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Week of 9.26.08

Interview: David Cay Johnston

Video: David Cay Johnston
Video iconVideo: David Cay Johnston Interview
Editor: Andrew Lee
David Cay Johnston, a former New York Times reporter and author of "Free Lunch," talks to NOW's David Brancaccio about the economics and politics behind the bailout plan.

Below, read Johnston's plea to journalists to not "repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act."



Journalists, Start Your Skepticism
By David Cay Johnston

This letter first appeared in the Romenesko section on Poynter Online. David Cay Johnston is a former New York Times reporter who won a Pulitzer Prize in 2001 for exposing inequities in the U.S. tax code.

In covering the proposed $700 billion bailout of Wall Street, don't repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don't assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don't assume there is a case just because officials say there is.

The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.

The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)

Ask this question—are the credit markets really about to seize up?

If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.

If the problem is toxic mortgages then how come they are still being offered all over the Internet? On the main page AOL generates for me there is an ad for a 1.9% loan (which means you pay that interest rate and the rest of the interest is added to your balance due.) Why oh why or why would taxpayers be bailing out banks that are continuing to sell these toxic loans?

How does the proposal help Joe and Mary Sixpack who can afford their current monthly payment, but not the increased interest rate that has been or soon will take effect? Every day bankers work out loans with customers—so why are taxpayers being asked to act when banks are largely on strike, refusing to negotiate revised deals with many loan customers?

How about interviewing small landlords who were drawn into these toxic loans. Are banks negotiating with them? If not it means more foreclosures and renters who had nothing to do with this being evicted. Ask why banks are refusing (landlords I spoke to said they are) to negotiate with small landlords.

What steps are being taken to take back bonuses, fees and other compensation from the folks who got rich selling toxic mortgages and illiquid investments that Secretary Paulsen claims are threatening the whole system.

How will adding $700 billion to the national debt ease strains on the credit markets?

As of now we are, as a group, behaving just as we did the last two times the administration sought to rush through a hastily thought out, ill-conceived plan. Why in the world are we being so gullible and naive? whatever happened to the core value of journalism—check it out?

The questioning on the Sunday talk shows was all softball. ABC, CBS, NBC and Fox, shame on your anchors and roundtable regulars all for engaging in lightweight faux journalism. This passivity, superficiality and gullibility was at its worse Monday night on NBC in the banter between anchor Brian Williams and a CNBC correspondent with its utter lack of skepticism.