Requiem for the Bailout Storyline

It's mid-October, and the Wall Street bailout that was supposed to save the economy from collapse is a flop.

Only two weeks ago, the media hype behind the $700 billion bailout was so intense that it sometimes verged on hysteria. More recent events should not be allowed to obscure the reality that the news media played a pivotal role in stampeding the country into a bailout that was unwise and unjust.

Exceptions in the news coverage underscore the fact that other perspectives were readily available when the Bush administration began pushing its bailout proposal in late September. "Many of the nation's brightest economic minds are warning that if the Wall Street bailout passes, it would be a dangerous rush job," McClatchy Newspapers reported on Sept. 26. For instance, economist James K. Galbraith called the warnings of economic disaster in the absence of a swift bailout "more hype than real risk." He added: "A nasty recession is possible, but the bailout will not cure that."

When the House of Representatives rejected the bailout on Sept. 29, all media hell broke loose. During the next few days, journalists and selected sources took turns decrying the failure of House naysayers to recognize the urgency of the moment. The nation's economy was at stake, and craven ideologues on Capitol Hill were dithering around!

Countless editorials and pundits castigated the House members who had voted no. The condemners spanned the mainline media spectrum; liberals, moderates and conservatives excoriated the House and called for a swift reversal.

Senate passage came on Thursday, Oct. 2, and the next day a chastened House approved a revised version. That Friday afternoon, President Bush signed the $700 billion Wall Street bailout into law.

Despite all the media hype about how the bailout measure would quickly steady the stock market, it fell and kept falling. Over the next week, ending Oct. 10, the Dow made history as stocks plunged by 18 percent in five trading days.

And what about the ostensible main reason for the humongous bailout in the first place -- unfreezing the credit markets? Well, in spite of the enormous media outcry for the bailout to get credit flowing, it didn't. And the key economic factor in the recession -- housing -- remained just as stuck as before.

At the Center for Economic and Policy Research, on Oct. 1 -- two days before the House caved -- economist Dean Baker addressed a pivotal flaw in the spin. "It would be foolish to issue a mortgage loan without a very substantial down payment, since the expected decline in house prices will quickly destroy much or all of the equity held by the homeowner," he wrote. "In other words, it is the drop in house prices that is causing banks to demand 20 percent down payments in many markets, not their lack of capital. This situation will only be changed by a government house-price support program. Improving the financial conditions of banks will make little difference."

But the media storyline required -- in fact, demanded -- that committing many billions of dollars to the "rescue" was the essential step to be taken from Capitol Hill.

After the House initially balked at approving the Wall Street bailout on Sept. 29, the range of New York Times op-ed columnists took turns with the denunciation chores. None was more bitterly caustic than David Brooks. On Sept. 30, under the headline "Revolt of the Nihilists," he denounced the noncompliant House members for failing to heed "the collected expertise of the Treasury and Fed."

A week later, on Oct. 7, when Brooks wrote a follow-up column, the bailout had been law for several days. But the stock market was plunging faster than ever, and the credit crunch was unabated. "At these moments, central bankers and Treasury officials leap in to try to make the traders feel better," Brooks wrote. "Officials pretend they're coming up with policy responses, but much of what they do is political theater."

Now he tells us.

Before the bailout gained approval on Capitol Hill, the media narrative was dangling the prospects of immediate results. But afterwards, there were none.

"Global markets have so far given thumbs down to the giant $700 billion bailout plan," former Labor Secretary Robert Reich said in an Oct. 8 public-radio commentary, five days after the bailout had become law. "The easy answer to why the bailout hasn't worked is it hasn't been implemented yet. But its purpose was largely psychological -- to boost confidence that the government is doing something big to clear out bad debts that have been clogging the system. That psychological boost should have happened as soon as the bailout was enacted. Yet no one seems to believe that $700 billion will make much difference."

On Oct. 12, the lead story on the New York Times front page wondered aloud "whether the administration squandered valuable time in trying to sell Congress on a plan that officials had failed to think through in advance."

The Times now tells us that the much-hyped bailout plans to "buy distressed assets" will be diminished in favor of a "capital infusion program for banks." But what hasn't changed with the $700 billion planning is a basic approach for trickle-down instead of trickle-up.

As the Institute for Policy Studies pointed out on Oct. 1, "A real 'bailout' would target the troubled households of working American families. A $200 billion 'Main Street Stimulus Package' could bolster the real economy and those left vulnerable by the subprime mortgage meltdown."

