Dean Baker (Beat the Press, 3/17/09) weighs in on Richard Cohen's defense of Jim Cramer, accusing the Washington Post columnist of "continuing the stream of excuses for the financial media's failure to warn of the economic crisis." Baker sees "an effort to imply that the issues involved were very complex" lying "at the center of the cover-up for the media's incompetence."
Baker's reply to the Cohen claim that "there was not much they [financial reporters] could do, anyway. They do not have subpoena power. They cannot barge into AIG and demand to see the books, and even if they could, they would not have known what they were looking at":
This is pathetic. Financial reporters did not need subpoena power, they did not need access to AIG's books, they did not even need to know what a credit default swap was. They just needed to know arithmetic.
The basic story is as simple as you can possible have. Nationwide house prices tracked inflation for 100 years from 1895 to 1995. In the decade from 1996 to 2006, they rose by more than 70 percent after adjusting for inflation, creating more than $8 trillion in housing bubble wealth.
There was no remotely plausible explanation for this increase in house prices on either the supply-side or the demand side. If there is a huge divergence from a 100-year long trend, with no explanation based on fundamentals, how could it be anything over than a bubble?
And who could have thought that the country could lose $8 trillion in housing wealth ($110,000 for every homeowner) without enormous consequences for the economy?
While assuring us that "exposing the corruption in the financial industry that supported the growth in the bubble…would have been a great public service," Baker insists that reporters "just needed to know arithmetic and have some common sense." His suggestion going forward: "How about a good news story explaining that even though nearly all economists completely failed to see the coming of the biggest economic disaster in their lifetime, none of them will suffer any consequences in their career? None will get fired and almost none of them will even miss a promotion. Reporting on the non-accountability of economists would be a very good story for financial reporters."
See the FAIR magazine Extra!: "Busted Bubble: The Press Fell Down on the Job on Housing Prices" (11-12/08) by Veronica Cassidy