While the parent company of the Wall Street Journal, News Corporation, is getting a proper punching across the pond, let’s see how Rupert Murdoch’s business-as-usual cheerleader reports on the causes of The Second Great Depression.
By Nick Timiraos, The Wall Street Journal, May 4, 2012
What if the conventional wisdom about the mortgage crisis is all wrong?
That’s the implication of a new paper from economists at the Federal Reserve Banks of Atlanta and Boston that’s bound to spark debate because, if their premises are correct, it sharply undercuts the justification for much of the new regulation that’s been erected over the past two years.
Three economists, Christopher Foote,Kristopher Gerardi, and Paul Willen, present two narratives of the financial crisis in trying to answer why so many people made so many dumb decisions.
The first view is that the financial crisis was an “inside job” where various industry players, from the mortgage lenders to mortgage traders, took advantage of unsophisticated rubes, from homeowners to mortgage investors.
They largely discard that view for a second one—the “bubble theory” where delusional attitudes about home prices, not distorted incentives, fueled poor decision making.
This is the Wall Street Journal. Does anyone think for a New York minute that they’d get behind the Inside Job view of the housing debacle? Of course not. It was obviously the fault of strawberry pickers, the Community Redevelopment Act of 1977, Barney Frank, and undeserving minorities who never should have been allowed to own property ever ever ever. (Uppity rabble might then expect the vote, too.)
And as for the origin of this paper? The Boston Federal Reserve? Everyone working there is hoping to get hired by one of those market manipulators, so don’t look for their facts to bear much relation to what really happened.
Here’s the authors’ abstract of the
excuse for wrecking the whole economy report:
This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly.
Translation: if we blame the meltdown on irrational exuberance, then none of our friends will have to give up their bonuses. Or their freedom.
The above diagram is from the research paper, and it neatly blames the victims for believing housing prices only go up. Notice who’s missing from the picture? Realtards. You know, the people who tell you that housing prices only go up.
Fact 1: Resets of adjustable-rate mortgages did not cause the foreclosure crisis.
Banks weren’t wrong for issuing adjustable rate loans, borrowers are the problem for having crap credit. Bad credit meant those borrowers could have an adjustable loan or remain renters.
Hey, what do you expect when you loan to a bunch of deadbeats?
We’ve got 11 more of these delightful “facts” waiting for you after the break.