To repeat, for emphasis:

(As head of Goldman Sachs, Mr. Paulson personally made hundreds of millions of dollars from this bubble.)

"It is difficult to get a man to understand something when his job depends on not understanding it." - Upton Sinclair

The truth of this aphorism becomes readily apparent when you read that the only ones in Wall Street who understood that this was all a house of cards and could perceive the outrageousness of it were those "shorting" these instruments and stocks, and hence had their "salary" hinge on the thing blowing up. See Michael Lewis article: "The End" in portfolio.com: http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

Nice job pointing out the hypocrisy in our media, Dean.

well the press is not able to write on economics.
Happily we have blogs!
I hope that readers are skeptical when reading the news....

Why does Dean Baker demand accountability in our politics and journalism, especially in the economic realm?

Mr. Baker has this odd habit of citing facts from the recent past. If you do that, of course folks like Paulson will look foolish. But if you forget everything you knew, each and every day, then the economic mess is a surprise and no one gets blamed for letting it happen.

I recently, and publicly, called for the incoming administration to make an effort to "battle bubbles." However, the main reason why this is so difficult to do is that during a bubble, there are people making money, sometimes lots of money, and such people do not like having anybody telling them to stop doing it, and they are often able to access the levers of political power to stop anybody who is trying to stop them from doing so.

In the beginning, it's hard to identify that you're going to get into a bubble. Something changes in the marketplace, and prices start to rise. Everyone wants to move to Southern California, so home prices are rising a little faster than they were. Remember Apple and Microsoft? Well, there are new companies, Google or Pets.com, get in quick while prices are still low!

And then you'll wonder where the "real" price of an asset will end up, with all these crazies offering you so much for what you have. OK, so if it goes down 10%, you'll still have made a lot of money, so you can wait a little bit after the peak to get out.

I picked up my WaPo yesterday morning, saw the header and the photo, and "hagiography alert!" was the first phrase that popped into my head.

I skipped the piece entirely, but I'm not the least bit surprised to find out I was right.

It's like during the campaign when Republicans run commercials saying things like "in these perilous times of a failing economy and a war in Iraq.." is if we somehow were forced into Iraq and it had nothing to do with a rich, Republican frat-boy experiment gone catastrophically wrong. And an economy where massive tax breaks for the rich is the only plan utilized.

Anyone with access to YouTube should have known there was a speculative bubble in housing prices.

"There is zero excuse for Paulson being caught by surprise by a "storm" that he helped create."

You are making a HUGH leap of faith that he was surprised. I doubt it. I'm guessing that they saw it coming for a long time, but hoped that they could ride it out and dump it on the next president.

We are, after all, talking about the Bush team.

It was entirely predictable that the housing bubble would burst

True, and economists like Dean Baker and Larry Summers provided prescient warnings.

and that its collapse would have a huge impact on the financial system and the economy as a whole.

False. The collapse of the bubble had a much larger impact than predicted because of the complex derivative structure that had been built on top of mortgage loans (e.g., credit default swaps). But these derivatives were traded privately: over the counter rather than on public exchanges. So no one knew the details, or even the size of these derivative markets.

the economic meltdown of 2008 was the logical result of the economic policy of phil gramm

the gramm leach bliley bill of 1999, and the commodity futures modernization act of 2000 set the economy on FAIL

the dot com bubble, ENRON, sub-prime lending, slice and diced mortgages

all brought to you by phil gramm and bubbles greenspan

The Post should not be in the business of covering up for Paulson's massive failure.

Why not? They've done it for other members of the Bush administration for nearly eight years.

"Predictable and predicted"

Wow Senator Webb's statement on the results of the Iraq war work for just about every one of Bush's screw ups.

Don't worry, the media will conveniently forget about the 8 years of "perfect storms" once the marxists take control in January.

Dean Baker nails it! Paulson is/was a bubbler--a Ponzi scheme scammer /an alchemist-turned toxic mortgages in gold/and an illusionist.

One has to ask, "Is dis an economy?"

Mr. Baker,

I don't fully understand your point on Venezuela. I assume that you don't support them as an administration. I certainly don't.

You have stated the following from your post today:

The Post would most likely be running articles that tell readers how Chavez's policies led to an economic disaster.

What precisely would you like to cite as Mr. Chavez's accomplishments? I am not aware of any beyond high oil prices helping to support him quite literally ruining the economy. I would be happy to cite inflation and other stats to support my argument.

I look forward to Bruce and Barkley's comments. And to remind both of them, I have been polite in my commentary and I assume they will do the same.

Marxist!!

Socialist!

TC,
I hope this is polite enough for you. You've entirely missed the point of the blog post. Baker isn't arguing that Chavez and his policies are good, or that Paulsen and his policies are bad (necessarily) but simply pointing out that as a matter of style the WaPo accuses economic leadership of failure if,and only if, it doesn't like the underlying policies and it shields economic leadership from accusations of failure if it liked the underlying policies *even if* it becomes terminally obvious that the policies were, in real world terms, a failure.

So, in the cited example, Paulson and his cronies are in charge of a complex economic system which *by their own admission* suddenly crashes and burns. Suddenly, no one is at fault and no one, as far as the WaPo is concerned, had any control over the market at all--even at a predictive level. But in the case of Ven. or some other country where the WaPo has attributed power to a leader when the economy crashes it finds it easy to assign blame to the leader's actions.

This is what we remember as the "mistakes were made" passive tense--the same journals that laud the high action, powerful, leadership of economic gurus like paulsen suddenly jump backwards and pretend he was like a passenger in an automatic car who had no control over the route taken or the failure to get to the desired spot.

aimai

Summers and Rubin, along with Greenspan and Graam, are responsible for the economic meltdown.

http://tinyurl.com/6dtrjd

Also, see the NYT. Especially the treatment of Brooksley Born by Rubin/Summers.

