He Said-She Said Victim

After a few weeks of news coverage of Republican complaints that the financial reform legislation moving through Congress would permit future “bailouts,” the contentious provision has been dropped from the bill.

Trouble is, while GOP leaders kept using that dreaded b-word, and the business press often reported it, the measure didn’t look much like a bailout at all. We’ll have to investigate this one as a possible victim of the he-said, she-said journalism that dogged this important debate.

My colleague Greg Marx pointed to a fine example of that unfortunate form last week, when The New York Times covered the vote by Republican senators to block debate on the bill. While the politicians sparred over whether the proposal does (the GOP view) or doesn’t (the Democrats’ position) contain “loopholes that could allow future taxpayer-financed bailouts of failed financial institutions,” the paper failed to give readers any sense of who had the winning side of the argument.

A Times story on Friday about the Senate’s action on the bill suffered from the same weakness.

The Senate opened debate on Thursday on a far-reaching financial regulation bill, and Democrats moved quickly to demonstrate that the legislation would not provide any future taxpayer bailouts of failing financial companies — answering a Republican criticism that the Democrats had dismissed as false.

The piece goes over the same yes-it-does, no-it-doesn’t terrain, and then seems to indicate that, correct or not—hey, who knows?—the Republicans were perhaps scoring more points with their line of attack, that the $50 billion fund would encourage, not prevent, future taxpayer bailouts of failed financial companies.

I bet I’m not the only reader who’d like to know what got Democrats to cede their ground on this one. Was it pressure from the White House? Or some polling that suggested the Republicans were scoring with their shots against the bill?

The piece goes with long quotes from Sen. Barbara Boxer, D-Calif., who rejected the Republican criticism of the legislation in terms most of us can understand.

“When I heard my colleagues on the other side say Senator Dodd’s bill would ensure taxpayer bailouts, I knew it was false,” she said. “It is like saying this glass of water is a cup of coffee. No, this glass of water is a glass of water. It is not coffee.”

The Times devoted a lot of space to Boxer’s remarks, and to her amendment, which, she explained, “basically says what we know is true, that all financial companies put into receivership under this title shall be liquidated.”

It’s too bad, though, that the paper didn’t bother to spell out that liquidation using an industry-paid-for fund to cover losses and a bailout from the Treasury that keeps a firm afloat really are two different things. While we’re at it, it’s also too bad that the piece didn’t even give a quick mention to what the Times wrote about just the week before. Boxer is one of the most vulnerable Democratic incumbents up for re-election this fall, at real risk of losing her seat after three terms in the Senate. Kinda interesting, no? It sure looks to me like there’s some politics behind Democrats’ decision to bail out on what they said wasn’t a bail out.

For the he-side of this story, the Times turned to Sen. Richard C. Shelby, the senior Republican on the Banking Committee, who said he hopes to “reshape” the legislation “so that it actually ends bailouts.” Near the very bottom of the story, the paper then gives him another chance to sing the bailout song.

And Mr. Shelby said he expected Democrats to agree to remove the $50 billion “bailout fund some people call a honey pot.”

We got it. You think it’s a bailout. They’ve agreed to take it out. You still think it was a bailout. Was it?

Today, the Times takes a tiny step toward answering that question. But only a tiny one. Here’s the lede:

Leaders of the Senate Banking Committee said Tuesday that they had reached an agreement to limit the likelihood that big banks would be bailed out by taxpayers. But liberal Democrats said they also would push aggressively for an array of proposals that could force some of the nation’s biggest banks to reduce their size.

The Times goes on to explain that, while the elimination of the $50 billion fund “seemed to put to rest a loud partisan dispute in recent weeks over whether the legislation might somehow perpetuate taxpayer bailouts, it also highlighted that the definition of a ‘taxpayer bailout’ is in many ways a question of semantics.”

OK. Getting closer. And then, this:

The proposed $50 billion fund, which was to be financed by a tax on big banks, was a means to avoid using taxpayer money to wind down failed financial companies. The F.D.I.C. similarly levies an assessment on banks, which it uses to help pay for bank failures.

Some Republicans had objected to the creation of a new $50 billion fund; Mr. Shelby, for instance, repeatedly derided as a “honey pot” that might get misappropriated for other purposes.

“Honey pot,” well, it may be well be, who knows? But it’s not a bailout.

The Journal didn’t seem to have the same trouble navigating this terrain today, with a simple line that the Senate would move quickly to Boxer’s amendment “that would explicitly state that no taxpayer funds could be used to rescue faltering financial firms.”

The Washington Post didn’t completely de-muddy the waters. Here’s its lede:

Lawmakers seeking to overhaul financial industry regulations grappled Tuesday with the question of how to cover the cost of federal bailouts.

But this story is mixing two things—debate over a bank tax to pay for the assistance Wall Street got during the crisis and the financial reform legislation on the Senate floor. It’s easy to see why readers might get confused. Here’s the Post on the elimination of that $50 billion fund:

Republicans have criticized the provision as a “bailout fund,” arguing that it would encourage financial firms to engage in overly risky behavior because they would know the money was there in the event of trouble. Under the deal reached by Dodd and Shelby, the government would recover the liquidation costs of a failing firm by selling off its assets, with the financial industry picking up any remaining costs.

The business press let the b-word float around for weeks. Maybe the next time some pols throw around such loaded words, readers can get a little more help sorting out if they’re just spinning.

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Holly Yeager is CJR's Peterson Fellow, covering fiscal and economic policy. She is based in Washington and reachable at holly.yeager@gmail.com.