The Washington Post has long been a strong proponent of reducing Social Security benefits. While it frequently expresses this view in editorials and in the opeds it chooses to publish, it also pushes its editorial position in the news section.

In keeping with this practice, it headlined an article today, "Recession Puts a Major Strain On Social Security Trust Fund." The article refers to the fact that the Congressional Budget Office (CBO) now projects that annual tax revenue will be nearly in balance with benefit payments for the next several years. Previous projections had shown large surpluses.

While those seeking to cut Social Security benefits are highlighting these new projections, in reality they have very little significance for the program. Under the law, Social Security benefits are paid out of its trust fund. This trust fund has accumulated a surplus of almost $2.5 trillion. The lower projected surpluses for the next few years will have some impact (if the projections prove correct) on the date at which the fund is projected to be depleted, but the projected depletion date will almost certainly be beyond 2040, even after CBO adjusts its numbers for the downturn.

Remarkably, this piece alludes to plans to cut benefits without ever noting that older workers and retirees have just lost close to $15 trillion in wealth due to the collapse of the housing bubble and the plunge in the stock market Presumably this would be an important factor in any debate over reducing benefits.

--Dean Baker

People who hold top positions in the Obama administration, or any administration, hold those positions in part because of their ability to convey the administration's position to the media. In other words, they are not always entirely honest with the media.

This means that when they want to discredit a prominent critic of the administration, like Nobel prize winning economist Paul Krugman, they might say (off the record) that they "think" he is naive.

Do these people without names really think that Krugman is naive? The reporter does not know what these people without names think.

The reporter commits a huge journalistic sin when the reporter tells readers that Obama officials "think he [Krugman] is naive, that his idea of bank nationalization is not going to work."

While it is possible that Obama officials actually think that Krugman is naive there are other plausible explanations for their behavior and comments. For example, the Obama administration is closely tied to many top Wall Street executives. It is possible that it is designing its bank policy to serve the interests of Wall Street rather than the country as a whole, as has been argued by people like MIT professor Simon Johnson, the former chief economist at the IMF.

If the Obama administration is actually designing its financial policies to serve the interests of Wall Street, it is unlikely that its top officials would ever admit to this fact. It is far more likely that they would make anonymous complaints to reporters that the people who make such allegations are "naive."

--Dean Baker

The ratio of debt to GDP in Japan is more than twice as high as in the United States. This was largely the result of its stimulus efforts in the 90s to lift the economy out of its downturn. In both its editorial and news pages the Washington Post likes to hold up Japan as a warning of what can happen if our government spends too much to try to promote recovery. For example, in article on Japan today it refers to the country's "onerous" debt.

The only problem with this story is that interest is a smaller burden in Japan than in the United States. This is due to the fact that interest rates are considerably lower in Japan. (Its central bank bought much of the debt.) So, the claim that the debt is onerous is simply the Post's editorializing. It does not accurately represent the burden of Japan's debt on its population.

--Dean Baker

That was necessary because some readers of Robert Shiller's column in today's NYT might have been misled into believing that the head of President Obama's National Economic Council was one of those warning of the current crisis. In fact, the opposite was the case.

Mr. Summers, along with Alan Greenspan, was one of the high priests of the everything is just fine school. If he did see the housing bubble and recognized the disaster that would result from its collapse, he was extremely effective in keeping this insight to himself.

--Dean Baker

The media are busy perpetuating a myth that the United States has been a beacon of "free market" capitalism. This is a lie. The United States never had free market capitalism and certainly the system in place over the last three decades hardly qualifies.

The U.S. put in place policies designed to transfer income from the poor and middle class to the wealthy. This is most evident now with the hundreds of billions of dollars being spent bailing out the banks. For the last three decades, the banks and their top executives, made vast fortunes using a free government insurance policy called "too big to fail," under which bond holders and other creditors could lend money to the banks knowing that the government would honor their debts if they ever got into trouble.

It is an outright lie to call this a "free market." This is a huge government handout. This insurance policy is enormously valuable and the banks did not have to pay a penny for it. The banks are ardent opponents of free market capitalism. None of them have advocated that they be allowed to collapse.

So, the issue over different types of capitalism that is coming up at the G-20 summit is whether the government exists primarily to redistribute money to the wealthy or to serve some other social end.

--Dean Baker

There is a concerted effort among so-called experts to imply that recognizing this crisis was really difficult and would have required extraordinary insight. This is garbage.

It required third grade arithmetic and nothing more. House prices had sharply diverged from a 100-year long trend, with no plausible explanation on either the supply side or the demand side of the housing market. Ben Stein apparently couldn't see an $8 trillion housing bubble. His "longtime friend," Jim Cramer, either also lacked the capacity to see it, or did see it and deliberately misled his audience.

But, let's be clear. It was very easy to see, very easy for those who know arithmetic. Competent analysts saw the housing bubble and warned about it. Ben Stein didn't see it.

--Dean Baker

Sorry, but I couldn't resist. When a New York Times columnist tells us that we shouldn't bother to try to assign blame to the millionaires and billionaires who wrecked the world economy and created a situation in which tens of millions of people will go unemployed and hungry, what else can you say?

