Gee, when I read Samuelson's piece this morning, I thought is was a heartfelt mea culpa for his having been such a bloviating gasbag. Guess I was wrong.

The Shorter Samuelson:
I'm the smartest person I know and I didn't anticipate it therefore, no one could have anticipated...

I've been a little hard on you in the past, Hilzoy, but this was a good one.

Samuelson's ignorance may have something to do with the fact that he is not an economist - he basically performs much the same function as the Economist magazine: helping to frame the world's complex machinations through the soft, comforting lens of the Neo-Liberal paradigm. He's a paradigmatic foot-soldier.

I remember right after the '04 election, arguing with my then-boss, who was trying to assert that he wasn't conservative, even though every idea he expressed was right down the conservative line. Even then, I brought up the potential for inflated housing prices to cause trouble down the road (like you, I had no special insights other than reading the same experts you mentioned.) His reaction was basically - so what?

Hilzoy, like you IANAE (never took an economics course in my life) but like you I have been aware of the dangerous housing bubble for years. All you had to do was look at either the price to rent ratio, or the price to income ratio, to know that something was severely out of whack in the housing market.

In 2005, my jaw dropped when Greenspan advised homeowners to refinance their cheap fixed-rate loans into ARMS, at a time of historically low interest rates. I finally concluded that this was a deliberate attempt on the part of Uncle Alan to move people into higher-cost loans so that when interest rates did rise, the banks would not be stuck with millions of low, fixed-rate loans.

Of course, that meant that many people took out loans they could not afford, and the banks are instead seeing an avanlanche of "jingle mail."

A slight change in context of the "if only we'd known we would have moved heaven and earth" approach. Aw shucks, if only someone would have told me sooner I would a fixed it. Bush's question is always the "how'd we get here" as if he doesn't have access to the levers and power's that be. Asleep at the switch stopped being an acceptable excuse a couple of millenia ago but amazingly it can still work. Sadness and pathos are the spirit of the day in this repeat of greek tragedy adapted for W.

mickster

The fact that the housing market did not soften during the tech bubble was the big reason I was certain that these were really, really dumb deals.

And yet, people are still trying to sell places on credit for far multiples of income for these homes.

Banks are still abetting the blight and crunch of upside down homes by pretending if they don't sell them now, the rest of the homes will retain their value.

They won't.

The fact remains that a great many good economists didn't see this coming and even those who did saw through a glass darkly. Nouriel Roubini was probably closest to the mark, but even he was wrong on many important details.

On the other hand, "who could have expected tha al Quaeda would attack us with Airliners?"

In hindsight this is easier to explain: relaxed terms of credit was the driving force behind mortgage lending and consumer purchases. It was like Circuit City couldn't make any money on the actual sale, so they tried to scam their customers into a 12 month "same-as-cash" deal. If the customer failed to pay up before 12 months, they had to pay interest for the previous 12 months. ARMs were similar. Initial payments were probably lower than an honest rental contract, with "ownership" thrown in for free.

I'm not sure I saw this coming, I hate the idea of borrowing, and could never get my mind around why it was a good thing for real estate and stocks to "appreciate" in "value" every year. I'm not happy when food prices go up, why is price inflation good anywhere?

I definitely saw this coming. I sold my house in 2004 and have been sitting on the sidelines ever since.

Ha ha ha, looks like I'll be sitting for a long time.

Here in Orange County Cali, the houses here are still at 2004 price levels. The foreclosures the banks are holding are just a little bit higher in price. Due to the economy sinking every passing day, there's no way I'd jump in now.

BTW, Citibank just pumped either 100 or 400 million dollars into its Korean branch

AIG is selling off the company piece by piece.

Both of these companies got taxpayer dollars.

Compared to the other small, silly men who make up the Washington Post's Op-Ed pages, Samuelson is a small, silly man.

Here's a little query for all the Samuelsons of the world who, in their lust for eternal profit, have brought us to this juncture:

(1) Right now, there are millions of mortgages out there that cannot be refinanced into safer fixed-rate notes---because no one knows who holds the the current ARM note.

(2) The institution or entity that holds the note, if I am not mistaken, is the same institution or entity that has possession of the deed to the property that serves as collateral to that note.

(3) If, by not knowing who holds the note one is unable to find who holds the real deed to the property, then how might these millions of homeowners obtain the real deed, thus a clear title, to their homes when they've paid the mortgage off?

You think we've gone over a cliff today? Imagine a cruise ship that's hit an iceberg in the middle of a shark-infested ocean---with tens of millions of people on board---and there's not a lifeboat or lifejacket to be had---because this insanity of "repackaging debt, over and over" is going to go far, far beyond the sub-prime mess when people finally---FINALLY---begin to discover that everything has been "repackaged...."

