Dean Baker, I really think you're great and love hearing what you've got to say.
Its great you give unbiased oppinions and state whats really going on.

As an economics undergraduate student in europe I really appreciate your blog and read it ever day, not sure why people don't comment much on your posts.

Your helping me and my economics society at uni form great debates and seeing things from the correct view point that the media hardly touch apon.

Thank you

After 7 years of wealth transfer from the lower income to the wealthy, we wonder why the US is now going into recession?

A downward redistribution of wealth is required to stimulate demand. Bush/Republican stimulation of demand by increasing available credit to lower income classes rather than increasing their income has created unsustainable debt loads that have just crashed and burned.

The puncture of the housing bubble is certainly the most important thing, but it's not the only thing leading to recession. The economy has been on a huge up-cycle for a long time. The stock-market bubble was only partially and selectively punctured in 2000. Credit of all kinds, from credit cards to no-down mortgages to hedge-fund leverage, had expanded to absurd levels. Credit is necessarily being contracted everywhere.

When people come to believe that values only go up, there is a bubble. Sometimes the primary object of the mania is tulips, sometimes it's houses.

"Bubble Wealth" is the name of my new band.

It is important to remember that 1/3 of the population does 2/3 of the consuming. Those of us in the bottom 2/3 never did much consuming in the first place, so the collapse is in the consuming third of the population.

However, the bottom 2/3 is where the unemployment will come, so it's not that we'll be saving, but that we'll have less money to make it through the months.

the real reason for this collapse in asset values and economic activity is that incomes for most of the population have not increased (even declined in real terms) for the past 30yrs, except for a brief period in Clinton's 2d term. there has been no trickle down. before the crash only a tiny % of the population in CA could afford to buy a median priced home without continued borrowing which eventually had to end. those values were unsustainable.

What is wrong with NPR!! Are they just terrified of the "liberal media" label and therefore must not tell the truth? I agree, arrrrrrrrgh!

Good point, Dean. Perhaps it should be phrased: "the housing bubble bust caused the credit crunch."

NPR is a propaganda machine for the better educated. I listen to NPR faithfully everyday if possible but I have never contributed to them. Drivel is free and abounds everywhere on the airwaves, entertaining, but I certainly don't expect anything more than what I am "supposed to hear".

Dean, I'm not so sure that this is unintentional. I think it is a deliberate effort to by the media to spread disinformation and propagada. Now Greenspan himself is on capital hill telling us he was "shocked". Everyone should by now understand that human nature as it is greed is always around.

I don't disagree that NPR missed the housing bubble. Most everyone did, and those who didn't - those who tried to sound an alarm - were either ignored or shushed. As long as the money was rolling in, the financial markets pushed hard to see to it that the boat wasn't rocked.



From the initial phases of the bubble-burst up to and shortly after the bailout, I never heard NPR suggest that the problem was caused by anything other than the housing bubble. (Check out the brilliant job This American Life did in expanding on what NPR was reporting about the bubble burst and its causes). What you are hearing now on NPR, I think refects more of where things are right this minute, post-housing bubble-burst, post-bailout: the markets have pretty much finished reacting to these issues and are now reacting to all of the fallout: the credit crunch, the bad corporate earnings numbers, the rising unemployment etc.

$110,000 per homeowner? Really? Is that the mean?

Dean, Do you have any stats on what percentage of the total value of mortgages issued in the US is in non-recourse form? I can't find any relevant info and it seems very relevant in the present situation. Thanks.

D.T.

Over the last year, NPR has almost exclusively featured economists who missed the bubble and many of them questioned whether the economy was going to experience a recession. If they had finally recognized the bubble, they would know that we would see a recession due to its collapse.

TL,

the $110k figure is an average. It assumes a price decline of about 40 percent.

Jay,

I don't have data on the recourse/non-recourse breakdown. Most states prohibit recourse loans for mortgages to buy primary residences, but there are variations on this. For example, in CA a refi mortgage can be a recourse loan.

As a practical matter, I don't think that most banks go after homeowners for shortfalls, first and foremost because they don't expect to collect much.

Being in a recession and stocks plummeting in a day of trading are two different things.
The outrage in this post is idiotic and just shows that I shouldn't pay any attention to what you have to say about economics.