(Credit goes to Monte Python for the title, if not the column.)

--Dean Baker

The media abandoned any pretense of objectivity in pushing the original TARP back in the fall. They eagerly pushed the story that the economy would collapse if the TARP did not pass.

The media never told the public that the Fed had the ability to takeover the banks in the event of a national emergency and it had plans to do exactly this back in the early 80s debt crisis.

The media also never bothered to tell the public that the Fed had the authority to buy the commercial paper of non-financial corporations (a process it initiated immediately after Congress approved the TARP). This meant that Fed Chairman Ben Bernanke's claims that this market had shut down and therefore companies couldn't pay their bills, was irrelevant to the passage of TARP.

The new line that being pushed to argue that there is no alternative to the Geithner plan is the claim that Obama would need congressional authorization to have the FDIC take over bankrupt banks.

Is that so? It's not clear why. The law authorizes the FDIC to take over bankrupt banks. Under the law passed by Congress, the FDIC is supposed to take over Citigroup, Bank of America and other zombie banks.

It's likely that the FDIC would not have enough money to pay for cleaning up these zombies, especially if it pays off the banks' bondholders. (It has no legal or moral obligation to pay these bondholders, unlike FDIC insured deposits.)
The Fed could almost certainly lend the FDIC the necessary money, as it is doing under the Geithner plan. The Fed can pretty much do whatever it wants so it is not clear why anyone would think it could give money to subsidize banks through the Geithner plan, but not to clean up the banks' mess.

Of course the other story is interesting also. Suppose that the FDIC seized the bankrupt banks and lacked the funds to clean up the mess. Would the Republicans allow the banks' bondholders to get cleaned out? That doesn't seem likely, but it might be fun to watch.

The fact is that the banks and their political allies have lied to the public continuously throughout this crisis to get more taxpayer money for their pockets. It is irresponsible to take anything these people say at face value at this point.

--Dean Baker

The Washington Post, which became famous for relying on David Lereah, the chief economist for the National Association of Realtors, as its main source on the housing market, is back at its old tricks. It told readers in a headline that "Consumer Spending Shows Signs of Life."

The reality was that, after adjusting for inflation, spending fell 0.2 percent in February, a 2.4 percent annual rate of decline. While it is always possible to say that the data could have been worse, it is difficult to paint this as a very positive picture.

--Dean Baker

Hey, we're all in this together. So, when an a worker loses their job, we give them a couple hundred of dollars a week for unemployment benefits. Or, if a mother working at a minimum wage job can't buy health care for their kids, the government helps pick up the tab. Or, if some of the top executives at Goldman Sachs lose a fortune on their investments, Goldman uses taxpayer dollars to get them through the tough times, lending or giving them millions of dollars. Good reporting by the NYT.

--Dean Baker

The Post tells us that the insurance industry is opposed to allowing people the option to buy into a public health insurance plan because it: "fears that a government-sponsored program with the ability to set prices would have an unfair advantage and severely undercut the private market."

Does the Post have any evidence that the cost advantage of a public plan is either "unfair" or even that is actually viewed as "unfair" by the industry. Is there any reason that anyone should even care if the industry views it as unfair? Why not just save the space and leave out a word that conveys no information, although it does help advance the industry case.

--Dean Baker

Remarkably, even as the federal government is dishing out hundreds of billions of dollars to the financial industry, the Washington Post still refuses to note this dangerous act of protectionism. In an article discussing warnings from the WTO about the dangers of protectionism, the Post only mentions completely trivial acts of government protection.

The inefficiencies caused by the government's subsidies for the financial industry are almost certainly hundreds of times larger than sorts of protection discussed in the article. Protection for the financial industry also has the effect of massively distorting wage structures in the economy, since high-paid executives at protected financial firms can earn millions or even tens of millions of dollars a year. This pulls workers away from industries that don't enjoy the same sort of government subsidies.

--Dean Baker

The Washington Post became famous for relying on David Lereah, the chief economist for the National Association of Realtors, as its main source of the housing market during the bubble. The Post is apparently living up to the standards it set during this period.

In a discussion of Freddie Mac's financial situation the Post tells readers that: "the main way that the government is c ausing Freddie to incur losses is by requiring it to play a central role in the Obama administration's Homeowner Affordable and Stability Plan, a $75 billion effort launched this month."

How has the Post determined that this program will lead to large losses for Freddie Mac? Requiring Freddie and Fannie to refinance loans at lower interest rates is likely to be a loser, but restructuring mortgages in situations where homeowners can't meet current payments may actually be a net winner.

The most obvious reason that Freddie and Fannie will be losing money in the near future is that they continue to make loans with regard to whether the house price is inflated by the bubble. This matters because prices will fall from bubble-inflated levels, leaving homeowners with negative equity. This situation is more likely to lead to foreclosures and short sales.

Freddie could easily avoid lending for purchases at bubble-inflated prices by basing appraisals on rental values, which never became inflated, rather than sale prices. If they had applied this method of appraisal during the bubble years, the mortgage giant would not be in conservatorship right now.

--Dean Baker

If a bank with a security guard is successfully robbed, that does not mean the bank did not have a security guard. It just means that the security guard was not effective.

