What Financial Crisis?

Congress has drafted and frozen the consensus agreement reached this morning on the $700 billion Wall Street bailout. The House is set to vote tomorrow. Now would be the time for supporters to at least briefly indulge the naysayers, especially given the weak recent state of opposition politics in this country. Elven Ohio Democrat Dennis Kucinich has had his brief say on the House floor. And within the media? In 2006 it was a reporter for This American Life playing the contrarian, asking basic questions about then-popular subprime mortgages. "Sometimes, if you want the real answer, you have to ask a dumb question," Times columnist David Carr writes of the reporting in Monday's paper. Today , the person asking the "dumb" question is David Cay Johnston, until recently the Times' aggressive tax reporter. He's wondering whether we're in a crisis at all!

Sure, unemployment is at a five-year high, and is growing fast but it still stands at a modest 6.1 percent. Yes, the S&P 500 is off about 5 percent this month, but it's coming off a fairly steady five-year run up.

When the Times recently went looking for Main Street businesses hit by the Wall Street meltdown, the best examples it could come up with were a mortgage broker, an independent residential real estate developer and a small bank and credit union that were "heavily invested" in Lehman Brothers, Fannie Mae and Feddie Mac. Given the state of residential real estate and those firms, it's hardly shocking that these businesses are having trouble securing credit.

Slate's The Big Money, meanwhile, realized that two of the biggest winners from the bailout will be Wall Street giants Bank of America and JP Morgan Chase, whose recent purchases of distressed firms looks a lot less risky in light of the bailout plan.

Johnston is convinced the whole "meltdown" crisis has been ginned up to dupe taxpayers into transferring hundreds of billions of dollars in wealth to bankers. He's been talking about this to anyone who will listen, especially journalists. He started with a letter to media blogger Jim Romenesko, hopped over to NPR show On The Media and on Sunday ended up on CNN's Reliable Sources:

Goldman Sachs' stock has gone up 50 percent in had the last 10 days. It was on its way down the day this decision was made...

The TED spread, which is a technical measure of the market, isn't even at a record level, although it is one that should cause some concern.

...And what came out this morning in Gretchen Morgenson's column in "The New York Times?" That when they were in the room deciding to bail out AIG, the current chairman of the board of Goldman Sachs, the job the treasury secretary used to have, was sitting in the room.

...by the way, Goldman was on the hook for $20 billion from AIG, which is half its shareholder equity.

And Howard, where are the stories that say a study that came out this week by two economists at the International Monetary Fund who examined banking crises all around the world, England, Japan, other countries, in the last 27 years, they found that bailouts like this don't work, they don't solve the underlining problems, and they only represent basically a transfer of wealth from ordinary people to bankers.

The first rule of journalism is, check it out, and then crosscheck it. And journalists weren't doing that. They were accepting as revealed truth that there was a crisis..

...Look, I don't think to this day the government has made the case. Joe Stiglitz, Nobel Prize-winning economist, many other economists, are saying, excuse me?

By Tuesday, the whole issue may be moot, assuming both houses of Congress approve the plan as directed by Democratic and Republican leaders. If that happens, the question of whether there was a real financial crisis may well become academic and unanswerable. But to the extent there is dissent, it will in large part come from people, like Johnston, grappling with a question the press has left mostly unanswered: What terrible things will happen if there is no massive bailout, and how?

There's more discussion on this topic in a back-and-forth thread between commenters gawkimo and ADismalScience earlier today.