David Wessel, a reporter for the WSJ, was interviewed this morning. He explained the logic of the bailout of the bond insurers. At one point he told us that the default rate on mortgages is far higher than "was expected" just a few months ago. "Was expected?" This is a classic Washington evasion of responsibility, as in "mistakes were made." There were people who had these expectations. And, these people obviously were not competent to do the jobs that they were doing at the time and probably are still doing. It was easy to recognize the housing bubble. The data clearly showed that house prices had diverged sharply from long-run trends. There was no one who had any explanation for this divergence that passed the laugh test. In fact, to justify this divergence some prominent economists even made up utter nonsense that clearly didn't pass the laugh test. The people who made decisions at major financial institutions about the credit worthiness of mortgages issued in the middle of a housing bubble are clearly not competent to do their jobs. If dishwashers or custodians displayed the same level of incompetence they would be immediately fired. Instead, in large part due to inept reporting, most of the people responsible for the key decisions that kept the bubble growing, and created the basis for the current crisis, are likely to keep their six and seven figure salaries.
--Dean Baker
