With the economy apparently already in recession, gas prices near record levels, food prices rising, and inflation generally gaining momentum, economic issues are moving to the center of the presidential campaign. Political reporters have been forced to learn the financial crisis on the fly, while business reporters have had to learn to speak to an ever-growing audience. In March, Dean Starkman,
who runs The Audit on CJR.org, spoke with Jeff Madrick, the editor of Challenge magazine, to discuss the roiling economy and how the press is covering it. Madrick is also a visiting professor of humanities at The Cooper Union, and director of policy research at the Schwartz Center for Economic Policy Analysis, The New School. He is a regular contributor to The New York Review of Books, and a former economics columnist for The New York Times. His forthcoming books are The Case for Big Government (Princeton) and The Age of Greed…And the Men Who Made It (Alfred A. Knopf).

What’s going on out there?

Well, we’re facing a credit crisis of very broad potential damage, the likes of which we haven’t faced since the early thirties. What has happened is, by giving mortgages to people who really didn’t qualify, we’ve created a problem that’s having a domino effect. It’s not like the Savings and Loan crisis of the eighties, which could be isolated to s&ls and the kinds of real-estate investments they made in their localities. This problem is worldwide. These bad mortgages were packaged with relatively good mortgages, and all kinds of financial institutions—virtually all the major financial institutions—bought these packages of securities. Pension funds bought these packages of securities. And the securities in turn were used as collateral for other borrowing. So we have all these credit crises linked together. There is so much uncertainty about the value of these securities, about how much further house prices could fall, about how many more defaults and foreclosures there could be.

On top of all that, borrowing is what has supported this economy for thirty-five years now, because incomes haven’t been rising the way they used to. So people have had to borrow more, businesses had to borrow more, government has borrowed more, and we don’t seem to fully recognize that debt has become a much more important foundation to the economy. In fact, it’s the fulcrum of the economy.

It seems like that’s one thing—entering a recession with those debt levels—that really makes this much more dicey.

We’ve got a real serious problem here. Wages have gone up only marginally. Despite having moderately strong economic growth, it didn’t show up in wages for typical people. It showed up at the very top, but that was about it. And in corporate profits.

What do we need to understand about the housing market?

The boom in subprime mortgages only really happened in the last few years, when people were allowed to borrow a lot of money, often based on adjustable mortgage rates that go up when other interest rates go up, and on top of that, they pay very high prices, so the value of their home is down. Even if they put up five percent or ten percent of the money on that house, all it would take is for the value of that home to drop ten percent—and in many places it has gone down twenty or thirty percent—and then they’d owe more money than the house is worth so they couldn’t refinance; they couldn’t sell it to get out of trouble; the bank wouldn’t really want it.

Foreclosures are up and banks are taking over, but they’re not taking over as rapidly as they would in good times. It’s harder to work it out now because the bank where you got your mortgage is no longer the bank that owns the mortgages, so there’s nobody to help you work it out. It’s a serious practical problem that’s never existed before.

It seems the political campaigns, and as a result, the political press, took a long time to reflect the seriousness of the economy.

Yeah, I think Clinton and Obama are talking about it more. But it’s not like any of them was out ahead. I think they haven’t been out ahead on anything regarding this economy, and I think the press should be pointing that out. But the press, too, has been behind on everything and not aware of the issues.

Were you surprised that John Edwards’s candidacy didn’t resonate more?

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.