Steven Pearlstein and the strange pro-bailout justifications

As Wall Street hordes its bailout cash rather than using it to unfreeze credit markets, bailout proponents twist themselves into knots to justify their conduct.

By Glenn Greenwald
Published October 31, 2008 9:25AM (EDT)

(updated below - Update II)

It's been truly bizarre watching financial columnist Steven Pearlstein over the last six weeks use his considerable platform at The Washington Post to advance an unbelievably petty, small-minded crusade of railing against what he today-- in the very first sentence of his column -- calls "right-thinking economists and left-leaning bloggers," while insisting over and over that he -- Pearlstein -- has been right all along about everything.  What makes his behavior so bizarre, aside from the self-centered fixation that drives it, is that he completely contradicts himself from one column to the next -- he takes fundamentally different positions on the bailout based on whatever short-term circumstances are prevailing -- all in order to declare himself vindicated and, more importantly, to demonize his blogger-enemies and those he dismissively calls "academic economists" (which, for Pearlstein, definitely means, first and foremost, Paul Krugman, and most likely, Nouriel Roubini).

The weird drama began on October 1 when Pearlstein, in a Washington Post chat, repeatedly and snidely attacked his own readers, who were questioning the wisdom of the Paulson bailout plan (which, at the time, still called for the government to purchase the banks' toxic paper), and who specifically were arguing to Pearlstein that there were superior alternatives to that plan (such as direct equity investments in the banks).  Pearlstein -- who had vehemently defended the original Paulson plan in an earlier column that week and said bailout skeptics "just don't get it" -- insisted in the chat that those advocating alternatives to the Paulson plan (such as equity investments) were ignorant, specifically blamed "left wing bloggers" for spreading anti-bailout ignorance and fear, and pointed to his Pulitzer Prize as a reason he should be trusted. 

But then, on October 12, Paulson abandoned his plan to buy commercial paper and instead announced he would invest $250 billion directly in banks -- because he was forced to do so once the British, and other Europeans, decided they would.  The next day, October 13, the stock market exploded, with the Dow increasing more than 700 points in response to that plan.  Unbelievably, Pearlstein went to his column the day after and pretended that he was in favor of the bank equity plan all along, pointed to the one-day stock market boom, and clucked with self-proclaimed vindication while mocking those who had been critics of Paulson:

Now, what was that about Hank Paulson having blown it? . . . Since Lehman's failure, Paulson has moved faster, more aggressively and more deftly than any of his international counterparts in doing whatever was necessary to stabilize the financial system.  The result: the biggest one-day rally on stock markets in 70 years.

I hope you won't think it petty to point out that some of the people who this past weekend were complaining that the Treasury secretary was being too timid in his response to the financial crisis were some of the same people who, three weeks ago, were complaining about his audacity in demanding a "$700 billion blank check."

Pearlstein, while proclaiming himself vindicated and the Paulson critics shamed, specifically praised Paulson for "injecting capital into healthy banks" -- the very approach Pearlstein (and Paulson) had been scorning from the start and which many Paulson critics (including Krugman) had been advocating all along.

But now today, in light of reports that banks aren't using the equity to lend money but instead are using it to pay vendors, fund acquisitions and even dole out shareholder dividends and executive bonuses, Pearlstein has switched again.  In a column entitled "Hank Paulson's $125 billion mistake," Pearlstein argues -- again -- that recent events prove how right he was and how wrong his enemies were:

It was only a few weeks ago that most right-thinking economists and left-leaning bloggers were jumping on Treasury Secretary Hank Paulson for his plan to jump-start the markets in asset-backed securities by having the government buy them up at auction. Much better, they argued, to use the $700 billion to "recapitalize" the banking system, just as Gordon Brown was doing in Britain. Even the Federal Reserve thought that a better idea.

So Paulson changed course, called in the nine biggest banks and "forced" them as a group to accept $125 billon in new capital. The critics patted themselves on the back for having been right all along.

Now, many of the same people are shocked -- shocked! -- to discover that the banks aren't using the money to make new loans to households and businesses, as they had assumed, but are using it to maintain dividend payments to shareholders, pay this year's bonuses to executives and traders, or squirrel it away for future acquisitions.

I hate to say it, but I told you so. Sprinkling money around a highly fragmented banking system when markets were panicked and everyone was scrambling to reduce leverage was always akin to shoveling sand against the tide. . . . Paulson's first mistake was in allowing himself to be diverted from his original strategy.

That's just amazing.  It was Pearlstein himself who -- the day after Paulson announced the $250 billion equity investment -- hailed Paulson (literally) as the world's greatest and boldest leader who saved the financial system.  That was because the stock market went up for one whole day, and Pearlstein wanted to associate himself with the plan that caused that.  Now that there are problems with the plan, Pearlstein wants to pretend that he was an opponent of it all along, for no more elevated reason than being able to write yet another column about how liberal bloggers and academic economists should feel ashamed and Pearlstein is covered in glory -- now seemingly the only purpose of his weekly column.

