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Too Big to Fail: Obama vs. NPR & the NY Times

Here wasPresident Obama last Thursdaytalking about financial regulatory reform:

Now, there's a legitimate debate taking place about how best to ensure taxpayers are held harmless in this process.  And that's a legitimate debate, and I encourage that debate.  But what's not legitimate is to suggest that somehow the legislation being proposed is going to encourage future taxpayer bailouts, as some have claimed.  That makes for a good sound bite, but it's not factually accurate.  It is not true.  (Applause.)  In fact, the system as it stands -- the system as it stands is what led to a series of massive, costly taxpayer bailouts.  And it's only with reform that we can avoid a similar outcome in the future.  In other words, a vote for reform is a vote to put a stop to taxpayer-funded bailouts.  That's the truth.  End of story.  And nobody should be fooled in this debate.  (Applause.)

Adam Davidson of National Public Radiothe following day:

"A vote for reform is a vote to put a stop to taxpayer-funded bailouts," Obama said in his speech in New York on Thursday.

I cannot find any experts -- of any party -- who are willing to agree with Obama on this one.

"We're not seeing a very forceful step on the too-big-to-fail problem," said Carmen Reinhart, an economist at the University of Maryland. "If there's any doubt that the crisis may be systemic, we will bail out again."

So, if a major bank says, "Hey, save us or the economy will go under," the government's going to save the bank. Full stop.

AndGretchen Morgenson of the New York Timesyesterday:

Unfortunately, the leading proposals would do little to cure the epidemic unleashed on American taxpayers by the lords of finance and their bailout partners. The central problem is that neither the Senate nor House bills would chop down big banks to a more manageable and less threatening size. The bills also don't eliminate the prospect of future bailouts of interconnected and powerful companies.

Too big to fail is alive and well, alas. Indeed, several aspects of the legislative proposals sanction and codify the special status conferred on institutions that are seen as systemically important. Instead of reducing the number of behemoth firms assigned this special status, the bills would encourage smaller companies to grow large and dangerous so that they, too, could have a seat at the bailout buffet.

Two points worth making. First, as a policy matter, this is no small discrepancy between the President of the United States and two news organizations.  The President declared on Thursday, without nuance or caveat, that the Dodd bill ends "too big to fail." Period. On successive days NPR and the New York Times asserted the opposite.

Someone is clearly wrong. Why hasn't anyone from the White House press corps followed up and asked the President to address the issues raised by NPR and the NYT and to either lay out evidence supporting his claim or force him to retract it.

Point two: as a political matter, this is where we end up when we have a President who relies so heavily on rhetorical tricks and demagoguery to make his case- as Obama did Thursday by declaring any opposing viewpoint to his as "illegitimate." Despite his eloquence and thoughtful demeanor, Obama  doesn't try to win arguments through persuasion so much as he does by demonizing and de-legitimizing those who hold a different view.

The President used this tactic repeatedly during the year long health care debate.  And we're now learning that at least some of the criticisms of his plan, which he dismissed at the time as "illegitimate," were well grounded in reality (Seehere,here,here,here, andherefor a recent sampling of stories).

The bottom line is that Obama's habit of declaring opposing viewpoints as outside the bounds of legitimate discourse doesn't serve the country or the President well at all. It is exceedingly divisive, poisons serious bipartisan debate and won't help the President's credibility and moral authority in the long run.


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