Anyone who followed the mainstream media coverage of the financial turmoil could be forgiven for being baffled by recent developments. When the House failed to pass the $700 billion bailout bill on its first try, the subsequent drop in the Dow was chalked up to the stalled legislation. But then the market bounced back, only to tank further after the bill was passed and signed. We were told that authorizing the $700 billion was absolutely necessary to unfreeze the short-term credit markets, which allow the economy to function. But Treasury Secretary Henry Paulson has no plans to spend any bailout cash until after the elections.

Despite these obvious holes in the bailout story, reporters have almost unanimously accepted its premise. On TV it’s all crisis all the time, with images of the Great Depression and empty ATMs terrifying the many millions who don’t know much about finance or even the fine print in their mortgages. Steve Pearlstein, business columnist for the Washington Post, exemplified the journalism that offered uncritical regurgitation of officialspeak. In a blog entry titled “They Just Don’t Get It,” he characterized anyone who opposed the bailout as ignorant. Just why the bailout was the only solution he never explained.

Worst of all, two of our best-known journalists got so wrapped up in hype that they chose falsehood over fact. When the stock market sank on September 29, Katie Couric opened her CBS newscast saying it was “the biggest decline in stock prices ever,” and Brian Williams of NBC said it was “the worst single-day drop ever.” Nonsense. It was bad and it was big news, but it was only the third-worst in the past twenty-one years.

But now that events have cast new light on the bailout supporters’ dubious claims, perhaps reporters can tug on a few threads that merit attention. To begin with: just how much have Paulson’s policies benefited his former firm Goldman Sachs? Thanks to the New York Times‘s Gretchen Morgenson, we now know that when the Fed decided to bail out insurer AIG, there was one nongovernment official in the room–the current head of Goldman. Paulson’s old firm is on the hook for as much as $20 billion from AIG, half of the investment bank’s shareholder equity. And Paulson’s decision to let Lehman Brothers die meant one less competitor for Goldman, a fact few journalists noted. (Before the bailout, Goldman shares were in free fall. After? The shares soared back almost to where they had been.)

Even if you believe Paulson is acting with pure heart solely in the public interest, his actions scream scandal. Remember, under his original three-page plan, his power to spend $700 billion would have been unreviewable. Congress improved on that, but it still failed to require disclosure of those who would benefit from each asset purchased by the taxpayers. A party that had guaranteed payment of a package of mortgages, for example, could conceivably be relieved of its obligation by whoever is managing the Treasury’s massive pool of money–and the man with that charge will likely be former Goldmanite Neel Kashkari. By such subtleties can Treasury enrich Goldman’s owners without directly handing them a dime.

The battle of the first bailout may be over, but there’s plenty of time for the media to get this story right: by aggressively asking, “Who benefits?,” tracking how taxpayers’ money is being spent and asking about alternatives that may cost less and be more effective. Reporters could also write about a new study of forty-two banking crises that shows bailouts can make things worse. They might explore how the bailout will redistribute income–upward to the richest among us.