The fact is that all of this underscores the central anti-bailout argument from the start, the one that Pearlstein mocked as being grounded in mass stupidity:  namely, that the hundreds of billions of dollars to be transferred from taxpayers to Wall Street wouldn't be used to alleviate the economic crisis at all, but would instead be used to enrich the very people who caused the crisis in the first place.  It's a hardly a "shock" to bailout critics -- of all people -- that Wall Street executives are hoarding the cash and not using it for "the common good" (as but one example, in the post I wrote about Pearlstein's Paulson-glorifying column, I argued that "it's hard to understand why those steps [i.e., ensuring the equity is used to unfreeze credit markets] aren't being mandated").   As dreaded "left-leaning blogger" Jonathan Schwarz wrote in response to Pearlstein's October 14 column, in which Pearlstein said that Wall Street's "lack of leadership" -- i.e., its refusal to work on behalf of the "public good" -- was "stunning":

Who wouldn't be stunned when the most greedy, venal, vicious, cruel, arrogant, ignorant human beings on earth aren't eager to work in the public interest? Especially when people like them have never been willing to do so in the entire history of mankind, except on the rare occasions when they've been directly threatened with execution? It's stunning!

It was precisely that concern that fueled much of the anti-bailout sentiment in the first place.  Of course Wall Street -- in the absence of mandates -- will use the hundreds of billions of dollars they receive for their own self-interest, rather than the "public good."  That's just the nature of the beast.  That's precisely why there was so much opposition to the transfer of huge amounts of taxpayer money to these firms without any controls over how it would be used.  That was the concern which Pearlstein was aggressively deriding from the start, and the only thing that's "stunning" is for him to now cite that development as further proof of his genius and of the need for everyone else to keep their mouths shut.

* * * * *

There's one final point worth making here as well.  Before the bailout, Pearlstein's writing during the prior year on the looming housing and credit crises was actually quite good, at times even prescient.  Everything changed when he turned himself into the chief defender of the original Paulson plan and thus became the target of substantial criticism from bloggers and their readers.  Once that happened, the comment sections to his columns and his weekly chats became filled with negative feedback -- most of it substantive, some of it pure invective -- while Google searches of his name now produce conspicuous and aggressive critiques of his work.  After that, Pearlstein became single-mindedly fixated on railing against bloggers and proving them to be ill-informed cretins, even at the expense of minimal coherence and consistency.

That happens quite frequently.  People like Pearlstein are entirely unaccustomed to hearing widespread criticisms of their work, especially from the lowly masses (also known as his "readers" or, more distasteful still, from prize-less "bloggers").  When thin-skinned establishment mavens encounter such criticisms for the first time, they often develop resentment over their treatment and devote themselves to a crusade against those whom they blame for their terrible plight (nasty, disrespectful "bloggers").  Behind virtually every vocal establishment critic of "blogs" is some episode in the past where they were widely criticized by bloggers and their readers, and their lashing out -- though masquerading as devotion to high-minded, well-informed and civil discourse -- is, in reality, nothing more than self-absorbed and inextinguishable fury over being mistreated (i.e., criticized or opposed). 

As these recent Pearlstein columns illustrate, those crusades almost always reflect far worse on the crusader than on anything or anyone else.  People like Pearlstein have influential platforms.  Criticisms of their arguments and behaviors are part of the price for that influence, and those criticisms ought to be engaged, not resented as improper disruptions of the proper social order.


UPDATE:  Fortuitously enough, Pearlstein will appear today at 11:00 a.m. EST for his weekly online chat, where he will, I'm certain, be delighted to answer any comments or questions you might have about these matters.   You can visit with him here, or submit your questions/comments in advance.


UPDATE II:  It wouldn't have been possible to invent responses for Pearlstein to readers in his chat today which prove these points any better.  First was this:

Leesburg, Va.: What is your response to Glenn Greenwald's critique?

Steven Pearlstein: Who?

That tactic is, of course, an old favorite of establishment media figures, and in this case, it's a very odd claim, given how much time and energy Pearlstein has been expending to rail about "liberal bloggers."  But even if true, note that Pearlstein's instinct is to dismiss away the need to respond to criticisms exclusively on the ground that he does not know who is voicing them.  And then there was this:

Munich, Germany: Blogger Glenn Greenwald has something to tell you.

Mr. Pearlstein, would you like to publish your recent comments on Paulson's bail-out policy one right after the other, without omitting one --- allowing the reader to be amazed about all your blatant contradictions?

Will you have the guts to face the Greenwald challenge?

Steven Pearlstein: This is pretty indicative of the bloggers view of the world. They write about what other people write about. And the mainstream media writes about what's going on in the world.

If you or anyone else wants to compare and contrast and come up with some conclusion about the consistency of my columns, go right ahead. And if you decide I'm not someone you want to read, then don't read it. It's a free country and, at this point, the content is free as well.

As for me, I'm focused on my readers and the economic crisis before us, not getting sucked into the shouting match of the blogosphere.

Absolutely.  He's much too busy and far too elevated writing "about what's going on in the world" to lower himself to addressing blogger criticisms of his claims.  He won't be "sucked into the shouting match of the blogosphere."  This -- from the person who has been using every column and chat he has to attack "left-leaning bloggers" and scream "I told you so" at them.  As I said, if I could have written Pearlstein's responses myself in order to illustrate the points I was making, I couldn't have done it any better than the replies he actually gave.

Glenn Greenwald

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