The Fed has been acting as the systematic risk regulator for the U.S. financial system. How else can we explain the decision of Alan Greenspan to intervene in the unraveling of the Long-Term Capital Hedge Fund or his intervention to stop the 1987 stock market crash?

Obviously, the Fed fell down on the job big time in the current crisis, but that is no reason to pretend that we did not have a risk regulator. If we want to avoid having this sort of problem happen again, we have to start by acknowledging that we did have a risk regulator who was unable to perform its job for some reason, just as the problem for the bank was that its security guard was for some reason unable to prevent the robbery.

--Dean Baker

USA Today told readers that low mortgage rates "trigger race to buy, refinance." The second part of this sentence is true.The Mortgage Bankers Association (MBA) index for applications for refinancing has soared in recent weeks. However, the MBA purchase applications index remains near its low point for this downturn.

--Dean Baker

There's nothing more entertaining that sight of surprised economists and economics reporters in the morning. There was a bubble in commercial real estate which is now collapsing, leading to record levels of bad loans. Who could have known?

--Dean Baker

It may have been rude, but it would have been appropriate to include some expert commentary when reporting on the criticism of the U.S. stimulus package by Mirek Topolanek, the prime minister of the Czech Republic and current holder of the rotating presidency of the European Union. Mr Topolanek complained that the stimulus package would lead to inflation

At the moment, the enormous amount of unemployment and excess capacity is putting enormous downward pressure on prices raising serious concerns of deflation. It is difficult to construct a scenario in which inflation will be a serious problem in the current environment.

--Dean Baker

When a hedge fund manager tells the NYT that: “there hasn’t been one problem at all to global systemic risk in the U.S. and abroad from a hedge fund,” it would be appropriate to point out that Alan Greenspan thought otherwise.

Greenspan intervened in the unraveling of the Long-Term Capital hedge fund precisely because he claimed that its collapse jeopardized the stability of the financial system. It's possible that Greenspan's assessment was wrong, but it would have been appropriate to note that the Fed had in fact intervened because it claimed that a hedge fund had imposed systematic risk.

--Dean Baker

Those damn protectionists in the Obama administration obviously don't know anything about economics. How else can we explain the decision to require that the fund managers in their bank bailout plan must be headquartered in the United States.

I can't wait to see the outraged and condescending editorials in the Washington Post and elsewhere explaining how protectionism is not the way to promote jobs and growth.

(Credit for the protectionism detection goes to my former colleague Heather Boushey, who can now be found at the Center for American Progress.)

--Dean Baker

Suppose Timothy Geithner announced a new program that would tax every family $10,000 dollars and give the money to Wall Street banks and hedge funds. (Any resemblance between this hypothetical program and real world programs is purely coincidental.)

We would expect the stock of Wall Street banks and other financial sector firms to rally based on the anticipation of higher profits. Is this good for the economy? It's not in any obvious way. After all, we can always tax people more to raise profits for Wall Street, but that doesn't help the economy.

Reporters should remember this when assessing Wall Street's response to the plan proposed by Geithner for buying bad assets from banks. The larger the subsidy, the better the news for Wall Street. It's not clear that most of the public should be happy about seeing more of their tax dollars going to Wall Street.

--Dean Baker

Politicians don't always say what they actually believe, so when we heard Republicans complaining about the $1.8 trillion deficit, some of us may thought that it was just politics. After all, the vast majority of this shortfall was a legacy from President Bush. Fortunately Tom Gjelton told us Morning Edition today that the Republicans really are angry.

It's good that he was able to read their minds for us.

--Dean Baker

If the U.S. government were to hand checks for tens of billions of dollars to the domestic auto industry or the steel industry to help them survive, presumably it would be viewed as a form of protectionism. However, when the checks to the banking industry, for some reason the question of protectionism never arises.

The NYT had a front page story warning of the rise of protectionism. Remarkably, it makes no mention of the hundreds of billions of dollars that the U.S. government is paying to keep the financial industry afloat. All the claims about the inefficiencies of protectionism apply as much to banking as they do to the auto and steel sector (we can use the same graph for all three), however protectionism for the banks never seems to raise any concerns in the media.

--Dean Baker

He's apparently working as a sales agent for the junk at Citigroup and other zombie banks. It would be nice if he were doing this on his spare time, but according to the NYT he sees trying to help the bond holders and shareholders and multimillion dollar executives at these institutions as his main responsibility.

It would be reasonable to ask why the Treasury secretary feels a need to work as a sales agent for the major banks, in addition to subsidizing the sale of their junk assets.

--Dean Baker

This point is pretty straightforward. There are junk mortgages all around. If the Treasury/Fed subsidize the purchase of the junk (or mortgage backed securities based on the junk) at Citigroup and other banks, then these assets become more attractive than the junk mortgages at smaller less politically connected banks, which don't come with government subsidies. So, this means that there will be less money for the potentially bad assets at these smaller banks.

In other words, by helping the big banks, the Geithner plan will likely to be sending more smaller banks into insolvency. This deserves some attention from the media.

--Dean Baker

When politicians say things that are silly (or sometimes not so silly) the media is usually not shy about ridiculing them. Remember the obsession over President Obama's comments about "bitter" working class people in Pennsylvania? The media kept commenting on it for weeks.

