Did the Media Miss the Bubble? Did Saddam Lose His Last War?

Steven Pearlstein often has insightful columns, not today. He discusses a conference he attended in which a repeated theme was how the media contributed to the crisis with its poor reporting. He then comments: "although it's a bit overdone, I'll admit there is a dollop of truth in it."

A "dollop?" How about an enormous ocean full of truth to it and Pearlstein continues to contribute to the crisis today by covering up the earlier failure. He tells readers that:

"Three years after the onset of what was then thought of as the "subprime crisis," there remarkably is still no consensus on why it happened, who is to blame, how necessary the government bailouts were and what needs to be done to prevent such a cataclysm from happening again. Over time, the issues have been overwhelmed by populist anger, infused with political ideology, distorted by partisan maneuvering and special-interest pleading, and ultimately eclipsed by economic recovery."

Yeah, it's all really really complicated. Except it isn't.

Nationwide house prices had diverged from a 100-year long trend, increasing by more than 70 percent in real terms. There was no remotely plausible explanation for this run-up. What is hard to to understand to about this? What is complicated? Third grade arithmetic was all that was needed. It's simple, not complicated.

The run-up in house prices was driving the economy. This was also really easy to see. The government publishes GDP data every quarter. The data showed that housing construction had exploded as a share of the economy. You just had to look at the data. It's simple, not complicated.

The data also showed that consumption was booming and savings had fallen to near zero. This was driven by the well-known housing wealth effect. It's simple, not complicated.

It was also easy to see the explosion in subprime and Alt-A loans that people were using to buy homes they could not otherwise afford. These loans were sure to reset at higher interest rates. This works until house prices stop rising. It's simple, not complicated.

And, it was easy to see that house prices would stop rising. Vacancy rates were running at record levels. There is a concept called "supply and demand" in economics and the data showed that we had serious amounts of excess supply. It's simple, not complicated.

And when house prices started to fall, we knew that millions of loans would go bad, construction would plummet and consumption would fall back to more normal levels. This implied a really bad recession and serious financial problems. It's simple, not complicated.

So, Pearlstein is badly misleading reading when he tells us that it is all very complicated. Obviously the buffoons and hacks who either could not see the bubble or deliberately misled the public about it have good reason to tell everyone that it is all very complicated, but it isn't and was not. They did not do their job.

Include the Post high on the list of those who did not do their job. They had no space in their pages for anyone warning of the dangers of the bubble. The paper's main source for information on the housing market was David Lereah, the chief economist of the National Association of Realtors and the author of Why the Real Estate Boom Will Not Bust and How You Can Profit From it.

The Post and the rest of the media failed disastrously at their job to inform the public and they continue to do so. It's simple, not complicated.

--Dean Baker


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Yes he lost the war he is dead. I run a London decorators business and we follow all of the local news. This is something that is certain. If you die you lose haha.

I should be pretty hard to miss that ballplayers, TV anchors or CEOs are getting much (10X, 100X), much richer than they used to get for any reason other than the total collapse of labor union based bargaining power and concomitant political muscle. I see it as a case of: squeeze a toothpaste tube at the bottom (pressure equalizes somewhat in between) and it all comes out the top.

Now, what must sound like a really crazy testament about today's economics profession that nevertheless I believe to be completely true: our progressive economists understand exactly what to do about what I call the "Great Wage Depression" MECHANICALLY but wont tell anyone because they are convinced it is absolutely impossible to accomplish SOCIALLY.

Mechanical solution (to my mind the only possible such solution): legally mandated, centralized bargaining -- wherein everyone doing similar work (e.g., retail clerk) in the same geo locale (where applicable; airlines across country) works under one unified contract.

Instituted by continental European (presumably right-wing) industrialists after WWII, the intention was to prevent labor from going on a race-to-the-top pay demand spree. Europe's fabled welfare state was actually a tradeoff to induce labor to accept this.

Guess what? It prevents the race to the bottom every bit as effectively.

This labor market setup has since been adopted by economies in the first, second and third worlds (from French-Canada to Argentina to Indonesia).
Stranger statement: female progressives should have much less problem proposing this system -- as instinctive individual gatherers, they can naturally judge any new process mechanically and think nothing of telling to two who can tell it to four, etc.

Males I fear are totally walled in by their hunting pack cooperation instinct -- which I think structures them to think socially FIRST: if they have no burning sentiment of their own in an innovation (not much need for a higher minimum wage on the faculty) and don't see anyone else seriously engaged, they are unshakably certain sure it is impossible to achieve -- no need for further examination.

This may be the way nature corralled male rambunctiousness to work within the group.

If somebody, somewhere suggests a half-measure (more like tenth) like card check, they will discuss it forever. If only someone would raise the issue of centralized bargaining for the "boys" maybe we could turn this country around overnight. (Already unionized) supermarket workers and airline employees would kill for centralized bargaining.

But the males cannot get past the group and the females cannot get past the males -- and so the world goes on its stupid way. How's that for a take on today's economics profession? :-)

I was using this URL to cleanse (or whatever it does) a comment for another site -- so it would upload right -- but forgot where I was. :-{

link test on old, old post



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