Big Ben’s Blinders
by digby
So I read this piece from Michael Hirsh about how Ben Bernanke doesn’t deserve to be scapegoated for all the problems in the world and wondered if maybe his reputation was being ritually sacrificed for the sins of all the financial elites.
And then I read this:
In January 2005, National City’s chief economist had delivered a prescient warning to the Fed’s board of governors: An increasingly overvalued housing market posed a threat to the broader economy, not to mention his own bank and others deeply involved in writing mortgages.
The message wasn’t well received. One board member expressed particular skepticism — Ben Bernanke.
“Where do you think it will be the worst?” Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.
“I would have to say California,” said the economist, Richard Dekaser.
“They have been saying that about California since I bought my first house in 1979,” Bernanke replied.
No shit. And that’s because it was true.
California went through a housing bubble in the 1980s that burst in 1990. I should know: I bought a house in 1989 and lost $40,000 on it before finally caving in and selling it four years later. In all, it took nearly a decade for housing to regain its pre-bubble value — at which point, a brand new bubble was heating up.
It was myopic enough to believe in 2005 that housing wasn’t overpriced on a nationwide basis. But to specifically dismiss concerns about California even though it had been in the trough of a housing crash a mere 10 years earlier? That’s just willful blindness.
I’m frankly shocked that he said it. If there’s one thing California is known for it’s boom and bust real estate. It’s been happening as long as I can remember.
Sure, it tends to work out if you can hold on for the long run (especially if you bought before Prop 13) but you know what they say — in the long run we’ll all be dead.
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