Beat the Press

Lax Regulation BY THE FED Caused the Housing Bubble

The NYT reported on a talk by Federal Reserve Board Chairman Ben Bernanke in which he claimed that the low interest rates set by the Fed were not responsible for the housing bubble, but rather "lax regulation." This is taken as an exoneration of Mr. Bernanke's performance at the Fed. It isn't.

Can the Post Find Someone Who Didn't Miss the $8 Trillion Housing Bubble to Discuss Fed Policy?

At the Washington Post it seems that missing the largest financial bubble in the history of the world is a necessary credential to discuss Federal Reserve Board policy. The Post notes that the economy's horrible performance over the last decade, which was caused by the collapse of the stock and housing bubbles, and then turns to Fed Vice Chairman Donald Cohen to hear an argument that the Fed should not use monetary policy to prick asset bubbles.

Principal Buydowns Give Money to Banks!!!!!

Using public money to buy down principle in underwater mortgages is a strategy to help banks. It is likely to do little or nothing to help underwater homeowners. In most cases these homeowners will still pay more in ownership costs each month than they would to rent a comparable unit. This is money that they could have otherwise used to meet other needs or to save for the future.

There Is No Free Market in Executive Compensation

The NYT begins a lengthy piece discussing efforts to design executive compensation packages for the bankrupt institutions bailed out by the government by contrasting the "equity approach" arguing high pay with the "free-market view" that the executives should get whatever they can.

While those who advocate high pay for top executives undoubtedly like to call this a "free-market" view, this is an inaccurate description. The government establishes rules for corporate governance. These rules are very detailed in terms of the treatment of minority shareholders, disclosure of holdings and relevant financial information and on a number of other topics.

Iceland Agrees to Pay Britain and the Netherlands the Equivalent of $4.2 Trillion to Make Amends for Its Bankers

The NYT reported on the decision of Iceland's parliament to pay $5 billion to British and Dutch depositors. Since most readers are not familiar with the size of Iceland's economy, it would have been useful to point out that this is approximately equal to 30 percent of Iceland's GDP. That would be approximately $4.2 trillion in the United States.

--Dean Baker

Washington Post Joins With Peter Peterson, Ends Pretense of Being a Serious Newspaper

To end the decade, the Washington Post acknowledged that it is no longer a serious newspaper. It ran a piece written by the Peter Peterson Foundation financed Fiscal Times as a regular news article.

The piece conveys Peterson's view that there is a drastic budget crisis which requires circumventing normal congressional procedures. It implies that the huge surge in deficit in the last year was attributable to the irresponsibility of Congress rather than an economic collapse that resulted from incredibly incompetent policy and Wall Street greed.

Economists Who Understand the Economy Are Not Hopeful that the Economy Created Jobs in December

Morning Edition had a segment this morning interviewing David Wessel, the Wall Street Journal's economics editor, about the state of the economy. At one point Wessel told listeners that economists are hopeful that the December employment report, which will be released next month, will show that the economy added jobs in the month.

Actually, there is little reason for this hope. Weekly unemployment claims have averaged well over 460,000 in the four weeks between the November and December surveys. The economy generally will not be adding jobs if claims are over 400,000 per week. Given the current rate of unemployment claims, it is very unlikely that the economy actually added jobs in December.

Consumer Confidence: Current Conditions Matter

The consumer confidence indexes almost certainly get more attention than they deserve. They are not good predictors of consumer behavior. At best, they reflect current behavior.

In this respect, it is worth noting that the current conditions component of Conference Board's consumer confidence index fell last month, even though the overall index rose. The rise in the overall index was driven by the highly erratic future expectations index. So, insofar as the index was telling us anything about the state of the economy, it was not good.

--Dean Baker

House Prices Will Fall More: There Is Historical Data

The NYT quotes economist Karl Case as saying that we have no historical basis for analyzing a situation of falling house prices. In fact, we do.

Nationwide house prices have historically tracked the overall rate of inflation. House prices hugely outpaced inflation in the decade from 1996 to 2006. To get back to their trend level, house prices have to fall by about 15 percent. Given the record nationwide vacancy rate, it seems virtually certain that house prices will resume their decline next year. The biggest question is whether house prices overshoot on the downside, falling below their trend level.

Shoring Up Medicare and Reducing the Budget Deficit Is Not Double-Counting

The NYT had a thoroughly confusing article that seemed to imply that proponents of the health care bill were double-counting when they claimed that targeted savings in the Medicare program could both shore up the program and also be used to finance extending care to more people. In fact, as the article at one point correctly notes, there is no double counting.

The reality is that the government faces multiple budget constraints. Savings in the Medicare program allow it to meet two of them.

If China Is Worried About Inflation, It Could Raise the Value of the Yuan

A WSJ article reporting on comments by Chinese Premier Wen Jiabao noted his concerns about inflation. Later it discussed the possibility that China would increase the value of the yuan. Remarkably, it never noted that raising the value of the yuan would reduce import prices and therefore offset inflationary pressures.

Drugs Are Cheap, Except in the U.S.

The Washington Post discussed the cost of the Obama's administration's plans to close the "doughnut hole" gap in the Medicare drug benefit. The piece never mentions the fact that the United States pays far more for prescription drugs than any other country because it gives drug companies unlimited patent monopolies, allowing them to charge whatever price they want during the period in which they are granted a legal monopoly. By contrast, every other wealthy country restricts the ability of drug companies to exploit this monopoly by negotiating lower prices.

Do They Really Have to Argue Over Adjusting for Inflation at the WSJ?

Apparently they do. In Washington we have the term "six figure buffoon," which refers to one of many highly paid individuals in this city who get paid hundreds of thousands of dollars a year but don't seem to have a clue about their work. On Wall Street it appears that seven figure buffoons are more the norm.

If anyone involved in investing money has to ask whether you should adjust returns for inflation then they have told you that they are too dumb to breathe. Send them to Zimbabwe where they can get returns of several hundred thousand percent each year. They'll never notice that this is due to the fact that the money has lost nearly all its value.

Inventing Budget Crises: Standard Practice at the Washington Post

Ezra Klein has a good piece in the Post's Sunday Outlook section on the need to change the filibuster rules in the Senate. However, he ends the piece with a bizarre reference to: "a coming budget crisis." This should have brought out the editor's red pen and some quick scratch marks.

What budget crisis? The country has an economic crisis,that manifests itself in the form of double-digit unemployment and mass foreclosures. This crisis didn't make the end of article list of concerns.

Tell the Post, Retail Sales Are Normal, Not Depressed

The Washington Post still hasn't heard about the housing bubble. (News takes a long time to get to Washington.) It featured a major article today discussing the prospect of retail sales recovering from depressed levels, explaining that consumers are feeling more confident, therefore sales may now bounce back.