So, where is the ridicule when Senator Judd Gregg, a person who prides himself as somewhat of a budget expert, was reported in the NYT as saying: "The practical implications of this is bankruptcy for the United States. ...There’s no other way around it. If we maintain the proposals which are in this budget over the 10-year period the budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued."

There are probably no economists who would claim that the government will go bankrupt based on the spending path in President Obama's budget. One would expect a member of Congress to be informed about such issues.

The dollar will almost certainly fall, but that would happen whether or not the government runs a budget deficit. The dollar will fall because the country is running a huge trade deficit, which is the result of the over-valuation of the dollar. The fall in the dollar is needed to bring down the trade deficit, which will be a necessary part of a stable recovery. It is remarkable that Senator Gregg apparently has no understanding of how the economy works.

--Dean Baker

It would be interesting to know the Post’s source for this knowledge – probably the same source who told the Post that there was no housing bubble. Of course the Post does not feel bound by normal journalistic standards when it pushes its agenda.

Hence readers have no idea of the basis for the assertion in the subhead of an article on the economic crisis, “president must balance anger against Wall Street with need for big players to help revive the economy.”

One could think that the “big players,” the folks who bankrupted their banks and helped wreck the economy, are the last people that Obama needs. In fact, as heads of bankrupt institutions, they would almost certainly be removed if President Obama allowed the market to run its course and put these banks into some kind of bankruptcy type legal arrangement.

In short, the Post’s claim that these top executives are needed to fix the economy is yet another example of the paper editorializing in the news section.

--Dean Baker

If the NYT description of the Treasury Department's bank rescue plan is accurate, then this should have been the headline to the article. The article reports that the Treasury Department is confident that it will not lose money by buying mortgage backed securities at far above their market price because: "the government can hold those mortgages as long as it wants, officials are betting the government will be repaid and that taxpayers may even earn a profit if the market value of the loans climbs in the years to come."

House prices are currently falling at more than a 20 percent annual rate. If they fall another 20 percent in real terms, they will be back at their trend level. A further 20 percent decline will hugely increase the percentage of mortgages that are underwater, reducing the value of mortgage backed securities from their current level. There is no obvious reason that house prices should then again rise above their trend level.

The failure of people like Ben Bernanke and Timothy Geithner to recognize the $8 trillion housing bubble led to this crisis. It appears as though they somehow still don't understand it. This fact should have been the headline of the news article since their continued failure to undersatnd the housing market could cost taxpayers trillions of dollars and further damage the economy.

--Dean Baker

The Washington Post devoted a full page article to the plight of the small clique of highly paid executives and managers at Fannie Mae and Freddie Mac who could see their bonuses clipped as a result of the bill passed by Congress yesterday. At one point the article implies that the government's takeover of the mortgage giants destroyed the value of the stock held by these people: "Many employees lost small fortunes -- in some cases life savings -- when the government seized the firms and wiped out almost all their shares."

In fact, the shares were almost worthless at the point where the government stepped in. They had lost most of their value because the executives who ran Fannie and Freddie made really bad loans with the institutions money. The government stepped in to avert bankruptcy which would have wiped out the shareholders. So, it is not true that the government's action cost these people their life savings, bad management by Fannie and Freddie cost these people their life saving.

It is also worth remembering that the Washington Post is a newspaper that is outraged by the idea of autoworkers earning $57,000 a year.

--Dean Baker

According to the Washington Post President Obama reportedly responded to a question about his budget by saying that "'But there is a chance that if we leave such a mountain of debt to the next generation,' living standards will fall."

Actually, there is no plausible scenario under which government debt will lead to worse living standards on average for future generations. Projections from the Congressional Budget Office and elsewhere show even large accumulations of debt having only modest impact on slowing economic growth and the rate of improvement in living standards. It is surprising that the Post did not point out this extraordinary presidential gaffe.

--Dean Baker

The Washington Post warned readers in a front page article that the new government restrictions on banks that take bailout money is: "forcing them toward a disastrous choice between accepting restrictions on compensation that could cripple their ability to compete with rivals, or returning billions in federal aid, which could retard lending and damage the economy." Note that the restrictions supposedly damage the banks ability to compete, but there is no mention of the fact that not taking federal aid will also restrict their ability to compete.

This one is pretty straightforward. If banks lack capital, then they can't make loans. Banks make money (i.e. compete) by making loans. When the banks take bailout funds, they are not performing a public service, they are getting access to capital at a lower cost than they would pay in the private sector.

If banks have ample access to capital in the private sector, then there is no reason for the government to force them to take public money. On the other hand, if the banks don't have access to private capital, then they need the public money to compete. This obvious fact never appeared in this front page article.

--Dean Baker

Okay, this is not a surprise. After all, we're not talking about auto workers getting $57,000 a year.

The editorial's warning that the bonus tax may jeopardize the Geithner-Summers plan to subsidize zombie banks through the back door, could be viewed by some as an argument in favor of the tax.

