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Finger Pointing on the Housing Bubble
We are still at the early stages of the collapse of the housing bubble, but it’s not too early to start pointing fingers. This isn’t a question of vengeance, the issue is accountability. If the dishwasher breaks the dishes, she gets fired. If the custodian doesn’t clean the toilet, he gets fired.
Economists think it’s very important that people who don’t do their job adequately face serious sanctions, including job loss. This provides the necessary incentive for people to do their job effectively, and sustains the economy’s productivity. This is why it is important to identify the people who did not do their job, and therefore contributed to the growth of a dangerous housing bubble.
A very big finger has to be pointed at all the reporters who cover the housing market. In news stories on the housing market, how many times did they present the views of the economists from Fannie Mae, Freddie Mac, the National Association of Realtors, the Mortgage Bankers Association, and the Homebuilders Association? The answer is far too many.
Of course, these are all people with a very clear stake in promoting the housing market. It is fine to present their views, but these views should be presented to readers/listeners in a way that makes it clear that they have a material interest in this issue. (Imagine that the only people commenting on the problem facing GM and Ford worked for the United Auto Workers.) Reporters should also be certain to present the views of independent experts – views that were seriously lacking in much of the coverage of the housing market as the bubble grew to unprecedented heights.
Business reporters are fortunate that they are not held to the same standards of accountability as dishwashers and custodians.
--Dean Baker
COMMENTS (10)
You continue to miss a bigger culprit: real estate appraisers. Insiders such as the lenders, RE agents, and loan agents know very well the whole bubble was supported by the RE appraisers’ inflated, hyped value.
Your readers, including you, have criticized lenders, buyers, and RE agents, RE trade groups, but lenders did all the low-documentation loans because they don’t need to prove borrowers’ repayment source when their purchase has ample collateral protection resulted by inflated appraisal value.
Buyers felt so comfortable in getting the option ARMs because they had an appraisal value saying there’s equity in their home.
When we buy something, we want to make sure we pay a good price. What’s better assurance than a value issued by independent third party professional appraisers.
Everyone is happy: lenders could show the value to their regulators saying, “Hey, we are doing prudent lending because the loan doesn’t exceed the appraisal value.”
Reporters should share their blame too but not close to the damage caused by the RE appraisers.
Posted by: James | September 12, 2006 12:15 AM
The whole real estate market is riddled with rot. While you can't blame reporters for that, you can blame them for complicity -- for glossing over or ignoring bad signs rather than report them along with the happy talk from the real estate industry.
Further, you can blame them for not doing the job that they take credit for doing. Hypocrisy in the act of concealing corruption is so much more repellent that corruption alone.
There's an old journalistic saying: when a good newspaper editor dies, there shouldn't be many cars in the funeral procession. Which is to say, a good journalist will never be too popular with those in power. But too many of today's journalists don't think that way. Because controversial reporters don't get to have softball interviews with big politicians on national TV.
Posted by: JJ | September 12, 2006 12:51 AM
I am wondering why (or if, since I don't know that much about the ways to measure the economy) the housing bubble, which I think is a form of inflation, is not counted as part of the country's rate of inflation (?). This is how I see it--Alan Greenspan was very good at controlling the rate of inflation and looked at inflation as an important factor that needs to be controlled by up or down interest rates. Yet the whole time he was getting good marks for doing that well (that was part of his success story, right?), there was a high rate of inflation in the stock market and now a very high rate of inflation in the real estate market. So when the Fed casts its gaze at inflation as being bad, what inflation do they care about? The prices of milk and gas?
Posted by: M | September 16, 2006 12:25 PM
One thing I cannot understand, is why so many economists compare housing bubble with the stock market bubble? If someone buys house ever at high price, when prices of houses is getting below of what it was before, would he sell short his house and move to the carton box on the street? Or, would he continue pay his fixed mortgage, which most of people got (who plan to stay in their homes) and keep on living happy life? If houses will start selling lower in my neighborhood, I don't see myself suddenly wanting to sell. This by definition makes such phenomenon as a housing bubble impossible.
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