So there there was a real desire to buy into this concept that home-ownership was good for everyone, that you don’t need a down payment because it will be okay because housing prices will go up. So there was a lack of questioning of conventional wisdom that was very problematic this time around. And that’s sort of the big picture [problem]. In terms of smaller-bore problems, I would say this particular crisis, because it involved very complicated securities, structured finance products, collateralized debt obligations, residential mortgage-backed securities—these are things that are not necessarily as transparent as, say a share of common stock in a public company. It’s hard to really research what’s in a mortgage pool. In fact the very investors who own these things don’t know exactly what’s in the pool. So for a reporter covering these things, it’s very hard to know how many of these loans were no-documentation, NINJA loans, no-job, liar loans, those kinds of things…It was a failure to question the conventional wisdom as sort of the big picture but then a smaller, closer to the ground viewpoint it was very hard to cover some of the securities that were really at the heart of this problem.
Jeffrey Madrick is a regular contributor to The New York Review of Books and a former economics columnist for The New York Times. He is editor of Challenge Magazine, visiting professor of humanities at The Cooper Union, and senior fellow at the Schwartz Center for Economic Policy Analysis, The New School:
It’s probably endemic to popular journalism to always be a little bit behind the story because in many respects popular journalism pretty much defines conventional wisdom. It’s pretty hard on a regular basis to defy the conventional wisdom for a publication as a whole. I think I’ve spent much of my career trying to defy the conventional wisdom, and it’s not always a very profitable business. So how to get off of that?
To me the best illustration of that was the New Economy, quote-unquote, the New Economy, of the late 1990s. I’ve been in and around journalism and now looking from the outside journalism more these days, and I’ve never seen popular acceptance of an unambiguous and probably incorrect idea as I have in the espousal, promotion, and advocacy of this thing called the New Economy. What did the New Economy do in the late 1990s? What was the advantage of it? Well of course it justified crazy stock-market speculation. What happened by and large, was that while there were stories about unusually high stock prices, there was an underlying current that this time it was different. There are a variety of people throughout history who said beware of those words: “This time it is different.” It gets repeated in bubble after bubble and eventually journalists and particularly the editors—and if I’m going to blame journalism, I do want to pin it more, in fact, on the editors than the reporters. But I think the editors want to go with the flow and they went with the flow in the late 1990s.
What was the flow in the 2000s? We can go through the history of this over and over. Since the 1970s, there was an acceptance of this market ideology we were all talking about that also permeated the journalistic community. There were exceptions. But, [it was] the acceptance of this idea that the market is generally right. And I think in retrospect there was a remarkable lack of questioning of the under-tenets of the economic boom of the 2000s and, also, in light of this ideology, the economic boom of the 1990s. Almost nobody in retrospect was talking about the cause of economic boom of the late 1990s as debt-inspired consumption. And again in the 2000s, despite the extraordinarily high levels of borrowing, nobody was talking about debt-inspired consumption. I’m fairly certain it was an ideological issue in the end: that the debt made sense; it was merely a reflection of high house prices, and high house prices I do not find were questioned all that much mainly because we trusted the market, and journalism glommed onto it.