--Dean Baker

One of the issues in the AIG bonuses is what did the administration know and when did they know it. The NYT tells readers that:

"On Tuesday last week, as he prepared for a meeting in London of the finance ministers of the Group of 20 nations, Mr. Geithner learned that A.I.G. by Sunday would send out the bonuses to employees at its financial products unit, which developed the risky derivatives now blamed for the global credit crisis."

It's impressive that the New York Times knows when Mr. Geithner "learned" this information. Did this information come to the NYT directly from God?

We get a bit more insight on the source in the next paragraph where we find out that:

"With few senior political appointees on hand, the word came from one of the numerous career civil servants who keep the Treasury functioning through changes of administration, according to an official (emphasis added)."

Perhaps this same "official" is the person who also told the NYT when Geithner learned of the AIG bonuses and provided the article's unsourced description of subsequent events. It would have been helpful to have some additional information on this unnamed official since it is possible that this person has a stake in minimizing Geithner's knowledge of the AIG bonuses.

The facts presented in the article lend themselves to an alternative explanation of events.The article tells reports that: "once A.I.G. was under the Fed’s control, its executive compensation plans hardly came up, according to officials," noting that Geithner was overseeing the takeover.

One may reasonably conclude that Geithner, as head of the New York Fed, had a good understanding of the sort of compensation packages that were used at financial institutions like AIG. It is also reasonable to assume that if he didn't explicitly take steps to change these practices following the Fed's takeover of AIG, that the practices would still be in place.

In other words, insofar as he gave the matter any thought at all, it is reasonable to assume that Geithner knew that AIG would be paying large bonuses to most-valued employees. If he did not give it any thought then it was because he did not care that a firm receiving more $160 billion worth of taxpayer dollars was paying multi-million dollar bonuses to its top executives. It is implausible on its face that Geithner was surprised by this situation.

--Dean Baker

You may remember the Washington Post as the newspaper that was outraged because autoworkers at near bankrupt car companies were getting $57,000 a year. So, naturally when it comes to multi-million dollar bonuses for executives at AIG, the bankrupt insurance giant, the Washington Post insists they must be paid (lead editorial and Ruth Marcus column).

Can anyone find a pattern here?

--Dean Baker

Like the rest of the media, the Post was anxious to tell the public that there is nothing that can be done to prevent bonuses from being paid to AIG executives. Did they really give this a huge amount of thought and talk to the experts before reaching this conclusion?

How about breaking off the financial unit from the rest of AIG and then take away the government life support? The highly valued executives can then try to get their bonuses from a hopelessly indebted company that has debts that exceed its assets by tens of billions of dollars. That should provide good entertainment for us all.

--Dean Baker

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

Many people might have thought there was a lot of mortgage fraud (e.g. applicants lying about income) during the housing bubble, but the Post tells us that incidents of fraud rose in 2008 from prior levels. What's wrong with this picture?

It's simple folks. During the bubble years, the banks could not care less about fraud because they wanted to issue the loans. They could sell anything into the secondary market, so they didn't mind if everything on application was a lie (they may have even encouraged it, so the borrower appeared to meet lending standards). Now that the bubble has burst, and the private secondary market has virtually disappeared, banks are seriously scrutinizing loan applications and going after those committing fraud.

--Dean Baker

Yesterday was small business day as President Obama touted a new program for expediting loans to small businesses. The media touted the importance of aid to small businesses since they are responsible for the bulk of new jobs.

It is true that small businesses are responsible for more new jobs, but they are also responsible for most job loss. Most small businesses only survive a few years. During this time they hire workers and then lay them off when they go out of business. Their rate of net job creation is little different than the rate of net job creation for larger firms.

Politicians like to cater to small businesses since they are an extremely important political constituency, but many of the tax breaks and other forms of financial support for small businesses belongs in the category of pork. These items might get more scrutiny if the media did not unthinkingly repeat myths about the importance of small business.

--Dean Baker

As a general rule, politicians will say anything that they think they can get away with which will advance their agenda. Truth is not usually a major consideration. That applies to politicians of both political parties.

In principle, the media places a limit on politicians' ability to lie, since calling your opponent a murderer is likely to backfire if the headline reads "Senator Fabricates Murder Story."

Unfortunately, budget reporters largely fall down on the job. Hence we get the headline "Obama's New Tack: Blaming Bush," with the subhead "Points to 'Inherited' Economy."

Okay, let's get serious folks. It is not a "inherited" economy, it is a inherited economy. There is no dispute that the economy was in horrible shape at the time that President Obama took office. Anyone who tries to say otherwise is simply lying.

Furthermore, the overwhelming majority of the budget deficit that the Republicans are now complaining about is directly attributable to President Bush's policies. The additional deficit for 2009 that it is attributable to President Obama's efforts to fix the disastrous economy that he was handed by President Bush is trivial in comparison, as can be clearly seen. (The projections are taken from CBO).

--Dean Baker

That might have been the better headline for an article that referrs to Senator McCain's description of the borrowing needed to finance the budget deficit "generational theft." While Senator McCain has repeatedly said that he doesn't know much economics, this one is really over the top.

