Amanda Ripley Author of The Unthinkable

Here’s a story I wrote for Time.com about one reason why American voters did not back a bailout with the same fervor as American leaders. Putting aside the more important (and much harder) question of whether the bailout was a good idea, this is a case study in how we perceive risk.

Note to European politicians: If you want people to support a dubious legislative bailout, you have to get very specific and personal with the public.

I was in the National Press Club lobby this afternoon when the news broke that the House had failed to pass the bail-out package. I sat there staring at the wall of TV monitors with a group of stunned reporters, no one sure what to do next. One screen showed the Congressional vote tally going up; the one next to it showed the Dow going down, down, down.

Despite the sense of foreboding in my office here in DC, I am still not convinced the bail-out package was the right response. The whole thing reminds me too much of how we deal with other disasters in this country: we encourage people to take enormous risks by, say, living without meaningfully priced insurance in places like Florida, and then we bail (some of) them out with disaster relief after catastrophe strikes.

I don’t pretend to have the solution, but I am struck by the question posed by Luigi Zingales, an economist at the University of Chicago:

Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded?

The question is, can we hold people responsible for reckless behavior while not penalizing the rest of the country at the same time? Can we have accountability without a depression?

OK, so you may not have noticed between election mania and fiscal implosions, but National Preparedness Month is almost over. Part of the reason you may not have noticed, ironically, is that so many of the country’s preparedness soldiers were too busy dealing with actual hurricanes to do PR about future hurricanes.
Right before things got out of hand, the Red Cross was nice enough to come visit my office and chat with me about the book. You can see some of our conversation here.

My colleagues at Time, Karen Tumulty and Massimo Calabresi, have written a story that details what officials are afraid will happen without a bailout. Nicely done.

On Sept. 18, Paulson and Bernanke laid out the dark scenario for stunned-silent congressional leaders: a stock-market crash, businesses going under, unemployment soaring, consumers unable to get so much as a car loan, banks failing so fast that they would quickly drain the federal deposit insurance fund—and with it, countless people’s life savings. And unlike the chain reaction that came over the course of weeks and months in 1929, this one would happen in a matter of days, if not faster.

Now why didn’t Paulson and Bernanke explain this directly to the people who are paying for the bail-out in the very beginning? Because they were worried about a self-fulfilling prophecy? They were afraid millions of people would drain their bank accounts before Congress could pass a rescue plan?

As I mention below, this fear of public hysteria is usually more powerful than the hysteria. And it must be weighed against the need to gain the public’s trust—in order to get said bail-out.

Last I checked, there have been no mobs in the street since the Time story came out. I would be curious to see the ATM receipts in the Capitol, however…

Listening to US officials warn of a fiscal crisis, I am struck by how much they sound like officials on the brink of a disaster or a terrorist attack. In both cases, the official instinct is to say less rather than more. This is a mistake.

We hear vague warnings of impending doom—but no details. We are expected to follow orders—and support a $700 billion bail-out package—without knowing what will happen if we don’t. And now the proposed bail-out plan is vague, too.

No one can predict the future. But it is obvious that Treasury Secretary Henry Paulson and President Bush are being vague partly because they are worried about a financial panic. So they are being intentionally mysterious with the public (but not with Congress) about what might happen if we don’t do what they say. This is a legitimate fear. The stock market rises and falls on emotion more than facts.

But we know from a long history of physical disasters that the overly vague approach can be self-fulfilling. Mysterious threats communicate many messages. One message is that officials do not trust the public; sensing this, the public in turn tends not to trust officials. The whole conversation becomes steeped in suspicion.

After all, these are the same characters who downplayed fears about a deep recession earlier this year. So if they are going to ask for the public’s trust, they are going to have to be more specific. This is a difficult and delicate balancing act, it is true. But this administration does not have enough credibility in the bank to err on the side of secrecy.