WEST PALM BEACH, Fla. — Governments lie. Anyone with the sophistication of Big Bird knows that. Winston Churchill famously said that "in wartime, truth is so precious that she should always be accompanied by a bodyguard of lies." Building on that thought, officials find that invoking "national security" means never having to tell the truth.
The latest "inaccurate statements" to make the news are things said by Treasury Department and Federal Reserve officials a year ago.
You may recall that, as the world's economies shriveled last Oct. 14, Treasury Secretary Henry Paulson called in the heads of the nine biggest banks and told them he was giving them $25 billion apiece on a take-it-or-else basis. Then he and Federal Reserve Chairman Ben Bernanke went out and said the banks were in fine shape and accepted the government money only "for the good of the economy." They prevailed on President Bush to add, "This new capital will help healthy banks continue making loans to businesses and consumers."
Now Neil Barofsky, who has the delicious title of special inspector general for the Troubled Asset Relief Program, or SIGTARP, says the parts about the banks all being "healthy" were bunk. The banks didn't lend the tax money when they got it. Two of them, Citigroup and Bank of America Corp., soon needed more "new capital" from Washington just to stay alive.
There is more. By helping the Big Nine, Mr. Paulson and Mr. Bernanke hoped to create a halo of confidence around all their smaller cousins. But so far this year, the Federal Deposit Insurance Corp. has closed 98 banks, compared with 25 last year and four in 2007.
What the Big Nine had going for them was that they were so big that if they imploded they would become black holes sucking in everything around them. The government saved them to save everything else.
It is possible that some investor was misled by the happy talk and sank his wad in home loans. But he would have to have been less sophisticated than Big Bird. Everyone else could tell that Mr. Paulson and Mr. Bernanke were very, very afraid. Their statements sounded like a chorus of "When the Saints Go Marching In" sung during a midnight stroll past a graveyard.
Mr. Barofsky concedes that Mr. Paulson and Mr. Bernanke didn't want to spread panic, but he insists honesty is the best policy. "Accuracy and transparency," he writes, "will enhance the credibility of government programs like TARP and restore taxpayer confidence in the policy makers who manage them; inaccurate statements, on the other hand ... could damage the trust that the American people have in their government."
The other hand is waving now. Many Americans would believe in the clever T-shirt they saw at a tea party before they would believe anything the government says. Unfortunately perhaps, we need the government just as that damaged trust makes it difficult for the government to act.
We still have banks "too big to fail." Some even grew as a byproduct of the TARP. Their lobbyists tell Congress to back off on proposed reforms. Their managers collect their usual bonuses for short-term greed, and no one thinks about next year. The government is the only institution big enough to prevent the next landslide from crushing the taxpayers.
Next landslide? So soon? Look at reverse mortgages. For some people they are a shrewd use of money and for others a godsend. So were subprime mortgages before they were sold too widely to the wrong people.
Reports from here and there already tell of reverse mortgages being pushed with high-pressure sales pitches at people who do not need one and shouldn't have one. They are being marketed the way subprime mortgages were, as free money. Wait until the too-big banks start collateralizing them. What will stop them? Clever T-shirts? Not likely.
Tom Blackburn is a former member of The Palm Beach Post Editorial Board. E-mail: tom(underscore)blackburn(at)juno.com.
