Dean Baker: Plunder and Blunder; How the 'Financial Experts' Keep Screwing You

[marmar]

via AlterNet:




Plunder and Blunder; How the 'Financial Experts' Keep Screwing You

By Dean Baker, PoliPoint Press. Posted February 7, 2009.

Anyone with common sense, a grasp of simple arithmetic and a desire to go against the consensus should have seen the financial crisis coming.




Editor's Note: The following is an excerpt from Plunder and Blunder: The Rise and Fall of the Bubble Economy by Dean Baker, published by PoliPoint Press, 2009.


The stock market and housing bubbles were the central features of the U.S. economy over the last 15 years. The stock bubble propelled the strongest period of economic growth since the late 1960s. The housing bubble lifted the economy from the wreckage of the stock bubble and sustained a modest recovery, at least through 2007. However, financial bubbles by definition aren't sustainable, and when they collapse, they cause enormous social and economic damage.

The economy had no problem with financial bubbles during its period of strongest and most evenly shared growth, the years from 1945 to 1973. It only became susceptible to bubbles after the pattern of growth had broken down  -- when most workers no longer shared in the benefits of productivity growth, and businesses no longer routinely invested to meet increased demand based on growing consumption. We don't have enough evidence to say that bubbles are a direct outgrowth of inequality, but, again, we do know that bubbles weren't a problem when income was more evenly distributed.

The bubbles were allowed to grow only because the people in a position to restrain them failed in their duties. The leading villain in this story is Alan Greenspan. Greenspan mastered the art of currying the favor of the rich and powerful and held top economic positions under five presidents of both political parties. He also managed to gain a near cult-like following among the media. As a result, most of the public is largely unaware of how disastrous the Fed's policies under his tenure were for the economy and the country.

Most of the economics profession went along for the ride, somehow managing to miss a $10 trillion stock bubble in the 1990s and an $8 trillion housing bubble in the current decade. If leading economists had recognized these bubbles and expressed concern about the inherent risks, they could have alerted the public and forced a serious policy debate on the problem. Instead, the leading voices in the profession joined the chorus of Greenspan sycophants, honoring him as potentially the greatest central banker of all time. ........(more)

The complete piece is at: http://www.alternet.org/workplace/125421/plunder_and_blunder%3B_how_the_%27financial_experts%27_keep_screwing_you/

[xchrom]

1. recommend

'The economy had no problem with financial bubbles during its period of strongest and most evenly shared growth, the years from 1945 to 1973. It only became susceptible to bubbles after the pattern of growth had broken down? -- when most workers no longer shared in the benefits of productivity growth, and businesses no longer routinely invested to meet increased demand based on growing consumption. We don't have enough evidence to say that bubbles are a direct outgrowth of inequality, but, again, we do know that bubbles weren't a problem when income was more evenly distributed.'

i thought that bore repeating.

[depakid]

2. Once again- the corporate media truns out to be the real villian

The real problem is that the public, including many of the pension fund managers who were taken for a ride, still don't understand what has happened. Perhaps the main reason for this confusion has been the quality of economic reporting. The media relied almost exclusively on the folks who got it wrong. The industry bubble-pushers and the bubble-deniers in policy positions were almost the only sources for economic reporting during the bubble years. The vast majority of the people who follow the news probably never heard anyone argue that the economy was being driven by a stock bubble in the 1990s or a housing bubble in the current decade. Such views simply were not permitted. (The New York Times deserves special mention as a media outlet that actively sought alternative voices, especially during the housing bubble.)

Knowingly or not, these outlets have covered up the extraordinary incompetence and corruption that allowed these bubbles to grow. For example, in a recent three-part series on the housing bubble, the Washington Post reported a claim from Alan Greenspan that he first became aware of the explosion in subprime mortgage lending as he was about to leave his post as Fed chair in January of 2006. According to the article, Greenspan said he couldn't remember if he had passed this information on to his successor, Ben Bernanke.

This article makes it sound as though the explosion in subprime lending was an obscure piece of data only available to a privileged few. In reality, the explosion in subprime lending was a widely discussed feature of the housing market during the bubble years.