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Dean Baker comments on the NPR story:

Incredibly Bad Economic Piece on NPR

http://www.prospect.org/csnc/blogs/beat ... omic_piece

NPR helped a blackmail effort, as it was accurately described by MIT economist Simon Johnson, by telling us that we will have to pay huge amounts of money to rescue the banks. While it gave Johnson a brief chance to make his case, the piece concluded by telling listeners that "the problem is us," that we had borrowed too much and therefore we have to pay the cost in the form of big taxpayer bailouts.

Okay, this is wrong, wrong, and wrong. First, the excessive borrowing wasn't just shear frivolity, it was attributable to something that got very little notice from NPR at the time and unfortunately still gets very little notice from NPR: an $8 trillion housing bubble.

People borrowed against this bubble wealth because the experts that NPR and other media outlets present to the public all said that this run-up in house prices was real and would persist. Economists who warned about the housing bubble were almost completely excluded from NPR.

Because NPR and the media more generally led homeowners to believe that the run-up in house prices would persist, people acting in a way that was entirely reasonable given this view. If the price of their home had gone from $200,000 to $400,000, many homeowners opted to borrow some of this equity to take vacations, buy a car, pay for their children's education or engage in other spending. They may also have stopped contributing to retirement accounts because their home was saving for them.

The problem was not "us," the problem was the experts who run our economy were unable to see an $8 trillion housing bubble and the reporters who cover the economy largely refused to talk to any of the experts who could have pointed this out.

These reporters now want the taxpayers rather than the bankers, who profited from the bubble, to pay for this failure. This NPR piece is identified as being "Planet Money." That may be appropriate because most listeners probably would not think it belongs on Planet Earth.

Sorry, AD, but I think your oped above is ridiculous nonsense.

Because NPR and the media more generally led homeowners to believe that the run-up in house prices would persist, people acting in a way that was entirely reasonable given this view.

I'll just say that I think when it comes to borrowing money to buy a home, people are wholly responsible for their own situation, regardless of what others may say. I think it's absurd to blame the media for acts of individual stupidity.

I am not arguing that financial fraud does not exist, nor that it does not create victims. Nor am I arguing that the Fed largely created this asset bubble, that the regulators dropped the ball, and that the media drank up the economic cool-aid. All of this went on.

I am just saying that any sane responsible individual should have recognized that the dramatic runup in housing values was unsustainable, and that borrowing beyond one's means to buy an inflated asset was dumb enough. And what was more dumber was borrowing against that inflated equity to finance a consumption binge.

Hungary Jack wrote:Sorry, AD, but I think your oped above is ridiculous nonsense.

Because NPR and the media more generally led homeowners to believe that the run-up in house prices would persist, people acting in a way that was entirely reasonable given this view.

I'll just say that I think when it comes to borrowing money to buy a home, people are wholly responsible for their own situation, regardless of what others may say. I think it's absurd to blame the media for acts of individual stupidity.

I am not arguing that financial fraud does not exist, nor that it does not create victims. Nor am I arguing that the Fed largely created this asset bubble, that the regulators dropped the ball, and that the media drank up the economic cool-aid. All of this went on.

I am just saying that any sane responsible economist should have recognized that the dramatic runup in housing values was unsustainable, and that borrowing beyond one's means to buy an inflated asset was dumb enough. And what was more dumber was borrowing against that inflated equity to finance a consumption binge.

Um, you are an economist. Most homebuyers are/were not.

lukethedrifter wrote:Um, you are an economist. Most homebuyers are/were not.

Indeed. Why shouldn't people believe the supposedly expert advice they are given? Furthermore, banks are completely responsible for evaluating the default risk of borrowers. Accepting that risk is the economic justification for charging interest. It's really annoying listening to this all get blamed on greedy borrowers who supposedly spent money on the proverbial flat screen TV.

lukethedrifter wrote:

Hungary Jack wrote:Sorry, AD, but I think your oped above is ridiculous nonsense.

Because NPR and the media more generally led homeowners to believe that the run-up in house prices would persist, people acting in a way that was entirely reasonable given this view.

I'll just say that I think when it comes to borrowing money to buy a home, people are wholly responsible for their own situation, regardless of what others may say. I think it's absurd to blame the media for acts of individual stupidity.

I am not arguing that financial fraud does not exist, nor that it does not create victims. Nor am I arguing that the Fed largely created this asset bubble, that the regulators dropped the ball, and that the media drank up the economic cool-aid. All of this went on.

I am just saying that any sane responsible economist should have recognized that the dramatic runup in housing values was unsustainable, and that borrowing beyond one's means to buy an inflated asset was dumb enough. And what was more dumber was borrowing against that inflated equity to finance a consumption binge.

