Sunday Watch 9-21-08: In Which a Whole World View Collapses With Little Notice

[originally published on CJR.org, the Web site of the Columbia Journalism Review]

“It began,” Secretary of the Treasury Czar Hank Paulson told George Stephanopoulos, “with excesses in the system, irresponsible behavior and practices in financial institutions.” On Meet the Press, Paulson again alluded to “excesses”—“excesses building up for sometime in this country”—and elaborated a bit: “bad lending practices, irresponsible borrowing, irresponsible lending…. We have overcomplexity. Mortgages are now securitized, sliced and diced, put into tranches, sold all over the world.” “What has gone on here,” he told Tom Brokaw, “is terrible, it's unexcusable [sic].” Mistakes were made. And that was all that Czar Paulson had to say about the origins of the grandest, most devastating financial crisis in three-quarters of a century.

At least that was all Paulson declared in so many words. What he did not declare was that America has been led to believe, by him and his friends, for several decades now, that markets are essentially self-regulating; and that what we have learned this week, as if we needed to learn it, is that this proposition is sheer nonsense.

Indirectly, however, Paulson said a good deal more, or so I read in one of his later remarks. About the Federal Reserve’s decision to bail out the American International Group last week, he added this: “This is a situation where there are fifty different insurance regulators, very little oversight at the holding company, a hedge fund on top of insurance companies.”

If I understand this remark properly, Paulson was acknowledging that AIG, a private insurance company, functioning with “very little oversight” at the federal level, had grown into an indispensable lubricant of the world financial system. “I can't explain how we got there,” Paulson said, meaning either that the situation is inexplicable, or that it is inexplicable to him, or that it is nothing he can explain in TV-sized sound bites. If it is inexplicable absolutely, or inexplicable to him, isn’t this an intellectual earthquake at the high end of the Richter scale? Don’t the week’s events discredit the decades-old lecture about the self-regulating splendors of markets?

To George Stephanopoulos, Paulson did declare that he might well have (1) an explanation and (2) a remedy up his sleeve: “I've spent a lot of time, well before this problem, developing a regulatory blueprint, looking at our outdated, outmoded regulatory system that doesn't fit the modern financial world, looking at how policies and practices need to be changed.” He said the same to Tom Brokaw, adding: “we very much need new regulations, new policies.”

In that case, why not ask Paulson why he kept his regulatory blueprint to himself? Did he tell the president of the United States, or did he anticipate the need to update “our outdated, outmoded regulatory system” only to find that the president wasn’t interested? For many months, economists have warned about the dire consequences of the housing bubble. How can any official be kept accountable when journalists don't inquire into the sources of their errors?

To be clear: I’m not proposing an escalation of gotchas. I’m proposing an escalation of intellectual curiosity in the interest of accountability. I’m talking about the fifth W -- Who, What, Where, When, Why. As in, why didn’t you act earlier? Why did your government minimize the significance of the housing bubble?

Secretary Paulson is busy these days. Yet one might have hoped the Sunday morning interlocutors would ask him about alternatives to the trust-me receivership into which he proposes to cram the global financial system. Paulson kept framing the problem in chocolate-vanilla terms: Either implement his plan or do nothing. One might have hoped to find an economically-literate critic or two around the network news round tables: Paul Krugman, say, an actual economics professor who has been blogging to beat the band all day at his NYT site; or Robert Reich, who has published a most specific list of conditions for bailout; or, from a different angle, Washington Post columnist Sebastian Mallaby.

On ABC’s round table, there were harsh words for what is laughably known as our political and financial leadership. Cokie Roberts, if I heard her correctly, said she’d like to see the financial chiefs marched down Wall Street in “sackcloth and ashes.” (Maybe she meant tar and feathers?) She approved of Obama’s comforting advisers, the likes or Robert Rubin, Warren Buffett, and Paul Volcker. George Will agreed that Obama sounded calm, at least, while McCain “showed his personality in this last week and made some of us fearful.” McCain, he added, “substituted vehemence for coherence,” having “discovered his inner William Jennings Bryan.” Cokie Roberts, channeling her inner David Stockman, wondered if there was some malevolent purpose to a budget-busting measure that would leave the next president without options. Sam Donaldson unhelpfully declared that we’ve got to “do something quickly, do something now.”

All entertaining, especially the spectacle of Cokie Roberts finding her inner Mme. Defarge. Especially entertaining if you think such bagatelles are what America’s broadcasters owe the people who grant them television licenses for zero dollars a year.

Comments

[bobbyvassallo]

It looks like Greenspan bowed out at the right time. What was coming was obvious. You would think Bernanke should be taking the hit, as he is at the helm. Obviously, someone has decided Paulson needs to be in front of the bullet, instead.

May the first Fed Reserve Chairman Charles Hamlin (1914), rest in peace. I hope he doesn't roll over at what we are all witnessing.
http://blog.bobbyvassallo.org

[justsomeguywhocameby]

Robert Reich has good blog about a lot of this.

http://robertreich.blogspot.com/2008/09/what-wall-street-should-be-required-to.html

[Gidster]

It seems that BushCo. as a farewell to American politics is bent on bankrupting America, and having the Secretary hand out big checks to the key players. Without oversight or judicial review.

[Mental Deficit]

Todd, your headline reads, "World View Collapses with Little Notice".
But I'm afraid there's _so_ little notice, that what collapses may be
everything _except_ the worldview that caused the damage.

Mainstream media is tiptoing-around the issue, as are the Democrats.
McCain's Rovian Rasputin criticized the NY Times for following the
Obama line. But the problem is that Obama -- and the craven Democrats --
are following the MSM line.

Americans are as clueless economically as they are politically.
They are ripe for (yet more) manipulation by Disinfo.
As the American Empire crumbles, stupid White folks will
do what they do best -- scapegoat Blacks and Hispanic immigrants
for causing the subprime crisis.

And since Cheney has outsourced the National Guard to serve
Prince Bandar's purposes, any (alleged) domestic insurrection must be
handled by a rapid-reaction force unhindered by govt bureaucracy.
Blackwater comes to mind.

[lostinNJ1]

Trying to get my head around this is difficult, to say the least. I agree that the 5 W"s need to be addressed. The problem is I do not trust my government to tell me the truth. Bush"s speech to the nation was about 2 minutes; this and the Sunday talk show appearances fall way too short given the stakes here. I think that a team of experts outside the government, led by Warren Buffett, should take one hour of commercial free prime time on the networks to explain to the American people in everyday language what has occurred and what solutions they recommend-ASAP. And I think the high government officials should all be there as well.
It appears to me that the financial community has known about this issue for years, based on articles cited by Huff post bloggers and other media like NY Times, Washington Post, etc., so being up front to we the people should not be a time-consuming process. To give Sec Paulson unchecked authority for 2 years with a mind-boggling budget is unthinkable if we wish to continue as a democracy.