it is at the least misleading. Perhaps a more accurate way to handle this is with an endnote thanking the others by name for their editorial advice and assistance. But we can all agree that misstating who the actual authors are is wrong.

Second, every Fed paper I can recall seeing was written or co-written by independent academics and/or transparent public organizations such as the National Bureau of Economic Research or a Fed research department; even academics should not have conflicts of interest, and issues should always be disclosed. Such is not the case with AEI.

Strain is a former New York Fed researcher, having worked there from 2005 to 2007, but he now works for a private think tank that is neither independent nor transparent.

That may be the biggest problem: Strain’s employer, AEI, doesn’t reveal its funding sources. There are some clues, however, about who they might be. AEI’s website lists the organization’s leadership, including its board of trustees and National Council. The finance industry, including banks, brokers, private equity and hedge funds are heavily represented there. It’s not much of a leap to assume that these entities are a significant source of funding for AEI. Indeed, that is the general take amongst other people I spoke with as to who funds AEI; their lack of disclosures make this the only rational conclusion.

That relationship should have been disclosed by Liberty Street Economics. If an author is writing about a subject near and dear to the heart of his or her financial backers, it should be stated right up front. Any private entity has the right not to disclose who their funders are, but that should preclude them from publishing at the Fed’s websites.

The New York Fed regulates the money center banks. Although it doesn’t regulate hedge funds or private-equity firms, it does pay attention to them because of their role in the broader financial system.

So here’s how this looks to me: A lobbying outfit, in the guise of a think tank, was in a position to influence a piece published at a financial regulator’s website. That strikes me as highly problematic.

Just to be clear, this isn’t a call for censorship of restraining free speech. I would rather err on the side of publishing any and all views. In no way should ideas, even ones that are bought and paid for or repellant to anyone’s sensibilities, be stifled. Let all ideas compete in the marketplace and may the sounder, more persuasive argument carry the day.

AEI has its own site, where it can and does publish on subjects that warm the cockles of the hearts of its financial backers. They are free to not disclose who their backers are, and we are free to make what we will of their opacity and lack of disclosure.

Open debate is important. But the caveat has to be that there is full and transparent disclosure by all the authors (including whether they are actually authors) involved. Open debate where all potential conflicts of interest are out in the open is essential.

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  1. Moe commented on Oct 27

    Disheartening to hear. As always, thank you for your detective work in exposing this.

  2. efrltd commented on Oct 27

    So what’s the complaint? Other than you don’t like the authorship? Based on a bold statement that the named author has published other, but unnamed pieces, you assert without citation are erroneous. So is this article right, wrong or indifferent? Badly written? Attrocious grammar? Any connection with AEI pieces, or on a different topic. Is it a factual piece, an opininon piece? Puzzling commentary here. Couldn’t someone at AEI write, that Ritzholtz writes for Bloombery, therefore obviously he’s biased. Therefore ignore him. Commentary on authorship I really have no issue with, but about what is the rest of the story?

    • willid3 commented on Oct 27

      maybe its because the ‘authors’ got published at a government web site and the ‘authors’ didnt disclose their inherent bias? its would appear that is was supposed to be a factual piece, when it was really an opinion (like say a dug dealer writing an op ed in favor of legalizing drugs??) .


      bloomberg is biased ? seems like a normal every day business media company. maybe so.

    • Moe commented on Oct 27

      The fact that you see no distinction between a writing for a financial website/publication versus a Federal one says it all….carry on my wayward son.

    • Blissex commented on Oct 27

      «writing for a financial website/publication versus a Federal one says it all»

      Both are sell-side organizations publishing sell-side economists and analysts and journalists :-).

    • DeDude commented on Oct 27

      First of all we do hold the Fed to a higher standard than a blogger. Second there is nothing hidden in who pay Ritholtz or who owns Bloomberg. So we have clear knowledge of the economic interests that may bias his writings.

      For the Fed to publish (and put its stamp on) a piece of work that may have been mostly written by a bankster sock puppet is very problematic. As the AEI has lost all credibility with one scandalous fraud piece after another, they obviously are trying to get their masters agenda furthered by publishing their BS under more reputable names. This is one example and it is despicable that the Fed could allow such a thing.

    • Rich in NJ commented on Oct 27

      Mr. Ritholtz writes for Bloomberg VIEW!

      Apparently, context is lost on you.

    • Truth Bitches commented on Oct 27

      So you have an issue with the suggestion that 1) Readers should consider the source of a written work; 2) authors should disclose their sponsors and any conflicts of interest?

      I would call you a fucking idiot, but that would be a disservice to idiots everywhere.

    • Rogue Medic commented on Oct 27

      efrltd, you wrote –

      “So is this article right, wrong . . . ?”

      Barry Ritholtz clearly addressed your concerns in the article. In case you are new to articles on the internet, Mr. Ritholtz wrote –

      “An advisory letter from the Federal Depo article was condescending, one-sided and misleading and a fisking of the post is worthy of another entire column. (See David Dayen’s post on The Intercept for a good beginning.)”

      The link to the post by David Drayen is embedded in the word post. This is a common way of linking to articles on the internet.

      If you read the article you intend to comment on before you comment, you might not embarrass yourself so much. Alternatively, you may just lack comprehension.


  3. ComradeAnon commented on Oct 27

    It’s called “Sponsored Content.”

    • ComradeAnon commented on Oct 27

      Plus, we’ve got to head off that whole Postal Banking System talk.

  4. MarkKlose commented on Oct 27

    efrltd, You might want to read the link to David Dayen’s post that Barry provided. This details many of the issues with the post, beyond the lack of disclosure that he was addressing.

  5. Slash commented on Oct 27

    It’s the Fox News standard. As long as someone is saying or writing something you agree with, who cares why they’re saying or writing it? Or if it’s accurate? Or if it’s paid for by the people it’s propping up/shilling for?

    It’s a major reason (in my opinion) why people don’t know what “news” is anymore.

  6. Blissex commented on Oct 27

    «payday lenders sometimes charge interest rates that approach 400 percent on an annualized basis»

    That’s an understatement. Payday lenders usually charge 900-1200% on an annualized basis. Here in London a photo I took some months ago of an advert on the subway proudly offering a reduced rate of just 753% annualized:

  7. VennData commented on Oct 27

    The Koch-funded American Enterprise Institute is hurting itself by being a front operation for pay. Unless of course it’s de facto advertising, saying, “Look at me, I am a Koch Industry WHORE. I write you long-time.”

  8. Crocodile Chuck commented on Oct 29

    A reasoned, thoughtful analysis & post.

    Thanks, BR.

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