Dean Baker

Recent Articles

The New York Times Could Not Find Any Economists Who Saw the Housing Bubble to Talk About Financial Regulation

The NYT magazine featured a lengthy piece on financial regulation . Remarkably, it did not quote or cite a single person who saw the housing bubble and recognized its danger. The failure to include the views of someone who actually understood the economy makes the issues surrounding regulation appear far more complex than they are. There was very little problem in recognizing the housing bubble for any competent economist. There was an enormous divergence in house prices from their long-term trend with no remotely plausible explanation. The sort of reckless loans and over-leveraging that one expects in a bubble were also easy to see. The story of failed regulation was one of incredible corruption. The remarkable part of this story is no one is going to jail. In fact, no one is even losing their job (that is among the regulators -- tens of millions of ordinary workers who did nothing wrong are losing their jobs). Given such an outcome, economic theory predicts that when confronted with...

Meaningless Budget Numbers on Health Care

How many NYT readers know how large $500 million is as a share of California's budget? How about $370 million a share of Texas' budget. My guess is that almost no one outside of the people who live in these states (and probably not even many of them) has any clue as to how large these sums are to the state governments. This means that when the NYT tells readers that the health care reform bill will cost the state of California $500 million a year in higher Medicaid costs and Texas $370 million a year, it is giving readers no information whatsoever. The article could have instead told readers that the Medicaid expenses will add approximately 0.5 percent to the budgets of both California and Texas. This would have allowed readers to better assess the impact of the bill on state budgets. --Dean Baker

NPR Discusses Housing Market Without Talking to Anyone Who Recognized the Bubble

It seems that a condition of being a source on the housing market for NPR is having missed the housing bubble. Morning Edition ran a piece on President Obama's new housing plan in which Mark Zandi claimed that a main benefit was that it could stop the decline in house prices. Since there continues to be enormous oversupply in the housing market, as shown by a record vacancy rate and falling rents, it is extremely unlikely that house prices will stabilize until they return to at least their pre-bubble levels. It is also not clear why anyone would want to make homes more expensive for future buyers as a matter of policy. --Dean Baker

Has The Post Heard About the Housing Bubble?

It seems that they haven't. When discussing the cause of foreclosures the Post told readers that the Obama administration's new housing plan takes aim at: "the major cause of the current wave of foreclosures: "the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more-recent defaults reflect the country's economic downturn and the inability of jobless borrowers to keep paying." Actually, the major cause of both waves of foreclosure was the collapse of the housing bubble. The plunge in prices pushed many homeowners underwater in their mortgages. As much research has shown, being underwater is a key factor in foreclosure. Homeowners are unlikely to default on homes in which they have equity. --Dean Baker

Helping Banks by "Helping" Homeowners?

The NYT reports on a new plan from the Obama administration to help homeowners. According to the article, under the plan the Federal Housing Authority (FHA) will guarantee new loans in exchange for banks writing down some of the principle on underwater mortgages. It would have been worth pointing out that the FHA is currently facing serious financial problems as a result of its expanded role in the housing market over the last few years. Many of the mortgages it has guaranteed have gone bad. This has led to large losses, pushing its reserves below required levels. The losses to the FHA are gains to banks, which would have been forced to absorb these losses themselves without the FHA guarantee. Of course many banks would not have issued the mortgages without the FHA guarantee. (The WSJ did note the FHA's financial problems.) In a context where house prices are currently dropping and virtually certain to fall further over the next year, an FHA guarantee based on current prices is likely...

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