Richard Cohen is continuing the stream of excuses for the financial media's failure to warn of the economic crisis. At the center of the cover-up for the media's incompetence is an effort to imply that the issues involved were very complex. As Cohen puts it: "There was not much they [financial reporters] could do, anyway. They do not have subpoena power. They cannot barge into AIG and demand to see the books, and even if they could, they would not have known what they were looking at. The financial instruments that Wall Street firms were both peddling and buying are the functional equivalent of particle physics. To this day, no one knows their true worth." This is pathetic. Financial reporters did not need subpoena power, they did not need access to AIG's books, they did not even need to know what a credit default swap was. They just needed to know arithmetic. The basic story is as simple as you can possible have. Nationwide house prices tracked inflation for 100 years from 1895 to 1995. In the decade from 1996 to 2006, they rose by more than 70 percent after adjusting for inflation, creating more than $8 trillion in housing bubble wealth. There was no remotely plausible explanation for this increase in house prices on either the supply-side or the demand side. If there is a huge divergence from a 100-year long trend, with no explanation based on fundamentals, how could it be anything over than a bubble? And, who could have thought that the country could lose $8 trillion in housing wealth ($110,000 for every homeowner) without enormous consequences for the economy? Financial reporters did not need to do investigation (although exposing the corruption in the financial industry that supported the growth in the bubble-- which some reporters did-- would have been a great public service), they just needed to know arithmetic and have some commonsense. For example, relying on David Lereah, the chief economist of the National Association of Realtors, as the main source for expertise on the housing market was not clever. Nor was it clever to rely on industry backed housing centers as a major source for news reports. Also, running an occasional piece talking to Nouriel Roubini or one of the other bubble warners doesn't cut it. The bubble was by far the biggest thing out there. It should have been in the news every single day. The financial reporters blew it, bigtime. They should start by acknowledging this failure and then figure out how to avoid blowing it again in the future. Yes, economists were far worse -- how about a good news story explaining that even though nearly all economists completely failed to see the coming of the biggest economic disaster in their lifetime, none of them will suffer any consequences in their career? None will get fired and almost none of them will even miss a promotion. Reporting on the non-accountability of economists would be a very good story for financial reporters.
--Dean Baker