"...I take the point of his op-ed to be that he is not competent in his alleged area of expertise, and moreover lacks one of the basic skills that a PhD in a discipline almost always provides: the ability to spot good arguments in that discipline made by other people, and to decide who is worth listening to and who is not. In his shoes, I would ask myself what, in the absence of competence or the ability to learn from the writings of others, could possibly justify my continuing to take up valuable space in the Post..."

I'd say you answered that question pretty well.

When I was very young (at least it seems that way now), in 1972-73 I worked at the Chrysler plant in MO. and like half the people that worked there with me took a good look at all the cars we were producing and came to the conclusion that one day, at this rate, we were bound to have a gasoline shortage. Maybe that was foresight. Hindsight today is looking at what a mess the greedy wall street profiteers and the government's lack or regulation and oversight bred this economic disaster. Only a small percentage of middle class people did any of the things Samuelson states and "we" know exactly who to blame and why. It begins with those grabbing an $18million compensation CEO package while coming to congress the next day asking for $375mil in bail out money. It's the party that felt it was their mission to protect the holdings and the business of the wealthy and the multinational corporations rather than protect the interest of the majority of the working middle class. Samuelson has a PhD?? /Certainly not in the area of Reaganomics or a Global marketplace for slaves and kings with advanced degrees in NoBiD.

Samuelson should practice as a commenter on the articles of others rather than put pen to paper and prove his shallowness. It's a pretty angry critical time to be reading such trivia if you just lost $90,000 in company stock because of the ignorance of overpaid CEOs. The "we" name is Mad A. Hell.

Shorter Samuelson: Nobody could have predicted...

He was using the royal "we." HE never could have predicted. And, he didn't.

NONE of this sounds right.

"(1) Right now, there are millions of mortgages out there that cannot be refinanced into safer fixed-rate notes---because no one knows who holds the the current ARM note.

(2) The institution or entity that holds the note, if I am not mistaken, is the same institution or entity that has possession of the deed to the property that serves as collateral to that note."

Well I think you are mistaken. A mortgage is not like a car loan where the lender has title. I have two mortgages but my deed is right here in my file cabinet. There is absolutely NOTHING that would prevent you from paying off your mortgage in full. At worst you would face a pre-payment penalty. But this notion that the note holder can prevent you from re-financing doesn't even make sense to me. If you win the lottery or Aunt Madge dies and leaves you some money you can write a check and BOOM your mortgage is done. Now it is true that your mortgage may have been repackaged and diced and sliced but exactly none of that gives anyone veto power on your ability to sell your house. Which is to say to refinance it. Because structurally there is no difference between a new buyer taking out a loan to finance your former house and you taking out a new loan to refinance your current house, in each case the old loan gets retired and a new loan issued and this happens probably tens of thousands of times a day.

Now reworking an EXISTING loan may be complicated by the various entities having an interest in it. But retiring the loan means just writing a check in an amount that meets the terms of the contract. This widespread notion that some third, fourth or tenth party has a whiphand over my contractual obligation just baffles me. I get the fact that I can take out a mortgage with Eagle Financial and a couple of months later get a mortgage statement from Chase (which happened). Not least because I am in the industry. But nothing allows Chase to unilaterally change the terms of the contract I signed.

If the Federal government or any other entity want to start reworking loans all they have to do is start writing checks for the balance plus any contractual penalties. The notion that some fund somewhere holding an interest in some lower rated tranche of a pool of loans can hold up redemption of the note has no basis in law or logic that I can think of. Because for all practical purposes your only formal relation is between you and the servicer of your mortgage. Write a check and your worries are over. Maybe the unwinding of all the various derivatives based on someone having an interest in the future assumed income stream on your loan is a headache for someone. But it is not a problem for you or for that matter your new lender.

I get that current note holders may not be happy at no longer getting that 12% interest stream. But I don't see how that actually puts any handcuffs on me.

As garnash pointed out near the top, Samuelson isn't an economist. He doesn't even have a bachelor's degree in econ. All he's got in the way of econ background is the last name of a famous economist.

The real question isn't "why is Robert J. Samuelson so stupid?" but "why does the WaPo continue to give worthless idiots like Samuelson prime op-ed real estate for their bloviations?"

The conclusion I draw is that it's more important to the WaPo to frame people's thinking in a certain way than to provide a forum for intelligent debate (bacause it would be a cinch to find a score of much clearer-thinking bloggers to take over that space) or to sell newspapers (because most of their current pundits are boring as sin, and some younger, sharper, clearer voices might help attract and keep readers under 50) or to cut costs (because they could pay a score of the best bloggers way less than they pay Broder, Will and the gang).

