Since I have a strong interest in behavioral economics and how investor psychology interacts with the markets, one great example of powerful people using language to create (or change) reality is when Hank Paulson, Ben Bernanke, and Tim Geithner sat in front of congress just over a year ago and said that if we (as a country) or more specifically, the congress they were testifying to, did not act immediately to bail out the biggest banks in the United States, that we were "on the precipice of financial collapse". They specifically used wording that implied failure to act immediately would cause the financial destruction of our country and the possible failure of our government. Using this language to create an undue sense of urgency, the Federal Reserve and the Treasury then helped ensure that Congress would pass a bailout bill that was intentionally vague and broad enough in scope that almost any actions by the Fed or Treasury were deemed acceptable within the bill.
Now, 15 months later, many citizens are starting to question if some of the actions were really necessary, or was our taxpayer money used to enrich politically connected instructions. Goldman Sachs (who Paulson used to be the CEO of) recovered enough just from the bailout to go from near insolvency to increasing the average pay per employee to just over $700,000 this last year. This was up considerably from 2007 and 2008. In many ways, this is causing a backlash of anger against the government and particularly against the banks. Only last month, Congress had Paulson and Geithner testifying before them again on why AIG was completely bailed out and whether any federal banking laws were violated in the process. The issue gets complicated, but one of the main recipients of the counter-party risk insurance that AIG wrote on the toxic subprime mortgages was Goldman Sachs, who then got paid 100% of the value of their contracts by AIG (with government bailout money).
Reality was created by their actions in late September, early October, 2008 but the true economic reality was never really shifted much and now the true situation is becoming clearer to our country and many voters are very unhappy about it.
Disclosure: No positions