The Reckoning--Taking a New Look at a Greenspan Legacy; Oct. 8, 2008

http://tinyurl.com/6yzsff

"There is zero excuse for Paulson being caught by surprise by a "storm" that he helped create."

-- No excuse, but the *reason* is his ideology.

To riff a bit on aimai's point: the WaPo readership wants to be told that Paulson was not at fault, regardless of the facts. So the WaPo makes them happy.

The reverse is true for Hugo.

I can hear Delong's fingers limbering up. Four years! He gives the Post four years...

Aimai-

Thank you for your respectful commentary, although I disagree with it.

A few points:

- Mr. Baker was right on the housing bubble. I agreed with him for years on it.

- It is not a fair argument by him to state that everyone knew it was a bubble. That is factually not correct, most thought that there would be a modest decline. Happy to cite any number of souces on that one.

- You don't like Paulson, which is fine. He is worth more money than I can conceive of, I don't see him being T Sec for any reason than helping the country and power, although it's such a disaster that I don't think that I would want the job. Perhaps he should be given credit for trying to do the right thing.

- I assume that you are supportive of the O administration. Just to note a few of his economic advisors, Rubin made a fortune at Goldman as CEO and is watching Citi quite literally go bankrupt under his "watch". Larry Summers works for DE Shaw, a very successful hedge fund, in addition to his day job at Harvard.

If I may...
TC you still don't get it.It's not about policy, it's about a double standard. The double standard is that when the Post agrees with the underlying - and i much prefer this word aimai - ideology, it is far more likely to not blame the economic crisis on the governing power. Conversely if Post doesn't support the underlying ideology it will have little problem with condeming the government. In fact....you could almost call that bias.:-)

And clearly the Post judges much more harshly leftist or progressive governments. Clearly

I recommend George Soros' piece in the NY Review of Books.
http://tinyurl.com/6edu2a

On a different topic, it would appear that TC's salary depends on him not understanding the concept of a double standard of accountability in the media. I wonder why that is?

Is anyone surprised that the oil barrel bubble burst at the same time that the housing bubble burst?

Speculators drove both.

"It was entirely predictable that the housing bubble would burst and that its collapse would have a huge impact on the financial system and the economy as a whole. There is zero excuse for Paulson being caught by surprise by a 'storm' that he helped create."

Ehhh, I have to disagree. Yes, Paulson missed the housing bubble, and underestimated the impact that its bursting would have on the financial markets. That said, no one predicted the historic financial panic that we've been going through since Lehman failed -- not even you, Dean. (Nouriel Roubini is being hailed as some sort of prophet, but it's important to remember that he's been predicting imminent financial collapse for about 8 years now, and for ever-changing reasons.)

There's a huge difference between the painful deleveraging that was occuring in the financial markets pre-Lehman, and the epic financial panic post-Lehman. The pre-Lehman pain in the financial markets was inevitable once the housing bubble popped. But the post-Lehman financial panic was not.

You're blurring a lot of important lines here, and you know it. I'm disappointed.

TC, I think you misread, even after the second comment. You wrote:

"It is not a fair argument by him to state that everyone knew it was a bubble. That is factually not correct"

But of course he did not allege that everyone knew it was a bubble. What he alleged was that

"There was a huge housing bubble that should have been visible to any competent economic analyst"

It is factually correct that there was a huge housing bubble, and if the science of economics is worth anything at all, competent economic analysts should have been able to see it.

And in fact, those not of a conservative ideology did see it. So - it was entirely predictable if, and only if, one was not a conservative.

Those of us who are trained in other sciences than economics observe this -- i.e. observe that one side has models that accurately predict future reality, and the other side does not -- and count this as evidence that the side making accurate predictions has a better model.

And when the side that failed to see the bubble as it was occurring, and failed to predict the collapse, then goes on to disclaim responsibility for the policies they championed, which were followed, which the other side predicted would lead to a collapse, and which led to the collapse, there's something worse than disingenuousness going on.

False. The collapse of the bubble had a much larger impact than predicted because of the complex derivative structure that had been built on top of mortgage loans (e.g., credit default swaps). But these derivatives were traded privately: over the counter rather than on public exchanges. So no one knew the details, or even the size of these derivative markets.

Which is at the heart of the problem, but when everyone follows the same indefensible assumptions, if the disaster isn't predictable, the outsize risk most certainly is.

And, I disagree, the size of these markets has been estimated to order of magnitude for years. If the public wasn't in possession of the data, Paulson et al certainly were.

no one predicted the historic financial panic that we've been going through since Lehman failed

You mean, no one with a high profile predicted it. I personally know analysts who did, but who were unable to get traction for their ideas, a fact which I attribute to the political climate of 2001 onward within the regulatory community, which is in turn directly attributable to the Bush Administration.

I'd say you (Dean Baker) are being nice to the Post.

The idea that Paulson 'converted' is more disingenous spin from the con-artists that brought us 'free market ideology' in the first place. The piece was an obvious attempt to foster confusion, and dull the truth in order to continue to promote the interests of the right wing.

The truth of course is that only fools have ever believed in 'Free Markets', and Hank Paulson is no fool.

What he is is an extremely able, extremely cunning man interested in aggrandizing wealth and power. Any 'belief' he may have expressed in 'free markets' in the past was only a tactical choice in furtherance of his goals, just as any 'conversion' to non-free market 'ideals' is also a tactical choice in furtherance of his goals.

The fact is that political and economic discussion is required to take place with out ever referencing the truth. And it will probably always be that way.

But that doesn't mean people who don't know the truth aren't fools. They are.