So when the WaPo makes cuts in other areas because times are tough in the newspaper business, their op-ed page says they don't mean it.

Right now there are bunches of investors out there that are relying on the pool of remaining performing mortgages at 8-12% or whatever to staunch the bleeding from those mortgages that are not performing at all. Just as there are plenty of credit card companies that are perfectly happy with you paying your minimum payment while they charge 23% on your balance. That is why people exiting bankruptcy start getting pre-approved credit card applications right away, it is a nice stream of cash for the lender from the borrower. (I appreciated the fact that 15 years ago a certain credit card company extended me credit after my bankruptcy, but I wasn't surprised that they started screwing me after I ended up paying my balance in full every month. Not to mention names but the answer to the question "What's in your wallet?" no longer includes them.)

Which to get back OT means that lots of these people blowing smoke about loans not being even able to be reworked are simply worried about being kicked off the high interest rate gravy train. Your Neg-Am nightmare is someone else's dream.

Now, now, don't be too hard on Samuelson. He's not stupid, he's just slow. Give him one Samuelson and he'll have it all figured out.

(For those who don't get the reference, Google "Samuelson Unit".)

I've been reading Samuelson since I was in high school, which was before Botts worked in the Chrysler factory. He was the first Economics writer I ever read. I was struck at the time as to how he seemed to inhabit a different world from anyone I knew or had ever known, where the actions of smaller people (like me) create a pattern on a board called the world that may be analyzed and exploited for the benefit of those who see the whole picture (like, presumably, him). Better jobs and higher wages, though they may temporarily benefit the little ones, must inevitably work against the interests of Samuelson and those who truly understand him, therefore must always be opposed, for the greater good, of course.

Put simply: Samuelson has never, ever, been right. Once. He serves the interests of a capitalist elite. The painful lesson he learned this year is that the interests of that elite and the little people he studied like ants are indeed bound up together. If he'd forsaken his self-constructed microscope and moved out of his tiny circle of acquaintances and admirers, he might have realized sooner what I, like Hilzoy, not an economist but just a schlump who lives in the world, knew all along.

In something that passes for a defense of Samuelson, however, I had a long conversation in the Summer of '07 with our liberal state Senator, who also happens to be a university economist. At the end he shrugged his shoulders and said "Oh well, at least the economy is strong, and everybody is working who wants to work." He was surprised when I told him a recession was around the corner, that an economy that hadn't grown for years with the exceptions of housing and finance, a bubble in housing prices, underemployment and stagnant wages, and a government that ignored all this while giving tax cuts to the culpable and wasting what was left over on Gramm and Stevens-like pork projects were about to combine to bite us in the butt. Like Samuelson this is, or thinks he is, one of the smartest guys in the state. "All the indicators" suggested we were doing fine. Only reality departed from the economic model.

It would have been nice to hear some naysaying about the decoupling of teh world economy from ours.

I might have put some of my money into bonds instead of foreign stocks that I thought would weather the coming domestic crisis.

Instead, I'm just about as bad off as I would have been with only domestic stocks. Thankfully, I'm at least 19 years from retirement and I'm not terribly concerned about the depression lasting that long.

The economy is truly global and foreign equities are NOT a diversification vehicle.

This is classic Samuelson. Don't look at Alan Greenspan or Phil Gramm or the whole crowd of free market religionists in the Bush AND to a slightly lesser extent Clinton administrations, don't ask how we've had growth in our economy for the past 25 years (until recently) and so little of it wound up in our paychecks. No, when things go wrong, we're all to blame, when they go right well then Jack Welch and Bob Rubin and John Fuld and all their wealthy pals, well they're all geniuses who deserve their astronomical wealth. Samuelson is a master of privatizing reward and socializing blame.

Obviously Samuelson is using the royal "we" in his article. He missed it all because he has had bigger fish to fry for so long. Samuelson is the Paul Revere of his generation riding and spreading the alarm that Social Security will destroy our children's future. No need to look for other dangers. While Krugman, Tanta and others were warning about the housing market in late 2006, early 2007, what was Samuelson's big worry? In January of 2007 he wrote this:

As someone born in late 1945, I say this to the 76 million or so subsequent baby boomers and particularly to Bill Clinton and George W. Bush, our generation's leading politicians: Shame on us. We are trying to rob our children and grandchildren, putting the country's future at risk in the process. On one of the great issues of our time, the social and economic costs of our retirement, we have adopted a policy of selfish silence.

