NPR had a very good piece this morning detailing how investment banks accepted and passed on mortgage loans that they knew to be bad. According to its report, one investment bank had a contract with New Century, a leading issuer of subprime mortgages, that it would reject no more than 2.5 percent of its loans. Of course, such a contract would be an invitation to submit bad loans. At the end, the report presents the assessment of the investment banks' actions by Adam Davidson, NPR's economic correspondent. Mr Davidson said that the investment banks bear responsibility for the mortgage crisis, but so do many other parties up and down the chain, including the home buyers and the mortgage issuers. Mr. Davidson did not include the media in his list. Of course there were people who did try to call attention to the housing bubble and the abuses that were fueling it. These people were largely ignored by the media, including NPR (albeit, not completely). Instead they chose to turn to "experts" like David Lereah, the chief economist of the National Association of Realtors, the Joint Center on Housing Studies at Harvard (which explicitly denied the existence of a housing bubble, or any of the hundreds of macroeconomists who somehow failed to recognize anything peculiar in the unprecedented run-up of house prices. Had reporters been better able to use independent judgment to analyze the situation themselves, rather than just relying on the usual experts, the public would have been alerted to these problems long before the bubble grew to such dangerous levels.
--Dean Baker
