Framing Matters

I'm curious who started calling the plan a "bailout." Of course, "Emergency Economic Stabilization Plan of 2008" doesn't roll off the tongue very well, so some kind of alternative term was going to get applied.

But doesn't "bailout" give the impression that the plan is intended to save Wall Street Fat Cats and/or people who bought a house they can't afford rather than improve liquidity and restore confidence in the market so the entire economy doesn't go to shizzle?

I think this article in the Economist does a good job of explaining why "it may seem unfair, but a bailout is essential." (This is not to endorse any particular version of any plan on their part or mine, but to explain what's at stake.)

Overall, it's been an interesting time watching ordinary people not understanding economics, economists not understanding finance, and politicians understanding all too well that citizens are easily freaked out and looking for someone to blame.

I just looked at the wikipedia entry on the "bailout" and was amused (but not surprised) by these public opinion polling results:

--In a survey conducted September 19-22 by the Pew Research Center, by a margin of 57 percent to 30 percent, Americans supported the bailout when asked "As you may know, the government is potentially investing billions to try and keep financial institutions and markets secure. Do you think this is the right thing or the wrong thing for the government to be doing?"

--In a survey conducted September 19-22 by Bloomberg/Los Angeles Times, by a margin of 55 percent to 31 percent, Americans opposed the bailout when asked whether "the government should use taxpayers' dollars to rescue ailing private financial firms whose collapse could have adverse effects on the economy and market, or is it not the government's responsibility to bail out private companies with taxpayers' dollars?"

Yep, framing matters, big-time.

Nobody knows what percentage of the up-to-$700 billion that the government is going to invest in these questionable securities will be recouped, but it's probably not going to be 0%, so the blather in the news about how much the bailout is going to cost each taxpayer in the country is bullshit. That number is not knowable. If it were, this would be an entirely different situation; we wouldn't be in the crisis we're in.

I eagerly admit that I do not have the requisite command of the theory and facts to support or oppose the plan that is being enacted in all of its details. I mean, none of us reading this blog do. I don't have the background, experience, or data to make any kind of meaningful analysis of the plan or make predictions about its success. In these situations, all I can do is say, yes, the central idea does not seem crazy and hope that people like the secretary of the treasury, the chairman of the federal reserve, and the chairman of the securities & exchange commission sort of know what they're doing. However, I do feel pretty confident that the version that was finally passed by the legislature (a group of people not renowned for their finely honed understanding of finance and economics and who are answerable to people who know even less) sucks in a lot of important ways. That's how it works.