Paul Krugman: Blindly Into the Bubble

[n2doc]

By PAUL KRUGMAN
Published: December 21, 2007
When announcing Japan’s surrender in 1945, Emperor Hirohito famously explained his decision as follows: “The war situation has developed not necessarily to Japan’s advantage.”

There was a definite Hirohito feel to the explanation Ben Bernanke, the Federal Reserve chairman, gave this week for the Fed’s locking-the-barn-door-after-the-horse-is-gone decision to modestly strengthen regulation of the mortgage industry: “Market discipline has in some cases broken down, and the incentives to follow prudent lending procedures have, at times, eroded.”

That’s quite an understatement. In fact, the explosion of “innovative” home lending that took place in the middle years of this decade was an unmitigated disaster.

But maybe Mr. Bernanke was afraid to be blunt about just how badly things went wrong. After all, straight talk would have amounted to a direct rebuke of his predecessor, Alan Greenspan, who ignored pleas to lock the barn door while the horse was still inside — that is, to regulate lending while it was booming, rather than after it had already collapsed.

I use the words “unmitigated disaster” advisedly.

http://www.nytimes.com/2007/12/21/opinion/21krugman.html

[MadLinguist]

1. I wish Krugman would host a presidential debate.

     
        "Given the role of conservative ideology in the
mortgage disaster, it’s puzzling that Democrats haven’t been
more aggressive making the disaster an issue for the 2008
election. They should be: It’s hard to imagine a more graphic
demonstration of what’s wrong with their opponents’ economic
beliefs."   From Krugman's editorial.  What are they
waiting for?

[gratuitous]

2. And don't you love the column's conclusion?

At the end of it all, when the dust begins to settle and the outlines of the disaster are becoming clear, Greenspan rides in on his pale horse and says:

Of course, now that it has all gone bad, people with ties to the financial industry are rethinking their belief in the perfection of free markets. Mr. Greenspan has come out in favor of, yes, a government bailout. “Cash is available,” he says — meaning taxpayer money — “and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this.”

Isn't that nice? After the lenders make off with the fat fees for steering people into these ruinous loans, the taxpayers get to spend their money to save the big banks and mortgage companies from their own greed.