Um, you are an economist. Most homebuyers are/were not.

FTR, I wrote "individual". You wrote "economist".

While I have a college degree in economics, I am not an economist by profession. Like many Americans, I run a business and I own a home. This does not make me exceptional by any stretch.

The fact that many individuals took out loans whose repayment terms extended them far beyond financial means (regardless of the overpricing of the underlying asset) is damming enough for me. I cannot accept in general that individuals who signed a legal document (mortgage) stating the terms and conditions are not responsible for the consequences of their own decision.

It really does not matter that people were receiving mortgage offers that, if accepted, extended them far beyond their means. I get offers for incredible sums from the wives of deposed Nigerian dictators and finance officials on a regular basis. I don't accept them. If the offer is too good to be true, it probably is. I know better.

And I am saying that people should know better.

There is nothing factual to debate. It is simple a matter of opinion. I find it morally repugnant that we would try to fully pin blame for our bad decisions on the media, greedy bankers, or the government. None of these bodies sign the contract that accepts the loan.

Hungary Jack wrote:There is nothing factual to debate. It is simple a matter of opinion. I find it morally repugnant that we would try to fully pin blame for our bad decisions on the media, greedy bankers, or the government. None of these bodies sign the contract that accepts the loan.

This deserves a big, "Huh?". Bankers sign loan documents too. Following nearly universal advice about the value of buying a home is no way comparable to falling for a Nigerian scam.

I worked in the mortgage industry and then the banking industry for around 6 years...not as a mortgage broker or as a banker, but within those industries.

I remember once I got out of the banking industry I had lunch with a mortgage broker who was wildly optimistic about the future. I remember asking him, it can't keep going on like this, there has to be a stopping point...and he was so wild eyed and animated--"Of course it can! There is no reason for this to end! Everyone needs a house!"

I remember that so vividly, it was before anything had gone bad. But I think that mentality was really prevalent.

Arthur Dent wrote:

Hungary Jack wrote:There is nothing factual to debate. It is simple a matter of opinion. I find it morally repugnant that we would try to fully pin blame for our bad decisions on the media, greedy bankers, or the government. None of these bodies sign the contract that accepts the loan.

This deserves a big, "Huh?". Bankers sign loan documents too. Following nearly universal advice about the value of buying a home is no way comparable to falling for a Nigerian scam.

Agreed on the Nigerian scam. But the other party's willingness to sign off on a bad deal has nothing to do with individual's own decision to sign. It's really not that hard for the individual to look at the loan terms and ask him/her self: Will I be able to make these payments next month? next year? in 5 years? At that point it doesn't matter what the property is worth or who is offering the loan.

I am not debating any of the facts that you or Greg posted. I am only stating my view of personal responsibility. I hope I am not in the minority on this. If so, this country is going down the toilet.

Hungary Jack wrote:It's really not that hard for the individual to look at the loan terms and ask him/her self: Will I be able to make these payments next month? next year? in 5 years? At that point it doesn't matter what the property is worth or who is offering the loan.

That is exactly what we did. Our bank told us we could borrow $x. That was perfect. It was just about the same as a house for sale that my wife had eyed since we moved to town. We even took a look at it. Very nice place. I sat back and said to myself, 'Just because we can, should we?' We kept looking and found a pretty good home for significantly less than our cap. And everyone here knows that I am not a genius. It's hard to feel sorry for someone that can't ask themselves that question. But I understand there is plenty of blame to go around.

The part that is hard to stomach is that people that did things the right way are now on the hook for people (buyers, bankers, regulators) that didn't.

Leroy wrote: 'Just because we can, should we?'.

Well said accountant.

Things were going nuts over the last decade, not just with home lending, but with business and consumer lending. Borrowing money was loose and easy for just about anyone with a pulse.

Over the last decade I seemed like a grumpy pessimist with several friends/clients because I was asking them Leroy's question. "Just because you can, should you?" Typically their response was "why are you always so negative and want to throw cold water on my plans...everybody else seems to think I can do it."

....uh yeah, because the lending broker wants to loan you money, take their cut and sell your loan downriver. And equipment and inventory suppliers want you to open a business and sell you their wares. None of these people are going to tell you no. they will encourage you to take the leap.

I'm a fan of using the "worst case scenario test."

...I can talk a good game, but I do realize how hard it is to say no when every ounce of American culture and financial machinery says "go for it." Just like Leroy - my wife was comparing our income to others buying new big houses -she had the itch to move us up in the housing market when it was near its peak. She is really really grateful we stayed put.