Oct 02, 2008
If you are like me, the pundits, and 99.9% of the American public,
you really don't know much about economics. And despite Monday's
refreshing moment of rebellion in the Congress, in all likelihood the
House and Senate will pass a modified version of the $700 billion
handout this week to fat cat Wall Street financiers.
The likely result, according to Nobel economist Joseph Stiglitz:
"The unemployment rate will still increase, growth will remain anemic,
house prices will continue to fall, the number of houses in foreclosure
will continue to rise, credit will be harder to get, states and
localities will remain in a fiscal crisis, and there will be cutbacks
in basic public services. .... Our living standards in the future will
be lower than they otherwise would have been. "
Here's the problem: None of us really know that the hell is going
on, and what the largest financial bailout in the history of our nation
would actually achieve. Based on McCain and Obama's hasty support of
the bailout, it would seem they are both too far under the thumb of
Wall Street to look at viable alternatives to an unprecedented handout
to the same reckless bankers who got us into this mess.
And like they did in the run-up to war in Iraq and the passage of
the Patriot Act, the media are compounding the problem rather than
helping it. While TV devotes 24/7 coverage to pretending that
mudslinging Democrats and Republicans represent the full range of
debate, while right-wing radio hosts scream socialism, and while
pundits like Thomas Friedman implore Congress "to give them the capital
and the flexibility to put out this fire," the American people are
getting virtually no hard economic analysis about what the bailout
would achieve or what the range of options are.
Why aren't Luc Laeven and Fabian Valencia on television right now? They just submitted a comprehensive report
to the International Monetary Fund after studying 42 banking crises
over the past 37 years. Their conclusion: Bailouts often do not work,
they often result in more bad practices, and they distort economies by
transferring wealth from taxpayers to bankers and their customers.
Why hasn't economist Dean Baker been invited onto a single
television program in the past week ? He is one of the guys who
actually predicted the current crisis. He wrote this week:
"There is no way that the failure to do a bailout will lead to more
than a very brief failure of the financial system. The worst case
scenario is that we have an extremely scary day in which the markets
freeze for a few hours. Then the Fed steps in and takes over the major
banks. The system of payments continues to operate exactly as before,
but the bank executives are out of their jobs and the bank shareholders
have likely lost most of their money. In other words, the banks have a
gun pointed to their heads and are threatening to pull the trigger
unless we hand them $700 billion."
Why isn't New York University economist Nouriel Roubini all over the news right now? He says
the claim that "spending $700 billion of public money is the best way
to recapitalize banks has absolutely no factual basis or justification.
This way of recapitalizing financial institutions is a total rip-off
that will mostly benefit - at a huge expense for the U.S. taxpayer -
the shareholders and even unsecured creditors of the banks. ....The
pockets of reckless bankers and investors (will) have been made fatter
under the fake argument that bailing out Wall Street was necessary to
rescue Main Street from a severe recession."
Roubini continues, "Instead, the restoration of the financial health
of distressed financial firms could have been achieved with a cheaper
and better use of public money. It is pathetic that Congress did not
consult any of the many professional economists that have presented
alternative plans that were more fair and efficient and less costly
ways to resolve this crisis. ... and it is a scandal that even
Congressional Democrats have fallen for this Treasury scam that does
little to resolve the debt burden of millions of distressed home
But turn on your television - the place where more than 60% of
Americans get their primary news - turn on your radio, or open your
local newspaper, and you're not going to see what these top economists
are saying. It's a McCain quote, an Obama sound byte, and the same
pundits who have proven their incompetence over and over. The result is
an American public that is fundamentally uninformed about the issues
that matter most - like economics, health care, and war - and
over-informed about those that matter least: sports, celebrity, the
latest campaign ad, and horserace analysis of elections.
We have no reason to believe that the press -- and along with it,
most politicians -- will ask the tough questions, expand the range of
debate, and bring the facts to the American people. But until they do,
our economy - and our democracy -- will continue its race to the
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