It'll Take More Than Money to Fix This Crisis

By Steven Pearlstein
Wednesday, March 11, 2009

Browsing through the Style section of yesterday's Post, I happened upon an article about new Washington "power couples" that made reference to one Jeremy Bernard, a Los Angeles fundraiser for President Obama who recently landed the plum job as White House liaison to the National Endowment for the Humanities.

White House liaison to the National Endowment for the Humanities?

Let's get this straight: We're up to our necks in the worst global economic crisis since the 1930s, the government is putting trillions of dollars of borrowed money on the line to rescue the financial system and stimulate the economy, tens of trillions of dollars in paper wealth has vaporized, millions of Americans are losing their homes and their jobs, nearly all the top jobs at the Treasury Department are vacant, yet somehow the White House has found the time and the money to hire a liaison to the National Endowment for the Humanities!

It's a small point, I realize, and I mean no disrespect either to Mr. Bernard or the humanities. But it highlights what seems to be a glaring problem: There is still way too much business as usual going on in Washington, on Wall Street and in the media.

Not so on Main Street. All indications are that in response to the crisis, consumers have embraced a new frugality, paring debt and cutting consumption they know had become excessive. Businesses are moving to cut back on dividends and stock buybacks they can no longer afford, trim frills and reduce prices and capacity to post-bubble realities.

Contrast that with the approach to the crisis taken by members of Congress, who as far as I can tell, have changed nothing about how they go about their duties. Same leisurely three-day work week. Same bloated budgets for staff and security. Same unwieldy committees holding the same meaningless hearings. Same partisan posturing and gamesmanship. Same willingness to put narrow special or parochial interests over the national interest.

Can you imagine a better way to undercut public support for fiscal stimulus and deficit spending than to report out an omnibus spending bill with nearly 9,000 earmarks totaling $8 billion? But, of course, that is just what the Democratic Congress has done. Americans don't need to be lectured by the House speaker and the Senate majority leader on the spending prerogatives of Congress. What they need are leaders who can demonstrate, in ways symbolic as well as substantive, that they know the difference between spending that is crucial to the country in times of crisis and spending that is not.

As for Republicans, their stubborn opposition to any increase in government spending in the face of a severe downturn is the economic equivalent of bloodletting. And their determination to paint every initiative of the Obama administration with the broad brush of socialism is the kind of old-fashioned red-baiting that would make Joe McCarthy proud.

It's not just Congress, however. Key regulators have also been slow to respond to the unfolding crisis with the kind of urgency the situation demands.

At a time when the Treasury and the Federal Reserve are going to extraordinary lengths to stabilize the banking system, it's hard to see how any useful purpose is served by allowing speculators to undermine market confidence in those efforts by massive short-selling of bank stocks and manipulative trading of associated credit-default swaps. At a minimum, the Securities and Exchange Commission and the Commodity Futures Trading Commission should be holding public hearings to expose these trading strategies and listing on their Web sites the names of those patriotic Americans who are engaged in them. Better still, they should be using their regulatory powers to outlaw them completely until the crisis has passed.

It's also hard to understand why the SEC continues to drag its feet on suspending accounting rules that effectively require banks, insurance companies and other financial institutions to value the assets on their books at ridiculous discounts because of a breakdown in the markets in which those assets traditionally trade. A year ago, it was possible to make the case that suspending "mark-to-market" rules might undermine investor confidence in stocks and bonds of financial institutions. But now that those securities are trading at a fraction of their economic value, it makes no sense to cling to accounting rules that only served to confirm investors' worst fears and needlessly increase the scope and cost of government rescue efforts.

The media also deserve some criticism for the way they have recently covered the crisis. The personalizing of policy debates may be great sport during a political campaign, but it can be downright destructive in the middle of a crisis when public and market confidence are so crucial. You'd never know it from the coverage that Treasury secretary Hank Paulson last year almost surely prevented a meltdown of the global financial system. Nor would you imagine from all the negative coverage and commentary that Tim Geithner's now-disqualifying sin is that he took an extra couple of weeks to flush out the details of an innovative scheme to buy up unwanted bank assets and reduce home foreclosures.

Too often, the media have accepted uncritically all manner of hyperbole and misinformation peddled by people talking about their trading books, wielding partisan axes or pursuing ideological agendas. While there are plenty of reasons for populist outrage at the behavior of major financial institutions, the titillating focus on bonuses and boondoggles has been way out of proportion. And thanks to the media, much of what now passes for conventional wisdom about the government's response to the crisis amounts to little more than a childish disappointment that officials have been unable to wave a magic wand, throw a couple of hundred billion dollars worth of fairy dust in the air and make the whole thing disappear.

What we are facing is the economic equivalent of a war -- a war that caught us by surprise and threatens much of what we have taken for granted. It's a war we can win, but only if we have leaders and opinion makers who commit to difficult sacrifices, a sustained effort and serious changes in the way things are done.

Steven Pearlstein is the moderator of a new Web Site, On Leadership, at He can be reached at

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