And he would be the first to admit that he has been sounding this alarm for quite some time, in 2005:

We are a nation of closet welfare junkies, which helps explain why we can't have an honest debate about Social Security. Social Security and Medicare are our biggest welfare programs, but because Americans regard "welfare" as shameful, we've found other labels for them. We call them "social insurance" or "entitlements." Anything but welfare. Democrats and Republicans alike embrace the deception. No one wants to upset older voters. Well, if you can't call something by its real name, you can't discuss it honestly.

And in 2004:

Tommy Thompson announced his resignation the other day as secretary of health and human services and, in the process, gave us a quick tutorial on why we can't control exploding federal spending for retirement benefits -- the nation's No. 1 budget problem. We have a generation of politicians, of both parties and of whom Thompson is symbolic, who want to say "yes" to voters: Yes, you can have what you want, and you can have it now. The solution to this problem requires leaders to say "no" to voters: No, you cannot have all the retirement benefits you've been promised or desire, because we can't afford them. Americans reject that message, and our leaders don't dare deliver it.

Truth is, Samuelson was the single greatest cheerleader for the attempted Great Bamboozlement of 2005, when Bush tried to use his "Mandate" from the election of 2004 to privatize social security, a serious issue that, to the best of my knowledge, Bush the candidate never mentioned, even once, in 2004.

Samuelson has been fixated on this issue for as long as I can remember. He was so busy, in 2007, worrying about 2030, that he completely missed what was happening under his nose. The sad part is, he thinks the rest of us were also so occupied.

Well said, Hilzoy!

I think this is one of the most important points- although it is slightly off topic: "Whether or not Samuelson realizes it, I take the point of his op-ed to be that he is not competent in his alleged area of expertise, and moreover lacks one of the basic skills that a PhD in a discipline almost always provides: the ability to spot good arguments in that discipline made by other people, and to decide who is worth listening to and who is not."

Any educated person should be able to do the same. If you really research a topic a little, you can generally sort out who is worth listening to.

I remember reading The Housing Bubble blog and using that as a launching pad for my efforts. I saw this mortgage problem coming. After reading up a little, I was talking with a securities analyst from the federal government and she was saying how all the mortgages were safe because they were securitized. I said I had a different view and that I saw serious problems coming. She just said, "No, no, no." She wouldn't even consider anything other than her view. Of course, she was seriously wrong. I realized than that she was not all that smart.

I think the "nobody could have seen this coming" rewrite is another offshoot of the Bush Legacy Lipstick-on-a-Pig polishing scheme, another way to deny responsibility on the part of supposed grown-ups who should have known (and probably did know) better but gave into their greedier and meaner impulses.

"Robert Samuelson has an infuriating op-ed ..."
Just have a button that generates that phrase, it has to be said so very often.

Economics is much like global warming: you start with a political or selfish viewpoint and seek out the most intelligent practitioners and oracles (the ones who agrees with you). Then after the fact you cherry pick data that agrees with your analysis.

I gave up on Samuelson years ago. Like David Broder, he is a master of spreading disinformation.

Whether or not Samuelson realizes it, I take the point of his op-ed to be that he is not competent in his alleged area of expertise, and moreover lacks one of the basic skills that a PhD in a discipline almost always provides: the ability to spot good arguments in that discipline made by other people, and to decide who is worth listening to and who is not.

I take Samuelson's presence on the WaPo's op-ed pages as indicative of those facts.

There's a lot of conservative economic revisionism going on to try and rationalize the utter failure of the free market to sustain itself.

At least there is a thread of credibility when conservatives blame the multiple failures in Iraq on "bad management" or "poor planning." But conservative free market ideology doesn't recognize poor management as a cause for economic collapse even though regulatory failure is indeed one of the main reasons for Wall Street's implosion.

The irony is rich. Look for continued, tortured rationalizations from the likes of Samuelson. It may cause your teeth to grind but it's very predictable.

Samuelson is a royal boob. Back when the recession was gaining speed, he wrote a column saying, "hey, unemployment isn't that bad." Many readers posted notes in response to his column noting that the official unemployment rate wildly underestimates reality.

Needless to say, he ignored the readers and wrote yet another column two weeks later saying, "but the unemployment rate isn't that bad."

An annual journalism award should be given for Worst Use of Passive Voice. Great amusement would ensue, it would be believed.

Bruce, I don't know what state you are currently living in, but the fact that you have a deed doesn't necessarily mean you have clear title to your land and house. That depends on leins against the property (the mortgage) and the trail of ownership of those leins. (And state specific laws...)