Could've sworn I heard Mort Zuckerman make a similar statement this morning on Morning Joe (MSNBC)

Dean--

In addition to the difficulty of collecting here, judicial foreclosure (required if the lender wants to collect) takes a long time--at least a year vs. four to six months for a non-judicial foreclosure, costs a lot of money (hiring lawyers vs. a Foreclosures-R-Us service, and allows the foreclosee a year after the foreclosure to redeem the property.

Thanks to Dean Baker for keeping a sharp eye on NPR's Morning Edition. I have been sorely disappointed by that program's shoddy coverage of all things economic and financial over the past year. It seems that the program's editors and talking heads don't give a whit about investigative journalism and critical thinking. Morning Edition's leadership seems to be as actively involved as other U.S. media sources in spreading disinformation from the more powerful and wealthier. This NPR program does not appear to reflect public interests at all.

And in the pro column, you no longer have home buyers going into extreme debt to buy houses that they can't afford. That money can now be spent in other parts of the economy.

Most of that shopping cash went offshore anyway, and did very little to help our economy in the long term.

Dean, you said: "As a practical matter, I don't think that most banks go after homeowners for shortfalls, first and foremost because they don't expect to collect much."

Sure. The reason I said the breakdown would be relevant in the present situation is that whether they go after the homeowner (with mixed results) or not they incur a loss. Wouldn’t you say that this is something to pay attention to as an aspect of the financial crisis?

I just now, Sunday morning, made the following peanut-gallery contribution over at the Washington Post. Since I am well aware that this is where I swiped from, let me know if I got something wrong.

____
Time to recycle some voodoo terminology.

GOP neocomradess S. C. Blair and the editors of the _Washin'ton Post_ converge on what amounts to a "supply-side" analysis and fix for Mortgagegate 2008. Setting aside certain insincerities about potential victims of foreclosure and eviction on both sides, they agree that the thing to do is to get the creditor classes offering as many new loans as possible as soon as possible.

That plan might work admirably if this were a supply-side catastrophe, but what if it is not? What if the fundamental soundness of our economy consists, at the moment, of millions of owners of houses who have just taken heart-rending paper losses on them and are in no mood to start borrowing more money, and presumably will not be in that "demand-side" mood again for some time to come?

Neocomrade Senator Dr. P. Gramm got himself and his Party's presidential candidate into trouble by suggestin’ that our economic challenges are psychosomatic rather than "real." In a certain sense different from his own he may actually be right: the bushogenic fiasco is not (let us speculate) primarily a matter of trailer-trash deadbeats or of golden parachutists, but of "homeowners who are not in distress" and "borrowers who could make it on their own," persons who have not lost anything physical at all and are not going to, but nevertheless "FEEL poor" -- as a number of analysts have phrased their bad attitude.

Neocomradess Blair and the rest of the Big Management Party crew might conceivably guarantee that Daddy Warbucks does not lose a dime on all that toxic paper out there, but then discover that the Dow-Jones Average continues to sulk in the doghouse notwithstandin’.

Happy days.

yes the npr problem is a problem; i wonder if, moving forward, there will be room for heterodox economists in policy discussion?

i'm also curious why i'm having a hard time finding "grow our way out" solutions similar to growth period from late 1930s to 1940s (late 40's early 50s?)

i.e., run up big deficit and leap frog over it by creating high multiplier jobs (ideally in alternate energies) with large in US linkages

or have i just missed them?

If the credit bubble had continued,instead of crunching, then the real estate bubble would be bubbling on.

The credit bubble caused the housing bubble. The obverse could never have been true. For all history, let's take American history, 90% or more of all people wanted to buy a home. For 30 years or so 60% or households could. Then lax lending allowed up to 10% more to borrow and buy. That additional demand made prices soar, which made buyers want to buy all the more. A classic human behavior.

The recession has just barely begun. The credit bubble reached far beyond real estate lending so in a certain sense the cause and effect Baker debunks here is correct. But only in a limited sense.

The credit bubble for 15 years drove up asset prices of all classes in rolling bubbles which created a flood of systematic liquidity some of which flowed into the real economy. Most of which resulted in consumption.

The credit bubble was essentially in the end. the last 8 years or so, a Ponzi scheme. Now that credit is contracting the old debt is going into default in a classic debt deflation.

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