Components of such a stimulus package could include "a $130 billion annual investment in renewable energy to stimulate good jobs anchored in local economies and reduce our dependency on oil" -- and "a $50 billion outlay to help keep people in foreclosed homes through refinancing and creating new homeownership and housing opportunities" -- and "a $20 billion aid package to states to address the squeeze on state and local government services that declining tax revenues are now forcing." But that kind of discourse for grassroots economic stimulus hasn't gotten into the media storyline this fall.

It's now being revised with quite a bit of backspin. But the media storyline for justifying the Wall Street bailout was great while it lasted. And it lasted long enough to stampede Congress into approving a massive jolt of taxpayer money to redistribute wealth upwards in the United States.

Comments

[Bucwhet]

Future-backed securities? Bond issues? All while global warming is lingering out there. It is incomprehensible to this average Joe living on Mainstreet USA. We should do whatever it takes to clean up and pin down trouble in our own backyards before we blame economic turmoil for starting wars and fire"s across the world. Global warming can wait. Let's do our part to resolve this financial crisis and come on it doesn't need to take an eternity to figure this one out, the best and brightest are supposedly right there working on it.

[WgS]

"'the problem' still remains."

I like the way Steinbeck put it: "There aren't any beginnings... Nor any ends. It seems to me that man has engaged in a blind and fearful struggle out of a past he can't remember , into a future he can't foresee nor understand. And man has met and defeated every obstacle, every enemy except one. He cannot win over himself. How mankind hates himself."

[William1950]

a good article... and yet the problem is that THERE ARE NO JOBS that pay two beans for working blue collar types. ALL our maunufacturing is gone. The corporations are still selling the stuff here, but surprise surprise many of us cannot afford to buy... Why this is not a priority and why this is not talked about is beyond me.

[Sundialsvc4]

(Chuckle...) A very good piece of journalism, Norman. "A very good piece, Norman," in a world where not-too-many people seem to know the difference between "journalism" and "advertising."

The businessmen who control (and who sit in...) the halls of Congress manipulated that august institution yet-again in very familiar and predictable ways. They caused more "debits" to be created out of thin air to balance an exactly-equal number of "credits," and in so doing they not-only ensured the paper-thin survival of the paper-thin "institutions" aforesaid, but they also garnered for themselves a predictable-but-handsome quantity of equally-paper-thin "profits."

Goody for them. Goody, goody, goody.

Now I ask you, sir (and I'm sure you know the answer as well as I...) "what exactly does ANY of this really have to do with 'manufacturing ... anything?'" The short-answer is simple and sweet: N-O-T-H-I-N-G. What does it have to do with millions of "McMansions," most of which are empty and never-sold, and the theory of "and endless supply of 'greater morons'" who would buy them? Uh huh. N-O-T-H-I-N-G.

So... methinks... "'the problem' still remains." And these fat-cats don't seem to have figured it out yet. Okay, I'll wait. And watch. Should be fun...

[LRonHubbard]

Thanks for writing this, Mr. Solomon. Along with Dean Baker, you seem to be among the few still practicing the forgotten art of common sense.

[JBS]

What did you expect?

Media, Defense Contractors, Banks ... it's all one big cartel; interlocking boards of directors.

You sit on my compensation committee and I'll sit on yours and neither one of us will ever have to worry about actually earning a living.

[MatoSka]

I refer readers to the criticism of Andrea Mitchell's role in the Columbia Journalism Review. http://www.cjr.org/behind_the_news/the_elephant_in_the_control_ro.php?page=all

[wanked]

Its up to the media to tell us what the criminals are up to NOW in dealing with our money (whats left of it) The top of the $ heap remains in tact. These financial honchos should not be trusted. NOR those in the govt that enable them.

[photog3000]

How much money could we save if we stopped this stupidity?
http://www.projectcensored.org/top-stories/articles/20-marijuana-arrests-set-new-record/

[Barticus]

"it is the drop in house prices that is causing banks to demand 20 percent down payments in many markets, not their lack of capital."

Please stop injecting facts in this debate over posturing.

[zjr909]

The bailout did exactly what it was intended to do, as the last sentence of the article states: "redistribute wealth upwards in the United States." I guess one has to begrudgingly give Congress and the media their due: in their books, moving wealth from bottom to top is about as good a plan as they can envision. Anything else would go against everything the lobbyists have been telling them for decades. I doubt that most of our "leaders" can even imagine such a thing as handing tax dollars over to ordinary people, who would probably just, you know, use it to pay their mortgages. Whereas if you hand it over to those at the top, a lot of it'll probably make its way down to their campaign coffers. Our leaders are always thinking ahead, bless 'em.

[TheMediaWrangler]

I am trying to get some feedback on an idea for handling the mortgage crisis. It seems obvious to me, but nobody is talking about a plan like this. I have posted it at my Obama blog.

http://my.barackobama.com/page/community/post/travislynch/gGgKLZ