As we mentioned, the timing of these stories is strange because they came out either just before the $700 billion bailout proposal or shortly after. So while the finished products circulated in a press-wide flurry of publicity on the bailout plan and its aftermath, neither the biweekly Fortune nor the monthly Bloomberg mentions it, and the weekly Newsweek only devotes a few sentences to it.
Now, in the cases of Fortune and Bloomberg, we point out this gaping hole not so much as an editorial criticism but as an observation that business news is outpacing the magazines, especially these days. The key point is that these pieces were glaringly incomplete almost immediately—sometimes to the point of absurdity. Looking to the future, Bloomberg observes, “One of Paulson’s next challenges is to try to build a U.S. market for covered bonds.” Yeah, that and save the economy.
Because of the timing of the stories, Paulson gets largely favorable publicity without having to defend his bailout plan—which, as we now know, has a lot of problems. And because the stories focus on the man himself, even Newsweek’s knowledge of the bailout plan didn’t much improve its coverage:
Paulson again took out the bazooka: he and Bernanke crafted their plan to create a taxpayer-backed entity that would acquire mortgage-backed bonds from banks, and requested $700 billion from Congress to do so. Treasury also temporarily extended insurance to money-market funds. By the end of last week the stock markets were soaring.
In other words Paulson—now Rambo in addition to wrestler, firefighter and star of the gridiron—got it right.
Except that he didn’t. As the Times pointed out later,
[E]ven after the House finally passed the [bailout] bill on Oct. 3, markets remained in turmoil. It was not until Britain and other European countries moved to put capital directly into their banks, and the United States followed their lead, that some calm returned.
For an excellent take on the on-the-fly evolution of Treasury’s plan, read Joe Nocera’s October 25 column in The New York Times. He describes, among other things, how Paulson sold us on a plan to buy “toxic securities” and then decided to recapitalize banks instead, in an effort to free up credit.
But the kicker, according to Nocera, is that the banking industry “has no intention of using the money to make new loans.” Not only did the toxic-securities plan turn into a recapitalization plan, but the recapitalization plan is not what it seems:
It is starting to appear as if one of Treasury’s key rationales for the recapitalization program—namely, that it will cause banks to start lending again—is a fig leaf, Treasury’s version of the weapons of mass destruction.
In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation.
It appears that Paulson has a pretty good knack for PR. One way in which Newsweek notably tows the Paulson line is its statement about why the government didn’t save Lehman:
And although Lehman was in bad shape, unlike Bear Stearns it didn’t threaten to bring down the whole system.
This is Paulson’s argument. He made it on Charlie Rose and to The New York Times. The problem, as the Times piece points out, is that it is not at all clear the government should have let Lehman fail.
So we’ve had enough of great men. An alternative? We prefer the playfulness of the Economist cover:
The magazine doesn’t have a lengthy profile of Paulson, but rather a few pieces looking at both him and the bailout plan. The Economist supports Paulson, but also looks beyond him, as is clear immediately from the lead photo for its main piece on the bailout:
This piece, along with the cover image, pokes holes in the Great Man theory, which is to all of our benefit.