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How Much Bad Debt? The Economists Who Were Right Say $1 Trillion
The NYT has an article today noting how the bad news in credit markets is having an impact throughout the economy. The article, which relies exclusively on economists who were surprised by the recession, tells readers that "the size of the bad debts remains a mystery, with estimates reaching $400 billion."
Actually Nouriel Roubini and I have both estimated the amount of bad debt in the financial system will exceed $1 trillion. Unlike the economists cited in this article, we anticipated the collapse of the housing bubble and the resulting chaos in financial markets.
--Dean Baker
COMMENTS (14)
Yeah, but the US yearly GDP is around $14 trillion.
Posted by: Dale | March 21, 2008 2:38 AM
And the national debt is $9 trillion...
and rising.
Posted by: Cyrious Garnetski | March 21, 2008 2:56 AM
And only those who were wrong about Iraq are considered serious commentators about Iraq! And only those who were wrong about NAFTA are considered serious commentators about NAFTA!
It would be interesting to outline in which endeavors we find that those who had been on the correct (i.e., non-conservative) side of a historical trend are then treated as the ones who were correct.
Posted by: El Cid | March 21, 2008 5:14 AM
Moon of Alabama(inspired by the late,great Whiskey Bar)has offered consistently insightful commentary on this developing crisis
Posted by: BobS. | March 21, 2008 8:51 AM
I like your work on NPR and Marketplace. I think it would be good to include links to the evidence of "we anticipated the collapse of the housing bubble and the resulting chaos in financial markets." Granted others can go look it up themselves but one great advantage of the internet is hyperlinks. That seems like the perfect opportunity to provide some.
Posted by: John Hunter | March 21, 2008 8:56 AM
What determines who gets quoted is not whether or not they are right, but whether or not they express the views of the media doing the quoting. My favorite example is Andrew Zimbalist, who has developed a minor specialization in the political economy of sports stadiums. I can easily determine the position of any particular media on the "should we build a stadium?" question by determining (a) if Zimbalist is quoted at all and (b) how far into the piece he's quoted.
At this point, it's easy to find economists who will say that we face the collapse of the housing bubble. That some economists called it five years ago is irrelevant for their purposes. And I think the press is leaking out the magnitude of the crisis slowly. First it was just a subprime problem. Then there were some problems with a few CDOs. Then the Alt-As. It was $100 billion a few weeks ago; now it's $400 billion. Perhaps you should do one of those graphs economists do to show when the press will report that it's $1 trillion.
Posted by: PeonInChief | March 21, 2008 10:09 AM
El Cid, you hit the nail.
I see so much parallel between this fiasco and the other Republican lead fiasco, Iraq.
The times I've read "no one could have anticipated", and "the past is past".
about either event is disheartening. Many did anticipate, but either they aren't patriotic or they are anti-business, accordingly.
Posted by: edhopper | March 21, 2008 11:51 AM
Can easily exceed $1 trillion. After all, the derivatives contracts held by Bear Stearns, mostly ultimately based on subprime mortgage securities, amount to $13.4 trillion. Could easily be a good deal more than $1 trillion.
Posted by: Barkley Rosser | March 21, 2008 12:45 PM
I like to drowned in the shower the other morning, listening to lil Stevie Insqueek's apparently newly dawning awareness, while interviewing some even-toned gal from Fortune mag (?) spouting 'free-market' boilerplate, that the whole derivatives market is nothing but a huge ponzi scheme...
Posted by: woody, tokin librul | March 21, 2008 2:37 PM
Where in the press or The American Prospect are the questions of the failures of the Federal Reserve as an institution?
Where in the press or The American Prospect has the question of a new institution , a public central bank, been explored?
We now have trillion dollar derivative markets, allowed by the Fed that are not only unregulated , with no regulatory or legal framework but in complete dissarray.
It is time for some real questions, question that go to the heart of the matter that the privately owned and operated Federal Reserve is guilty of criminal negligence for neglecting their fiduciary duty to the public to line the pockets of their members.
Posted by: Michael McKinlay | March 21, 2008 4:22 PM
Thought of this blog and smiled when I read this:
Excerpts of an Interview With Former Federal Reserve Chairman Alan Greenspan
Friday, March 21, 2008; Page D03
On the current economic crisis:
"Whenever you have a crisis like this, it's always important to evaluate why it happened and, if appropriate, ascribe blame to institutions and people, because if you don't get it right you won't get the fix right."
Posted by: Anon. | March 21, 2008 6:04 PM
A trillion dollars here, a trillion dollars there, soon we'll be talking about real money.
Adapted from: Everett Dirksen
Posted by: Cycledoc | March 21, 2008 6:11 PM
I hate to say it Dean, but I think $1 trillion has got to be a wee bit on the low side.
It's certainly going to be at least that.
The question is how much more.
And, sad to say, I'm expecting it to be a good bit more.
Posted by: Raven | March 21, 2008 9:31 PM
Dean,
2 questions -
(a) when you say 1 trillions of bad debt to do you mean 1 trillion of losses or 1 trillion of paper that will default, I assume you mean losses?
(b) assuming 1 trillions of losses, how do you break that down to get to your estimate, how much subprime, auto loans, prime, leveraged loans etc...?
Regards,
Joe
Posted by: Joe Patt | March 21, 2008 11:44 PM