Explain it Like a Pulitzer Winner

By Chris Roush

April 14, 2008

The Pulitzer Prize given to The Washington Post business columnist Steve Pearlstein last week shows the value of trenchant writing about business and economic issues in daily newspapers as well as the value of explaining complicated topics to readers.

In other words, Pearlstein follows the KISS method of writing: Keep It Simple, Stupid.

Time and time again, Pearlstein explains what is normally a complicated topic in terms that the average Joe can understand. It’s a talent that most business journalists strive for, but never achieve.

Take, for example, Pearlstein’s March 2007 column, submitted as part of his Pulitzer entry, in which he explained why the Blackstone Group IPO should be a signal to investors that it’s time to exit the market. He compared the 2007 market to the 1987 market, which had one of the biggest one-day drops ever in October of that year.

Pearlstein writes, “In both cases, a small number of clever people used other people’s money and creative financing to earn ridiculous sums relative to the risks they took and the real economic value they created. Eventually, they push things one step too far and the whole thing collapses. As in most cases where things look too good to last, they usually don’t.”

It’s a prescient paragraph, given what’s happened in the market in the last year, and written for anybody to understand.

Then there’s his August 2007 column about a bank that decided to close its mortgage division and take an $860 million loss and what that might mean to the lending business.

Pearlstein writes, “Lack of knowledge about the borrower is one part of it. The perverse incentives created by the fee structure are another. In time, so many bad loans get made that investors start to have doubts. At first, the doubts can be limited to one category of loan or one type of security. But quickly, these doubts give rise to wider doubts about other types of loans that are originated, securitized and rated in the same way. Because they can’t distinguish the good from the bad, they begin to shun it all, selling what they have and refusing to buy more.”

Wow. That’s Pearlstein essentially calling the collapse of the sub-prime market right before it happened. And he’s writing it in a way that Joe Six-Pack can understand the reasons why.

And then, in December, when many were saying that the worst effects from the credit crisis were over, Pearlstein put his fingers to the keyboard and pointed out that wasn’t the case, noting the same “smart” guys involved with sub-prime mortgages also had their hands in a bunch of other credit-related operations.

“The financial giants that originated, packaged, rated and insured all those subprime mortgages were the same ones, run by the same executives, with the same fee incentives, using the same financial technologies and risk-management systems, who originated, packaged, rated and insured home-equity loans, commercial real estate loans, credit card loans and loans to finance corporate buyouts,” Pearlstein writes. “It is highly unlikely that these organizations did a significantly better job with those other lines of business than they did with mortgages. But the extent of those misjudgments will be revealed only once the economy has slowed, as it surely will.”

And surely it did, as we’ve seen in the last three months since Pearlstein wrote his prose.

I’m not asking you to “favorite” Steve Pearlstein’s page on The Washington Post Web site. But the next time you need to write about a complicated business topic, think to yourself, “How would Steve Pearlstein explain this?”

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism