The Audit

08:08 PM - August 17, 2010

The Fed’s Bubble Brains

False equivalence on the housing crash prognosticators

By Ryan Chittum

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Ryan,
You wrote:
"But one chart belies all the academic mumbo-jumbo the Fed can muster. This from today's FT:

If you couldn't see a bubble there, you're probably not going to see one anywhere."

That is Shiller's chart, and it was in the NYT on 8/27/2006, here:
http://www.nytimes.com/imagepages/2006/08/26/weekinreview/27leon_graph2.html
and it was in Shiller's second edition Irrational Exuberance, page 13, in early 2005.
How does the system work? This is very fair: see 6/26/2008 Letter "Ongoing extremes" at
http://www.durangotelegraph.com/telegraph.php?inc=/08-06-26/soapbox.htm

#1 Posted by Ed, CJR on Wed 18 Aug 2010 at 04:16 PM

When the economists and the politicians use averages between what is on the two highly populated coasts in contrast to the Midwest which has mostly small towns with the average of 2-3 large cities per state and the coastal areas are much more populated, it becomes screwy mathematically but no one admits it. In a small town a house that may value at $300K or more on the coasts will price more like $85K in the small town. The states between the Appalachians and the Rockies have 2-3 large cities and there the house prices are much higher but no one in TV or journalism seems to take this into account. Therefore the average comes down but makes the coasts look like they are in bubbles that only some make and this may be true but when the average is the guide the distinction is not as great as it should be. My father's house in Midwest is two-story, attached garage with a good size front yard and large back yard--most city people would drool over the yards alone, and it's make of brick and stone not wood. He can't sell it for over $100K since the people living there could never meet the mortgage payments. Houses of brick with huge yards and 4-6 bedrooms are having difficulty selling since the cost is high and the upkeep is even higher. If any of them were on the coast they would be snatched up for $400K or better even now and more so in 2007. On the coasts there are more people per mile and the competition is greater so the prices go up until no one wants to buy--as now.

Keep catching and displaying all these "goofs" in all your above articles. Too many people are on vacation if not physically then mentally since the politicians are out of town. The Islamic center brouhaha is the most noticeable one that Fox and the Republicans in all media and venues are using since they have little else to talk about. Your reports will at least make them a point of record and something to correct after Labor Day if not before.

Thanks for staying on board against careless writing NY Times or Wall St etc....

#2 Posted by Patricia Wilson, CJR on Thu 19 Aug 2010 at 05:24 PM

Krugman wasn't the only one who issued these warnings. There were plenty of voices out there - but mostly away from Wall Street, which sometimes seems to be where the Fed gets its opinions. As early as January 2003, I wrote an article citing several California economists as warning that a huge real estate bubble was brewing, and they'd been warning that for at least half a year or more before I wrote about it. (I cover the economy, not real estate, so at first it seemed off my beat, until it became clearer how the economic ramifications could spread.) Even so, the skeptics were attacked as Cassandras by economists in the investment and real estate industries, and the Fed - among others - gave a voice of calm reassurance.

#3 Posted by Dean Calbreath, CJR on Thu 19 Aug 2010 at 07:38 PM