My wife and I went through this particular circus back in late 80s. We'd bought a house in '84, refinanced a couple of times as interest rates tanked, then sat back for a couple of years 'cause we had locked in a good (fixed rate) mortgage.

During that time the mortgage got traded around 5-6 times (which may correspond to the first CDO instruments coming to life). When we finally decided rates had dropped enough to make another refinance worth while (cost of the re-fi is made back in under a year is my rule of thumb). We found that in the heat of that particular "pre-bubble" a couple of the mortgage transfers had not been adequately documented and at least one of the mortgage servicing firms had gone out of business so there was no easy way to get the documentation fixed.

In those days, nobody would lend to you without a clear title and solid documentation of any leins against your property. It cost a couple of grand to have a specialist company do the research to get the whole thing cleared up - delayed closing several weeks. We lucked out though - the title insurance paid most of the costs and the mortgage rate actually dropped a bit in the intervening time.

Since the currently deflating bubble was considerably bigger and wilder than that 80s bubble and the stories coming out now show that the big mortgagers were just spraying loans out without any research, I'd be really surprised if there wasn't a LOT of bad or missing lein documentation. In fact, I seem to recall reading something a few weeks ago about a bunch of foreclosures being held up (in Ohio?) because there wasn't good evidence of who actually held the lein(s) on the property.

And Michael Hudson. His article "The New Road to Serfdom: an illustrated guide to the coming real estate collapse" appeared in Harper's in May 2006.

These sound like the same tired explanations we've heard from the neocons about the Iraq fiasco. After all, every smart person on Planet Earth thought invading Iraq would be easy, economical, quick and effective. How could we possibly have anticipated what would actually happen? Who knew?

Mandy: These sound like the same tired explanations we've heard from the neocons about the Iraq fiasco.

Exactly. I had a guy at work go from "you hate America because you're claiming all these bad things will happen" to "who could have forseen all of the bad things you predicted?" in about twelve months' time.

Some people are so overdue on about a crate-load of bitch slaps, it's not even funny.

Samuelson:

The great lesson of the past year is how little we understand and can control the economy.

At http://www.washingtonpost.com/wp-srv/business/risk/index.html?sid=ST2008122902683&s_pos=list Washington Post staff writers Anthony Faiola, Ellen Nakashima and Jill Drew spell out just the opposite of what Samuelson alleges.

It wasn't our misunderstanding of "the economy" that caused this crash.

It wasn't that we couldn't "control the economy" that caused this crash.

This was intentional de-control of the economy - even to the point of body-slamming regulators who made every effort to bring craziness under control. And who were the body slammers? Alan Greenspan, Treasury Secretary Robert E. Rubin and Securities and Exchange Commission Chairman Arthur Levitt Jr. They were basically in bed with the people they were supposed to be 'controlling', and in the process all they did was enable a bubble - NO, SEVERAL bubbles - to expand uncontrollably. They did so under the insane idea that people and companies making billions of dollars in pushing the envelope would reign themselves in and do prudent things instead of the things that made them rich beyond their wildest dreams.

Greenspan did not 'misunderstand' the economy, nor did Rubin and Levitt. They just misunderstood GREED. Either that or they didn't give a good god damn. At this point it doesn't matter which. But what does matter is when people spout off that the economy is just too complicated for little old Alan Greenspan to comprehend.

The man known as 'The Maestro' for his omniscience, not understanding the economy? Give me a freaking break!

If Brooksly Born knew enough to go toe-to-toe with those three ELEVEN YEARS AGO, then the economy IS understandable.

And if the bubble and the abuses that have come out since early October are all true, then this collapse is not so different from the buying on margin that icured in the late 1920s.

With the repeal in the 1980s and 1990s of the guts of the Glass-Steagall act, Congress removed the mechanisms by which the foxes known as traders and brokers and bankers were kept out of the hen house. Caveat emptor - let the buyer beware - was never so true. The foxes gamed the system, and now millions and millions will be out of jobs, many on the street, and there is no indications so far that any of the perps who did that gaming will ever be keelhauled.

Madoff has shown that even the most shrewwd among us, who do believe they know how the economy works, can be taken in when the system is not a system of laws and regulations, but is a system of men - men who will stab their grandmother in the back for a few million dollars.

With men like Madoff around, who can be safe? No one - unless we CONTROL through regulations that are allowed to be applied, to the full extent of the law.

But it is not control that is the problem, not when the paradigm is a 100% unfettering of the marketplace. Controls - if applied - would have prevented this catastrophe. It was NOT a case of, "Duh, we don't know what the f___ to do." They've known since Glass-Steagall...