July 21, 2008 – Page 1954
Words matter. Policy choices are critical, of course, but sometimes how those policies are described — the context, the tenor and the person doing the talking — matter just as much, at least at the outset. If nothing else, words set the tone and allow the public to develop confidence that the policy decisions actually will work.
That’s why the world listened closely when President Bush went public July 15 to endorse a rescue plan for Fannie Mae and Freddie Mac that had been assembled by Treasury Secretary
The reception, measured by the reactions of shareholders inthe two companies and stock prices generally, was decidedly negative. On the day of the president’s comments, both companies lost an additional one-fourth of their market value, and a broader index of financial company shares fell 3 percent.
So consider what Bush said and the way that he said it. When asked if the banking crisis was getting worse, the president rambled on: “I happened to witness a bank run in Midland, Texas, one time. I’ll never forget the guy standing in the bank lobby saying, ‘Your deposits are good. We got you insured. You don’t have to worry about it if you got less than $100,000 in the bank.’ The problem was, people didn’t hear. And there’s a — became a nervousness.”
Aside from the fact that Bush had to be talking about some obscure event from two decades or so ago — not the broad mortgage and credit crisis that’s currently piling billions of dollars in losses onto banks’ books — a depiction of runs on bank deposits had to be the least confidence-building image he could have evoked.
Beyond that, he didn’t really address the question of whether the nation’s financial industry remains secure. So the reporter asked again if banks are in trouble, and Bush offered this ringing endorsement: “I think the system basically is sound. I truly do.”
Yikes. Maybe it’s time to stuff mattresses with our life savings.
This is a case where Bush the Younger might have taken a page from papa’s book. In many respects, the financial world in 2008 looks a lot like it did when George Bush the Elder moved into the White House in 1989. Now, as then, government officials are worried about the health of the two mortgage giants, Fannie and Freddie. And the banking industry is again on the ropes. The only real difference is that today the potential costs of failure appear to be much higher, with the entire global financial system in jeopardy.
How the current president’s father spoke about that debacle — and assumed a critical leadership role at an important time — stands in sharp contrast with the way the son dismissed the current market meltdown with an obscure anecdote.
Bush the Elder scored a huge success in the earliest days of his presidency in calling for a rescue of those with deposits in failing savings and loan institutions and in offering a plan to prevent the collapse of the thrift industry from escalating beyond it.
On Feb. 6, 1989, a little over two weeks after he was sworn in, Bush himself revealed the outlines of a sweeping overhaul of the collapsing deposit insurance program for savings and loans. Despite its complexity, its political and economic consequences, and its cost, the plan was signed into law just six months later. As enacted, it looked a lot like what Bush had proposed.
“I’ve determined to face this problem squarely and to ask for your support in putting it behind us,” Bush said in a forceful presentation of the situation and his administration’s response. “I call on the Congress to join me in a determined effort to resolve this threat to the American financial system permanently and to do so without delay.”
Though taxpayers and lenders ended up paying about three times more than initial estimates, the salvage operation for almost 750 dead thrifts was widely hailed as a huge success. The contagion was contained, and the banking industry recovered.
He won plaudits for taking his salvage plan to the public in his second news conference after being sworn in and in addressing Congress on the matter three days later. He took the heat, and he didn’t rely on Treasury Secretary Nicholas F. Brady to do the initial presentation. That stands in contrast to Bush the Younger, who has depended mostly upon Paulson and Bernanke to do the talking this time around and has mostly avoided taking any responsibility for the economy. (At one point last August, Bush deflected questions at a news conference about how bad things might get by reminding his questioners that he isn’t an economist.)
Few would blame the current president for all that has transpired in the ever-broadening financial crisis, but the tone of comments from the White House these days isn’t as muscular as it was a generation ago, and it isn’t inspiring confidence as the panic selling of shares in Fannie and Freddie spreads to bank stocks generally. Paulson, Bernanke and their allies on Capitol Hill are working to contain this mess. But unlike his father, the president isn’t getting much credit for helping the cause.
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