For a week now I have been urging fellow journalists to be skeptical of the assertion that we have a huge crisis and, secondly, that the bailout proposed by Treasury Secretary Henry Paulson (the former CEO of Goldman Sachs) is the ONLY solution.

Journalists should be insisting that officials make the case that there is a crisis, do not just accept that there is one because they say so. And then reporters should ask hard questions about who benefits from the bailout, whether there are alternative solutions that would be less costly or more effective.
Journalists, and specially Washington journalists, are generally behaving like lapdogs and generally only asking detail questions around the central premise. This should concern us all. This is the same kind of behavior that we saw during the run up to the War in Iraq, when there was no shortage of critical facts and skeptical sources, but only the usual stalwarts in journalism reported skeptically.

My posts on this at two blogs for journalists known as Romenesko and Nieman Watchdog have had some effect, but overall the naiveté and reliance on official sources is appalling. And the fact that a Republican administration and Congressional Dems are in general agreement is no comfort.
Tom Brokaw, the patron saint of NBC whom almost every other TV "journalist" aspires to become, began "Meet The Press" on Sept. 21 with these words:
BROKAW: Our issues this Sunday: The American financial system in deep crisis.
(video) PRES. GEORGE W. BUSH: Given the precarious state of today's financial markets and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential.
BROKAW: Can a government rescue plan save our economy? And at what cost to U.S. taxpayers? What else do we need to know? We'll ask the man in charge, Treasury Secretary Henry Paulson.

Note that the opening line contained no attribution. It was not that the President SAYS we are in crisis, but was stated as fact.

To the many people who are not journalists, but play one on TV, Brokaw sent the wrong lesson. He should have said:

"The President says we are in a financial crisis? Are we? And if so what kind of crisis? Who caused it? What are its effects? And if there is a crisis, what options do have to address the situation?"

A Wall Street Journal columnist went so far Friday as to declare as a fact that the markets will fall Monday by 20 percent or more unless Congress approves a bailout before trading resumes. If I had that kind of future vision I would not write for living, I would just trade profitable in the markets until I owned everything. This kind of hubris is not just bad journalism, it is bad for the economy.
For an example of the kind of journalism that we should expect look at the top story on the front page of today's New York Times, where my former colleague Gretchen Morgenson tells an eye-popping story about the improper presence of the Goldman Sachs CEO in the room when the decision was made for the taxpayers to bailout insurer AIG. Goldman is due about $20 billion from AIG, a sum equal to half of its shareholders' equity.
And just what is this crisis? Ah, now there is the story.
The news is full of anecdotal evidence of companies and individuals having trouble getting credit. But there is no sign that this is other than cherry picking specifics because in the ordinary course of business lots of people get turned down or have their credit lines frozen.
If the markets are about to seize up how did one of the biggest players in the deeply troubled newspaper industry, McClatchy, get it's $1.2 billion of credit lines renewed on Friday? And keep in mind that McClatchy gets the majority of its advertising revenue from two of the states with the biggest subprime mortgage/overvalued housing problems - California and Florida.
The TED spread, a technical market measure widely cited, is not even at record levels (or at least was not when I last looked Thursday night). If this is the worst financial crisis since the Great Depression then why is not setting new records - huge new records?

Now understand that we need viable credit markets and that without them we would all be poorer. But what has happened here is that under Reaganism we have allowed a vast, unregulated shadow banking system to arise and it has worked hard to artificially inflate the value of assets, gathering not just those crumbs from the golden cake that Tom Wolff wrote about, but fat slices.

So we had a market that for decades made solid mortgage loans to people who had a stake in making their payments every month turned into a market of lies - inflated purchase prices, understated costs, and undocumented incomes. And even when borrowers had to sign releases allowing lenders to check the incomes they reported on their tax returns many banks did not.
And Wall Street, with Goldman Sachs at the fore, sold all sorts of products that were designed to hedge away risk. One of the big tax shelter companies told me that they had identified 26 attributes to owning stock and one could hedge away 25 of them (you need one to meet the minimalist economic substance test for taking tax losses in the event your investment loses value).

But when many people hedge away risks they create new risks, including the fundamental risk that the market will over-value assets, artificially inflating their prices.

And when assets are inflated in value they must come back down to levels supported by economic reality.

The administration has lulled gullible journalists and scared Congressional leaders, but it has not laid out a clear, comprehensive case that the credit markets are about to seize up.

Nor have they offered alternatives, even though that is a basic tenet of sound management. And, after all, we elected the first MBA to the White House in part on his promise to run the government in a business-like fashion.

Comments and questions, please. More thoughts later today.