You call this journalism?

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Hank Paulson, the Treasury Secretary, has proposed a $700 billion 'bailout' of Wall Street. At least, that's what the media is telling us. What the media is failing to do is cover the story with any semblance of journalistic credibility.

The most blatant failing is the insistence on calling the scope of the program a 'cost.' The $700 billion number is enormous, and I'm not sure I'm in favor of the plan, but the plan will not cost $700 billion. It may require as much as $700 billion of capital to be invested, but the transactions are not an expense (the most common definition of cost). Rather, the transaction will be a purchase of assets.

Not to go all CPA on you, but the media is covering this story as if the goverment will increase liabilities by $700 billion and increase expenses by $700 billion. In fact, the plan actually calls for increasing liabilities and increasing assets. The income or expense portion of this plan will only be determined once the government sells the securities.

Since the media is getting the first part wrong, they're missing the two most important debates that should be taking place.

Most importantly: Who will determine the government's offer price for these troubled securities?

This (recent) crisis has been tied to the valuation of troubled securities. The owners insist they are worth more than buyers think they are worth, so no one wants to sell and no one wants to buy. I don't see how adding the government as a buyer will magically bridge that gap. However, it's clearly apparent to me that the answer to 'who?' will determine the answer to 'what?'.

The second missing question: What is this? Is it a liquidity measure, or a bailout?

Secretary Paulson suggests that the plan is a liquidity measure (ideally no profit, no expense), the media is covering it as if it is a bailout (giving money away - pure expense).

The plan as a 'liquidity measure'
This view (charitably) explains Secretary Paulson's opposition to executive pay limits for companies that take part in his plan. Why should a companies' executive take a massive paycut for selling an asset at fair value to the government? As long as there's no income/loss on the plan, then the size of the plan is irrelevant in terms of the government's income statement. Therefore, the plan should theoretically be as large as the government's ability to finance it. In sum, if the plan is truly a 'liquidity measure,' it doesn't need to be all that complex.

The plan as a 'bailout'
This view necessitates all the arguments that are being debated in the media now. Executive compensation limits, taking equity stakes in the corporations, appropriateness of a top down bailout, comparisons to spending on social programs, etc.

Now, let's revisit the debate, stripping away this structure that I've suggested, and suddenly you have the media covering this plan as if the two sides are debating the same issue. They aren't! People need to understand that the administration is talking about one thing (Cynic Byron says 'talking and planning aren't the same thing!'), while the Congressional Democrats are debating another. By refusing to explain the basic structure of the argument in their coverage, the media is further encouraging the debasement of public discourse on the subject. It continues to encourage sound-bite driven contemplation of the issues by the American public rather than a comprehensive understanding of public policy.