Journalists Convinced Government Bailouts Better Solution
September 15, 2008Bailout. It's all you hear any more. The government helps J.P. Morgan Chase bail out Bear Stearns. After years of mismanagement, the government bails out home mortgage titans Fannie Mae and Freddie Mac.
Don’t forget the subprime bailout plan that aided homeowners who had more mortgage than they could handle.
The nation’s political leadership isn’t bailing any more. They are digging a deep hole your grandchildren will be filling with their own tax dollars. The Bear Stearns bailout put $29 billion at risk. Fannie Mae and Freddie Mac put anywhere from $25 billion to $100 billion on up. No one really knows. Bailing out Detroit is another $25 billion to $50 billion, depending on which number gets OK’d, though it might go through as a “loan.” And the subprime bailout is estimated at another $25 billion.
The theme is that we had to act. As Treasury Secretary Hank Paulson put it, “we had no choice” to bailout Fannie and Freddie because they were “so big” and “so interwoven into our financial markets and our financial system.”
The media have mirrored that view – consistently claiming we had no choice but to bailout fill-in-the-blank. “It had to be done. You can’t let Fannie and Freddie fail,” CNN’s Ali Velshi told viewers. At the very end, Velshi was likely correct. But government had more than six years of warnings, billions of dollars of accounting misstatements and scandals at both Fannie and Freddie to encourage action.
Melissa Lee of NBC’s “Today” took a similar view describing the Fannie/Freddie move. “The bailout plan bringing confidence into the markets. And perhaps more importantly for the average person, it is a big win for consumers, simply because, as part of the plan, the Treasury's going to step into the market, buy mortgage securities, and that could help bring mortgage rates down.”
It works for consumers, unless they also happen to be taxpayers. Then they are on the hook for hundreds of billions of dollars to solve problems brought on by greed and incompetence.
Back in November, the media were sometimes rational enough to discuss the downside of bailouts. Even liberal NPR weighed in on the idea that bailing out people for making stupid mistakes encourages more such actions. “It's called ‘moral hazard,’ and it's a concept any parent of a 5-year-old can understand: Bail out someone who has engaged in risky behavior, and you're likely to encourage that behavior in the future.”
Unfortunately, the people running our nation are acting like 5-year-olds, and no one seems able to take the role of parent. Not politicians and certainly not the media.
The headlines of “Crisis on Wall Street” are all anyone sees. In Washington, they typically have only one policy solution – throw money at the problem. Expecting congressional gridlock to generate complex solutions is a fantasy.
The government strategy of spend, spend and spend some more gets a lot of support from the mainstream press. First, journalists blame lenders for problems – even though borrowers hold equal responsibility. But lenders were blamed for borrowers’ debt troubles six times as often as borrowers, according to a Business & Media Institute study. ABC even named its series on debt “The Home Wreckers” and blasted business in the process.
That same study showed 62 percent of the stories on the three networks ignored the consumer’s responsibility for debt. But consumers are responsible for their own debts – even when they mess up. Just as Wall Street firms are responsible for their own failures and should have to suffer the consequences for outrageous lending practices.
Both groups made mistakes that were so big that the rest of us now have to help them out, we are told. It’s more than just a sore point with many conservatives who want smaller government.
Not all CEOs are happy either. Rogers Holding CEO Jim Rogers blasted the Fannie/Freddie bailout. “America is more communist than China is right now,” Rogers explained on CNBC Europe’s “Squawk Box Europe” Sept. 8.
It’s not true, but it’s a good sound bite. The better word is socialist. An even better word is statist. That choice best reflects Washington’s endless quest for government control of our whole lives.
The choice is doomed to fail. We simply can’t pay to eliminate every risk in life. We just end up digging a deeper hole. And there’s what’s called the rule of holes – when you find yourself in a hole, stop digging.