The basic story is that the borrowing is making future generations richer, not poorer. The stimulus will increase GDP and therefore increase investment, since companies will invest more in plant and equipment, if they see an increase in demand. This private investment will increase the economy's productivity, thereby making our children and grandchildren richer. In addition, much of the spending in the stimulus will directly increase productivity, such as money for retrofitting buildings to make them more energy efficient, putting medical records on-line, or increased funding for college education.

The debt that will be used to pay for this will be an asset for at least some of our children, since at some point we will all be dead and our heirs will have possession of the bonds we hold today. (The fact that China and other foreign countries own some of the debt doesn't change the story. China's buy U.S. assets to keep up the value of the dollar to preserve their export market. If they didn't buy government debt, they would buy other assets, like stocks and bonds of private companies, which would result in a comparable flow of future income going to China. The problem here is the over-valued dollar, it has nothing to do with the budget deficit.)

It is especially remarkable that Senator McCain would make such a bizarre comment about "theft" from future generations given that they just have been handed an immense gift from the collapse of housing and stock prices. The decline in house prices means that they will be able to buy the nation's housing stock for about $6 trillion less than they would have paid two and a half years ago. The decline in the stock market means that they can buy the country's stock of productivity capital for about $10 trillion less than they would have paid two years ago.

The fact that Senator McCain could make such an incoherent complaint about younger generations being mistreated, after they have just seen a transfer of close to $16 trillion in wealth from older generations, warrants attention from the media. It is far more newsworthy than President Obama's comment's about "bitter" working class voters that received so much attention during the primaries.

--Dean Baker

That is presumably the meaning of the statement about the "federal government’s deepening fiscal difficulties." The New York Times may not like the current level of government spending or deficit, but that is the view of the reporter or the editor. It is not an objective fact that the government has "deepening fiscal difficulties."

In fact, the government can borrow long-term money at far lower cost than at any point in the last 50 years. The financial markets obviously do not agree with the NYT's assessment of the government's fiscal situation.

The most obvious effect of reducing the budget deficit right now would be to raise the unemployment rate, slow economic growth, and lower investment, thereby leaving a less productive economy for our children and grandchildren. While some deficit reduction cults may view this as a positive economic path, there are not many economists who would agree with this position.

--Dean Baker

By all accounts China's Prime Minister, Wen Jiabao, is an intelligent man. Therefore he knows that China will lose a substantial portion of its investment in U.S. Treasury bonds. This raises the question of why he is complaining about the risks in China's holding of U.S. Treasury bonds, when he knows that there is no risk, the investment is a sure loser.

The loss will come for two reasons.

First, the United States is running a large trade deficit. The only way that this surplus can be sustained is if the Chinese government and other central banks continue to buy up ever more U.S. dollars, thereby preventing the currency from falling. If the Chinese government ever stops buying vast amounts of U.S. dollars, the dollar will fall in value against other currencies (as it did in the years 2002-2007) causing China large losses on its holdings.

But, this loss is China's decision, not the result of U.S. government policy. As long as China wants to spend hundreds of billions of dollars each year propping up the dollar, it can prevent losses on its prior holdings due to a fall in the value of the dollar, but there would be no reason for Mr. Wen to complain about a policy that he or his successor will decide.

China will also lose money on its bonds because the interest rate on U.S. Treasury bonds will almost certainly rise as the economy recovers. The Congressional Budget Office projects that the yield on 10-year Treasury bonds will rise from 3.0 percent today to 4.8 percent in a few years. This would imply a loss of about 15 percent in the value of a 10-year Treasury bond.

For these reasons, Mr. Wen knows that China will lose money on its Treasury bond holdings. The news reporting on his comments should be asking why he is complaining about the risk of losses that he knows are virtually certain.

--Dean Baker

The value of the dollar plunged by almost 50 percent against the euro in the years from 2002 to 2008 (it has since recovered part of these losses). China eagerly bought up U.S. government bonds during this period, even though it was consistently losing money on its investment.

This history makes its sudden expression of concern about losing money on its dollar holdings so peculiar. This public expression of concern presumably has a political motive rather than reflecting the actual views of Chinese leader, which would more typically be expressed privately to their counterparts in the United States.

The media should have pointed this history out to readers and noted how extraordinary it is that such a statement would be made in public. The public nature of the statement is the real news, not the supposed "worry" about the future value of their investments.

--Dean Baker

Suppose I place a bet on a tech start-up with the government lending me much of the money and guaranteeing me against losing most of my money. If the stock shoots up, then I have made money due to my impressive investing skills, right?

That's what the NYT tells readers in an effort to garner support for hedge fund managers who might feel harassed by Congress if they take part in the latest Fed-Treasury proposal to increase the flow of credit in the economy.

This discussion is more than a bit bizarre. The proposal offers investors much larger potential returns than they could get buying the same assets without government subsidies and it protects them against most potential losses. Naturally hedge fund managers would like to get this generous taxpayer subsidy without conditions (how does this compare with auto workers' compensation?), but why would anyone expect the government to give handouts with no conditions to some of the richest people in the country?

--Dean Baker

Suppose your boss told you that you were getting a big pay increase. After spending the night celebrating, you find out that the your pay increase was coming in the form of higher health care benefits for people who used to work at your office.

