The Height of Hypocrisy

For anyone with a decent memory (or access to google) the housing bubble was a period littered with media stories shilling the glories of endless house appreciation from a calvacade of experts and industry insiders whose opinions were never met with opposition in print. The New York Times was at the forefront of this movement, giving itself over to almost daily shilling from the National Association of Realtors and experts like David Lereah who saw nothing but perpetual appreciation for housing with no consequences to speak of.

Now that housing is crashing, the New York Times sees it fit to join the "told you so" crowd, lashing out at experts, the very experts they chose to cite over and over in their articles, for having not foreseen the bubble. Let's tune in:

ONE great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming...The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world.

It seems the height of hypocrisy that the NYT, an entity which repeatedly chose to cite individuals who had a vested interest in perpetuating the housing bubble over the contrarian experts who accurately predicted what was to happen, yet that the NYT is coming away from all of this criticizing the very experts they chose to showcase. In fact, even this week the Times is still going to the same losers for more expert advice. Is it any wonder what the outcome will be?

Furthermore, these people are being influenced by agencies like the National Association of Realtors, which is conducting a public-relations campaign intended to show that putting money into housing is a reliable way to build wealth. Under these circumstances, it’s easy to understand how even experts could come to believe that housing is a spectacular investment.

This is clearly the most offensive bit of the article since, as was mentioned before, anyone with a decent memory will vividly remember near daily quotes from experts at the NAR, published in the NYT, regarding the housing outlook (the NAR, for those not in the know, is infamous for inaccurately predicting outcomes and projecting overly optimistic economic outlooks).

The fundamental problem is that the information obtained by any individual — even one as well-placed as the chairman of the Federal Reserve — is bound to be incomplete.

It's not entirely clear what this statement is intended to mean, but I take it as an excuse for the Fed chairman having missed the housing bubble. When so many contrarian economists were sounding the alarm, there's no excuse for anyone to have not seen what was coming, particularly the Fed chairman. The idea that the Fed chairman has inadequate information is just ridiculous.

It is clear that just such an information cascade helped to create the housing bubble.

I couldn't agree more. The New York Times stands guilty.

There is a slight catch to all of this, that this article was written by Robert Shiller, one of the economists who actually did foresee the problems with housing. Unfortunately though, the New York Times having ran this piece can be seen as an obvious attempt to wash over their hypocrisy with Mr. Shiller's credibility. Fortunately for us, we're not so easily taken.

The Fed has my back

I despise the Fed as much as the next guy (or at least as much as the next guy should despise the Fed), so it was interesting to see today that the President of the St. Louis Federal Reserve bank has my back regarding moral hazards and GSEs:

I am more skeptical of the financial strength of the GSEs, and believe that we could see substantial problems in that sector.

...

I would put the GSEs at the top of my list of sources of potentially serious problems. If those problems were realized, they would be a direct result of moral hazard inherent in the current structure of the GSEs.

I'm actually a bit surprised to see a Fed bank President acknowledging any moral hazard. Apparently there's a limit to how far some people will go to ignore the obvious.