The Wall Street bailout that was supposed to save the economy from
collapse is a flop.
Only 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 told 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.
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Norman Solomon is author of "War Made Easy: How Presidents and Pundits
Keep Spinning Us to Death." The book has been adapted into a documentary
film of the same name. For information, go to:
www.normansolomon.com