That could happen if your boss was the New York Times. It tells readers today that the United Auto Workers have agreed with Ford to accept a cut in hourly compensation from $60 an hour to $55 an hour, bringing their compensation closer in line with the $49 an hour paid by Toyota and other foreign manufacturers. It is only in the fourth paragraph that the NYT tells readers that this figures includes the cost of health care benefits to retired workers.

It would be helpful if the NYT and other media outlets would revert to normal English usage in discussing the compensation of auto workers. Ford is welcome to keep their books anyway they like, but payments that do not go in any form to current workers, like the cost of retiree health benefits, do not fit the definition of compensation. UAW auto workers are reasonably well-paid, but their compensation package is not as generous as this measure of "compensation" implies.

Since support for the automobile industry is a major political issue, it would be helpful if the media would try to present accurate information to readers on workers' compensation.

--Dean Baker

That's what the Washington Post told readers, although not exactly in those words. The Post told readers that several Republican senators opposed a spending bill because it provided "generous funding increases in the midst of an economic crisis."

It would have been helpful if the Post had explained this logic more clearly to readers. In effect, the article implied that these Republicans would prefer to see budget cuts even as the economy desperately needs spending. That would be an effective way to slow growth and raise unemployment. The paper should have called attention to the implications of these senators' position.

--Dean Baker

David Leonhardt gets the story right (mostly). The bankers were acting in their self-interest. They were ripping us off.

The one part that is not clear is that we have to cough up the dough to bail out their lenders. I know that the economists who missed the housing bubble and got just about everything else in the last decade wrong tell us that, but it would be interested to see them make their case, rather than just asserting it to be true in the exact same way that they asserted that there was no housing bubble.

--Dean Baker

Washington Post reporters have no idea what price banks consider "fair" for their toxic assets. They might know the price the banks want or the price that the banks say is "fair," but they do not have access to the inner thoughts of the bankers. So, why don't they just stop telling us that the banks can't get prices their consider fair for their toxic assets?

It is also remarkable, that in a paper obsessed with cutting Social Security, an article that discusses a plan that could hand more than a trillion taxpayer dollars to bankers and investors, the issue of a taxpayer subsidy is never explicitly discussed.

--Dean Baker

The Washington Post told readers that the American public: "is increasingly blaming the open U.S. trade policies of the past as part of the toxic mix at the root of the nation's economic problems."

The article could have saved a word (don't reporters complain about space limitations) and been more accurate by leaving out the word "open." If the country had more open trade, highly paid professionals like doctors and lawyers would be subject to greater international competition, which would increase growth and lead to higher real incomes for workers at the middle and bottom of the income ladder. The same would be true if protections for copyrights and patents were weakened or eliminated.

The current pattern of trade is detrimental to most workers. It is not "open."

--Dean Baker

Okay, let's see if we can teach the Wall Street Journal something this morning. In an article reporting on the prospects for the Employee Free Choice Act in the Senate the WSJ told readers that: "the bill would allow unions to organize workers without a secret ballot, giving employees the power to organize by simply signing cards agreeing to join."

Wrong! The current law already allows workers to organize by majority sign-up. They can also have a union de-certified by majority sign-up. The difference is that under current law it is the employer's option to accept majority sign-up or to demand an NLRB election. Employers who wish to prevent unionization can demand an election. They can then delay the actual election for several years. They can use time to require workers to attend mandatory anti-union propaganda sessions. They can also fire the key organizers, thereby undermining the organizing drive and intimidating workers.

The main change in the law under the Employee Free Choice Act is that workers, not employers, would decide the method for union certification. The WSJ should be able to get this one right.

--Dean Baker

Until Tuesday, remember don't believe anything you read in the paper.

--Dean Baker

The sight of the Republicans in Congress suddenly prepared to shut down the government over excessive deficits could lead some readers to believe that they were doing some serious grandstanding. After all, the Bush era deficits didn't seem to trouble them too much.

But, the New York Times assures us that they are acting from pure motives. It told readers that the delay in passing a continuing resolution that will keep the government funded "signaled growing unease in Congress, among Democrats and Republicans, over the levels of government spending in recent months and the staggering increase in the federal deficit."

That's really good to know, it would have been awful if they were just playing politics.

--Dean Baker

In keeping with its reputation for presenting absolutely loony views on the economy, like this great piece from September 14, 2008 saying that the economy was just fine. The Washington Post ran an interview with James K. Glassman, the author of Dow 36,000. If I were still teaching, I would encourage all my failing students to submit columns to the Post. Their writings would no doubt fill the Post's oped pages and Outlook section.

--Dean Baker

The Post implies that the slowdown in non-residential construction in the United States is due to a lack of financing. While there has undoubtedly been a tightening of credit, this should not be surprising in an environment where vacancy rates are soaring and rents are falling. Builders look like extremely poor risks at present, since new buildings are likely to sit largely empty for many years after completion. Under such circumstances, lenders would be very hesitant to make loans even if the financial system were rock solid.

--Dean Baker

That question went largely unasked in the news reporting on the release of more details of the Obama administration's plan to prevent foreclosures. There are two basic measures that should be used to determine how much homeowners will be helped.

