What’s More Worrisome Than Toxic Loans Are Regulators Who Did Not Know What They Were Doing

Dean Baker, co-director of the Center for Economic and Policy Research and publisher of the Beat the Press blog (one of my favorites), is a rare breed. Aside from the fact that he is one of the few economists who seems to know what is really going on (and who has been ahead of the curve as far as the current crisis is concerned), he is an articulate commentator who cuts straight through the B.S. and calls it like it is. I have to admit that when he writes post like the following, “‘The Swelling Tide of Toxic Home Loans Is Proving to Be Even More Worrisome than Initially Feared,’” I really lap it up.

It would be nice if some of the people who get paid big dollars because they supposedly have high skills could acknowledge that they messed up. It would also be nice if the national media did not consider it part of their job to cover up for powerful people who messed up on their job.

Yes, that headline is a a direct quote. It also is the sort of statement that has no place in a serious news article. The swelling tide of toxic loans is not proving to be more worrisome than feared. The problem is that the people who were supposed to be regulating the financial system did not know what they were doling.

The people who did understand the economy knew that an unprecedented run-up in house prices, with no remotely plausible explanation based on fundamentals, with no corresponding increase in rents, was a bubble. We also knew that bubbles burst. And, we knew that when bubbles in a highly leveraged asset like housing burst, that lots of debts go bad and that banks then take really big hits.

The NYT should be exposing the incompetence of people who were paid big dollars to know the housing and financial markets (this includes both bankers at place like Citigroup, Merill Lynch, Bear Stearns, Fannie Mae and Freddie Mac, as well as the top regulators) and completely failed in their responsibilities.

It should not try to tell readers that the housing crash was somehow an unforeseeable event that came out of the blue. It was an entirely predictable event and it was only incompetence that prevented these people from seeing it. Unfortunately, unlike dishwashers and custodians, bank executives and regulators are not held accountable for their performance. Instead, the media covers it up for them.

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