The coverage of the market meltdown includes many assurances from the experts that everything is just fine. I suppose it would be considered rude for reporters to ask why anyone should trust the assessments of people who apparently failed to see the current credit crunch coming. It would certainly be less rude, and more informative to readers, if they pointed out that their assurances don’t make much sense. For example, the NYT reported this morning that American International Group, one of the world’s biggest financial firms, assured investors that “that despite its own exposure to subprime loans, the U.S. housing market would have to decline by 30 percent or 40 percent, to Depression-era levels, before it would suffer significant losses.” Well, since real house prices in the United States have risen by 70 percent since 1995, a decline of 30 percent would not even bring them back to their 1995 level in real terms, and still leave them more than 50 percent higher in nominal terms. The 40 percent drop gets us closer, but most people don’t think that the 1995 was the depression. So, the American International Group is giving us a reassurance that is in fact total nonsense. Reporters should be pointing out this out. Tens of millions of people are making important personal financial decisions for themselves right now. The NYT should not be helping the big boys mislead the rest of us.
--Dean Baker