First, under the plan, how will their reduced mortgage payments compare with rents for comparable units? Will the people helped under this program still be paying more in housing costs (included other ownership related costs, like taxes, insurance, and maintenance) than they would to rent a comparable unit? In many bubble markets, homeowners are likely to still face higher housing costs even after their payments are lowered under the rules of this program.

Second, are these homeowners likely to end up with equity in their homes? The median period of homeownership in the United States is only 7 years. This means that a high percentage of the people who bought a home in 2003 or 2004 will likely plan to move in the next two or three years. If these people are already underwater in their mortgage, with house prices falling at a 20 percent annual rate, it is extremely unlikely that they will be in their home long enough to accumulate any equity.

If homeowners pay more every month than they would to rent a comparable unti and still accumulate no equity, possibly facing a short sale when they move (which has the same impact on credit ratings as a foreclosure), then it is not clear how much they are being helped under the plan. With the Obama administration committing approximately $40 billion to this program, or $10,000 for each homeowner assisted under the plan, it is not clear that the benefits to homeowners are very high relative to the benefits to bankers. (The checks are paid to banks.)

The news reports should have sought to analyze how much this plan will actually help homeowners. This question went largely unasked in most of the reporting.

Reporters also don't seem to have heard about the housing bubble. The effectiveness of this plan will differ hugely depending on whether the home is in a bubble inflated market. Most reporters somehow could not see the $8 trillion bubble when it was growing. Apparently, they still haven't noticed the bubble.

--Dean Baker

The country faces an enormous deficit in the long-term future if we never fix our health care system. This is easy to show to those who know arithmetic. Of course, if you don't like Social Security, then you blame the huge projected deficits on "the growth in spending for Social Security, Medicare and Medicaid."

I personally attribute the problem to the growing cost of government computers, Medicare and Medicaid. That's pretty much as accurate as including Social Security in the list.

--Dean Baker

The Washington Post told readers that "Stock Sell-Off Spurs Fears That Slump Will Worsen." Among whom did it raise such fears?

Anyone who bases their expectations for the economy on the stock market has no idea what the economy will do. As should be apparent at this point, the stock market can often be driven by irrational exuberance. Remember, it was almost three times as high in 2009 dollars back in 2000 as it is today. Did that make sense? Obviously if it can be driven by irrational exuberance it can also be driven by irrational pessimism. There is no obvious reason to believe that the market has suddenly become a better judge of the economy's prospects now than it had been in times past.

Of course even in principle the market is not reflecting the economy but expectations of future profits. An announcement that the government will shut down Social Security in order to make Citigroup, Bank of America, and other banks fully solvent would probably send the market soaring, even though it would likely be really bad news for the economy.

Of course there are grounds for thinking the economy is looking very bad. Recent data on existing and new home sales, durable good orders, and construction all indicate that the downturn will be even worse than most forecasts predict. But the public would be much better advised to make its assessments of the economy on economic data than the stock markets fluctuations.

--Dean Baker

The NYT reports how medical scans are often inaccurate. It also reports that doctors often profit from referring patients to get scans at facilities where they have an ownership stake.

The problems with scans can be substantially reduced if scans were billed at their marginal cost. The marginal cost of a scan would likely be $100 or less in most cases. It would include the cost of the electricity, the time for the medical personnel to run the scan and the time for a technician/doctor to review the scan.

This situation would require that the cost of developing scanning technology be covered through some other mechanism. It is almost certainly the case that there are more efficient funding mechanisms than the current one of relying on government created patent monopolies.

--Dean Baker

The NYT should have included some discussion with an economist in its article about a crackdown on "counterfeiting" in China. The items in question appear to be unauthorized copies of items that have trademark or copyright protection. It does not appear that the items are counterfeits.

The difference is that an item that is actually counterfeit deceives the borrower. For example, a counterfeit Rembrandt would be sold with the understanding that it is in fact a painting by Rembrandt. In such cases, the buyer is directly a victim since they were deceived about the true nature of the product.

The circumstances described in the article suggest that the buyers understand that they are not buying products actually produced by the trademark or copyright holders. In this case, they are not victims. They are taking advantage of the opportunity to buy products at prices that are closer to their cost of production and therefore benefit from having access to the unauthorized copies.

The crackdown on these sales will raise prices and hurt consumers in the same way as if China started imposing tariffs on imports. The difference is that the price increases from cracking down on unauthorized copies are likely to be much larger than price increases associated with any plausible increase in tariffs.

The article cites industry sources as saying that the sale of unauthorized items in China cost U.S. corporations $2 billion a year in lost sales. It would have been helpful to include an estimate from an economist of the cost to China's economy from enforcing U.S. intellectual property claims. It would almost certainly be several times higher.

--Dean Baker

President Obama proposes to cut subsidies in Medicare and Medicaid to insurance and pharmaceutical companies and to use this money, along with additional tax revenue on upper income families, to finance health care reform. The subhead of the front page Washington Post article discussing this policy describes this proposal and others in the budget as an "ideological swing."

It is not clear what ideology is being attacked. These industries used their money to hire lobbyists to get money from the government. If the Post means that President Obama is attacking the ideology that powerful corporations should be able to get taxpayer dollars then the subhead is correct. Otherwise, it has no obvious meaning.

--Dean Baker