Hackery Ombudsman: Paul Krugman

There are many different kinds of hacks.

But before we get into that - lets address my whereabouts recently. Some of you became a bit concerned with my absence, wondering where the column was, wondering what I was doing.

To all of that I say shhh shhh shhhh. Everythings ok. Lets see if you can guess what I was doing. Was TWO

A) Pausing before his next column, like a basketball player sinking a three pointer holding his arm aloft as he runs down court, simply to impress upon the readers how incredibly correct he was about Lebron and the Cavs

or

B) Lounging at his estate in Santorini (pictured above), sipping marula fruit cream liqueur and disburdening himself of musings on Bismark's Germany

Trick question. BOTH! Because TWO is both always right and has a Pan-European accent.

A brief moment on Lebron... in addition to the posturing and grimacing and limping around (which was on display almost constantly)... did you notice the Lebron-Headwhip? Here is a man who is 6-8, 275 pounds, who knocks people around like bowling pins when he flies through the lane. However, should he be caught in the face or upper chest with a flailing hand or an errant basketball, he whips his head backwards, rotates his arms in huge concentric circles and usually rolls around on the ground for a while. Did Shaquille O'Neal do this during the hack-a-shaq days where he was hacked acrossed the shoulders, face and arms 20 times a game? No.

Look, Lebron will be the best player in the NBA if he isn't already. He is young and has time to mature. In his defense, he has been told he is the greatest from the time he was 12 -- that sort of things leads to arrogance which may, in time, be tempered. TWO can admit that he would be just as bad if he had attained success at such a young age. As it is, I am older than Lebron and whenever my column has over 1000 hits in a day I spray champagne out of the window onto unsuspecting pedestrians below. They hate that. But thats how I celebrate. Anyway, I continue to find it disheartening that the basketball commentators are typically too hacky to call out Lebron on his antics.

Moving on to a different kind of hack, can we have a moment on Paul Krugman? Krugman might be the hackiest journalist to ever attain acclaim in American history. Krugman's most recent opus was this article, blaming Ronald Reagan (who is dead) for the 2008-2009 financial crisis. Am I oversimplifying? Is TWO using hyperbole? The title of the article is "Reagan Did It." Like its the last utterance of a victim at a murder scene.

How did Reagan commit this crime 5 years after his death? Well, with the passing of the Garn-St. Germain Depository Institutions Act of course! This bill, passed 26 years before the 2008-2009 financial crisis, deregulated the savings and loan industry. One of the consequences was that it allowed lenders to lend more freely to potential home purchasers. Krugman's thesis is that this Act was the main cause of our current economic downturn.

Before we just accept this argument and move on with our lives, TWO would like to examine facts. TWO loves facts. The Garn - St. Germain Act was a bi-partisan bill sponsored by Congressman Ferdinand St. Germain (D-RI) (who sounds like the sort of person who I would invite to my property in Santorini, but I digress) and Senator Jake Garn (R-Utah) (who sounds like the sort of person who would be re-caulking bathroom tiles at my property in Santorini, but I digress again). It passed the House and, with some amendments, the Senate overwhelmingly. Co-sponsors included current Democratic Senator Chuck Schumer and current Democratic Congressman Steny Hoyer. The Act allowed savings and loans to increase commercial lending to up to 10% of its assets, national banks to lend 15% of assets (up from 10%) and similar other slight increases. There's a savings and loan debacle a few years later, but essentially 10 years go by without any sort of substantial change in American home ownership and 25 years go by without any sort of housing related financial crisis.

Fast forward to 1993. Home ownership is at 63%. At the urging of the Clinton administration, bank regulators reform the Community Reinvestment Act requiring banks to show they were lending to a set number of lower-income buyers. By 2000, home ownership has suddenly jumped to 68%. Meanwhile, GSEs like Fannie Mae are being pressured to provide more and more mortgages to high-credit-risk purchasers. How outrageous were the rates? In 1997 Fannie Mae was offering 97% loan to value mortgages. The Bush administration was no better. Attempting to rebound from the dot com bubble, Alan Greenspan advocated refinancing and borrowing against speculative home values and Bush tirelessly pushed for more home ownership for more low-income buyers. By 2001, Fannie Mae was actually offering 100% loan to value mortgages -- in other words, allowing people to buy homes without putting any money down! As pressure mounted to lend, the number of dangerous loans increased. During a three year period between 2003-2006, sub-prime and Alt-A loans jumped from making up about 1/10 of all mortgages to making up nearly 1/3. By 2008, US consumers were spending almost $1.1 trillion more than they were earning in spendable income.* When the values of homes fell, homeowners who had refinanced often had almost no equity value in their homes and often just didn't pay. Others couldn't afford their mortgages after the downturn. Financial institutions, many of whom held massive amounts of mortgage-backed-securities (Bear Stearns collapsed under a 35:1 leverage ratio) found that the underlying assets were greatly, greatly overvalued and illiquid. All the while, government officials (the Fed, the Clinton and Bush administrations and members of Congress) were asleep at the wheel, as we've discussed before.

To summarize, although there has been a general trend towards open markets and free lending over the past 30 years, the events proximately causing this financial crisis undeniably took place throughout the past 10 to 15 years. No serious thinker would call President Reagan, of all people, "the prime villain" of this financial crisis.

And that is really the point. Paul Krugman is capable of being a serious thinker, but he chooses not to be. He instead chooses to be a hack. A economics professor, skilled writer and (somehow) Nobel Prize winner, he has relegated himself to the journalistic equivalent of a drunk heckler at a basketball game, yelling inflammatory things to anyone who will listen. As people tune him out or change seats, he has to yell louder and more obscenely to get noticed. By the end of his career Krugman will be writing articles like "George Bush - Sarah Palin Love Child Is Wolf Boy" for the National Enquirer.

Politically, there are two types of people: People who treat their political party like its their favorite college football team and people who just want the government to get things right. The former will trace back the roots of any problem to a misstep by their rival and make any argument, no matter how convoluted, to show that their "team" is blameless. The latter would prefer that elected officials who get things right be given proper credit, and those who get things wrong be held accountable, no matter the letter after their name.

In conclusion, don't be a hack.


*We don't really cite sources in any organized way here at TWO, but, for those interested, I relied heavily on financial figures from this article by Peter J. Wallison and this speech by Robert Rodriguez