CNN’s Campbell Brown has apparently just awoken from a two-month coma.
On her “Cutting through the Bull” segment last week, Brown made it clear that she has not been paying attention to the events surrounding the financial crisis, nor does she understand the basic facts. Here is what she said on November 12, 2008:
Treasury Secretary Henry Paulson told us he now has a different plan for how to spend that $700 billion of your money.
When Congress OK’d the bailout package, they all told us it would be spent buying troubled mortgage assets.
That’s what Congress voted on. That’s what Congress approved.
Now, Paulson says it would be better for the economy if he uses the money to buy bank stocks as a way to help their balance sheets so they are more likely to lend you money for a car or student loan or credit card.
Stop the presses! Treasury will be buying stock in the banks, rather than buying toxic mortgage backed securities? Um, hasn’t that been common knowledge for at least one month already?
For example, on October 14, the AP ran a story titled “Bush, Paulson reverse course in bailout plan,” which detailed Paulson’s decision to purchase equity in the banks, rather than buying their trouble assets. Yet, Campbell Brown apparently only found out last week.
Brown also gets the basic facts wrong. Referring to Congress, Brown claims “they all told us [the $700 billion] would be spent buying troubled mortgage assets. That’s what Congress voted on. That’s what Congress approved.” Sorry Campbell, that is simply not true.
Obviously, the Treasury Department could not partially nationalize banks without receiving authorization from Congress — that’s why the bailout legislation specifically grants Treasury the authority to purchase equity!
As anyone following the events already knows, Paulson only asked Congress for the authority to purchase troubled assets. However, Congressional Democrats — led by Chris Dodd and Barney Frank — were skeptical of Paulson’s proposal to purchase troubled assets. Frank and Dodd insisted that the legislation grant the Treasury Department authority to purchased equity, i.e. partially nationalize undercapitalized banks. Three weeks later, Paulson finally came around, and embraced the Democrats’ (and most economists’) preferred approach of purchasing equity, rather than “trouble assets.”
So Campbell Brown is wrong. The Treasury Department DOES have the authority to purchase equity — it’s right there in the bailout legislation, which Brown has obviously not read. In addition, “all” of Congress DID NOT claim the $700 billion would be used to purchase trouble assets; Democratic congressional leaders preferred a capital injection from the start — that’s why they included the provision in the legislation.
Another problem with Brown’s commentary: she advances the notion of Paulson as a “flip-flopper.” Okay, so Paulson changed his mind. Big deal. The more important question, which Brown completely ignores: was Paulson’s reversal justified? Absolutely. From the beginning, economists of all political persuasion — from Paul Krugman to Gregory Mankiw — insisted that a capital injection was the necessary fix. If Paulson deserves blame, it is for not embracing the capital injection from the start.
One final point of criticism: Brown states “a lot of people are screaming foul” over Paulson’s change in approach. However, Brown never specifies who these angry people are. Taxpayers? Why should taxpayers be angry about the government purchasing preferred stock, rather than toxic assets? Purchasing preferred stock in a bank will at least position the government to recover some or all its investment, should the bank recover. In contrast, spending taxpayer money on toxic assets would offer virtually ensure the $700 billion would not be recovered.
Without question, there are many alarming problems with the way Treasury has carried out the bailout plan. However, Ms. Brown’s superficial analysis ignores all of the legitimate concerns, and instead focuses on an alleged ‘bait and switch’ regarding the mechanism of the bailout.
I would advise Ms. Brown to do some research and get the facts straight if she wants to cover serious issues.