Mark Trahant: Those who know don't really know

Monday, October 29, 2007  

"It's interesting to go back and read what we've been told by Those Who Know.

Two years ago, now Fed Chairman Ben Bernanke told Congress that there wasn't a housing bubble about to burst. Sure, prices went up, by nearly 25 percent in two years, but that was explained by "strong economic fundamentals."

Don't worry.

A year later he testified that the "economy appears to be in a period of transition." Instead of strong economic fundamentals, he said, "the anticipated moderation in economic growth now seems to be under way ... . That moderation appears most evident in the household sector."

Great. Why worry about moderation?

This year it's a different story.

The conversation shifted from a "is there a disease?" to the "post-mortem."

Bernanke testified last month: "During the past two years, serious delinquencies among subprime adjustable-rate mortgages have increased dramatically."

He now says there is greater risk. "Subprime mortgage losses that triggered uncertainty about structured products more generally have reverberated in broader financial markets, raising concern about the consequences for economic activity ... the turbulence originated in concerns about subprime mortgages, but the resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans."

I don't know about that. I've been collecting warnings -- some that exceed those so-called most pessimistic estimates -- since early 2005. Many economists were saying that U.S. consumers had too much debt and that some mortgages were unsustainable. The predicted result was a recession -- or worse, a full-blown depression.

Those dire forecasts have not come true. Yet.

Get the Story:
Mark Trahant: Those Who Know don't know much (The Seattle Post-Intelligencer 10/28)

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