I was reading the letters, in response to Alex Koppelman’s commentary on the Stewart-Cramer interview. For those living under a rock, Jon Stewart, the host of Comedy Central’s The Daily Show, accused CNBC’s – a cable financial news network – of knowingly deceiving the public about the nature of the “bubble”. Cramer, one of the hosts, took offense to that, going after Stewart on all sorts of programs – and Stewart kept getting the best of him. For some unexplainable reason, Cramer agreed to go on the Daily Show for an interview with Stewart, and Stewart massacred him once again. What can I say? He’s a very intelligent man, who does his homework and seems to have his heart in the right place.
But I am not interested in writing about the interview here – I’m sure the blogosphere is overflowing of postings about that interview – but about the “bubble”. Now, if you know me, you know that I’m completely ignorant about finance. I don’t have two-cents to my name, so I’ve never had to think about how to invest money. I also don’t have cable, so before the Daily Show bit I’d never even heard of that Cramer guy. Hey, I’m not sure if I’d heard about CNBC.
But what I did hear, somewhere circa 2002 or 2003, was that the Fed (aka Greenspan) had decided to respond to the bursting of the internet bubble, with such low interest rates as to create a housing bubble. That bubble, of course, could not be sustainable and would burst bringing down the economy with it. That opinion piece appeared in the Wall Street Journal – and I’m pretty sure that I was not the only person to read it and remember it throughout in the last 5-7 years. I mention this because one of the letter writers mentioned above, as well as many other commentators, have said over and over that the nobody knew we were in a bubble – which clearly is crap. People may not have wanted to believe we were in a bubble – but they knew.
A few minutes ago, I went hunting for that WSJ article – given that I have no idea when it was published, it is not an easy task. But while looking for it, I came across this 2005 article at the website of the Cato Institute, titled “No Housing Bubble Trouble”. That someone at that institution would argue that point is not surprising – after all, these are the people who scammed us all (well, at least those of you who own(ed) something). But what is interesting is that the article is responding to the “economic pessimists” who warn that “the ‘housing bubble’ [is] about to burst, with a supposedly devastating impact on household wealth.” Among those pessimist the author mentions Ed Leamer of University of California-Los Angeles and Stephen Roach of Morgan Stanley. The author also takes to task the July 2, 2002, Wall Street Journal editorial (perhaps the one I read) which worried that “homebuyers are resorting to greater levels of mortgage debt”. Hmmm.
Another google hit took me to this 2005 Los Angeles Times article titled “It’s Not a Bubble Until It Bursts”, which basically says that both economists and regular people knew there was a housing bubble, they just didn’t know when it’d burst, so the idea was to get in the game and make money until then.
So, I’m sorry, I don’t believe for a second that the best minds in finance in this country did not realize we were in a housing bubble. Now, they may have not known in the intricacies of derivatives and what-have-you, but they knew that our economy was resting on feet of mud – and that everything would come down once the housing bubble burst, and that, of course, it would burst.