official responses to twin crises

[Jim Devine <jdevine03@xxxxxxxxx>]

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The Twin Debacles
How the housing collapse is like the Iraq war.

By Daniel Gross

Posted Friday, June 15, 2007, at 5:48 PM ET

What do Iraq and the U.S. housing market have in common? At first
blush, not much. Iraq, which has taken the lives of thousands and
ruined America's reputation abroad, is far more disastrous than the
housing collapse, which has been merely financially devastating.

Nonetheless, the twin debacles, which are defining the foreign policy
and domestic economy of the second Bush term, have significant
similarities, especially in the way that their public- and
private-sector architects and promoters have behaved. Iraq and the
housing market offer a case study in how two phenomena can go from
being extremely popular to deeply unpopular in a matter of months. And
with Iraq having turned into a disaster about two years before housing
did, the way Iraq is playing out in the culture may predict what will
happen in housing.

Even since the war went bad, the intellectual promoters of America's
Iraq adventure, from Donald Rumsfeld on down, have been asserting that
the faltering situation is stabilizing, and will improve soon—perhaps
in six months or so. Six months later, progress having failed to
materialize, they unironically repeat the same projection. The
blogosphere has dubbed these six-month blocks "Friedman units," after
New York Times columnist Thomas Friedman. In housing, I give you
"Lereah units," after former National Association of Realtors chief
economist David Lereah, who would pronounce the end of housing's brief
slump—and then make the same incorrect pronouncement a few months
later. (See this great illustrated chart at Barry Ritholtz's blog.) So
over the top was Lereah's enthusiasm in the face of data, he was
dubbed the Baghdad Bob of real estate. In both Iraq and housing,
official forecasts have become only slightly more realistic after a
change at the top. Check out the most recent forecast by Lereah's
replacement and the mixed picture of Iraq depicted by Rumsfeld
replacement Robert Gates*.

In both Iraq and housing, folks who got us into the mess have
repeatedly reassured the public that the debacle is contained, and
that it is not contributing to instability and insecurity in adjacent
areas. Both Federal Reserve Chairman Ben Bernanke and Treasury
Secretary Henry Paulson have promised that (a) the problems in housing
are confined to the subprime market, with little contagion; and (b)
the decline in housing activity isn't affecting the economy at large.
In both housing and Iraq, the facts on the ground tell us otherwise.
The entire Middle East, from Iran in the east to Gaza in the west, is
an insecure tinderbox. And housing subtracted a full percentage point
from economic growth in the first quarter, while companies in sectors
adjacent to housing—from Home Depot to Bear Stearns—have been
bloodied.

In both realms, the discredited architects/forecasters are neither
chastened nor appropriately diminished in the public eye. Television
shows continue to book as talking heads war-promoters such as Richard
Perle, Ken Adelman, and Bill Kristol, whose vision on Iraq was
unfailing wrong. The financial media is a bit less forgiving of people
whose foolhardy guidance leads investors astray. Even so, the
pronouncements of housing bull-market oracles like Toll Brothers CEO
Robert Toll, whose company has had to repeatedly cut optimistic
projections, and former Federal Reserve Chairman Alan Greenspan, who
declared that housing had bottomed last October, are still dutifully
recorded and reported.

In the face of mounting public criticism, the architects of the two
debacles maintained a united front. But the facades have begun to
crack. With Iraq, former officials have settled scores by giving
interviews to journalists such as Bob Woodward and, in former CIA
director George Tenet's case, penning a self-justifying memoir that
lay the blame squarely at the feet of others. That process is just
beginning with housing. Last week, former Federal Reserve Gov. Ed
Gramlich told the Wall Street Journal that he pushed former Fed
Chairman Alan Greenspan to have the Fed crack down on subprime lenders
but that the Maestro refused to lift his baton. Gramlich's book, to be
published later this month, is the first in what is likely to be a
series of behind-the-scenes accounts of the subprime mess.

A final similarity: In each case, the wealthy and powerful architects
of the disasters have suffered blows to their reputations. But in both
Iraq and housing, the physical and financial tolls are falling
disproportionately on the disadvantaged portion of the population. It
is they who enlist in the army and they who take subprime loans, and
they are paying the price in Iraq and at home.

Got other similarities? Send them to moneybox@xxxxxxxxxx

Article URL: http://www.slate.com/id/2168417/

Copyright 2007 Washingtonpost.Newsweek Interactive Co. LLC

--
Jim Devine /  "if there's an original thought out there, I could use
it right now." -- Bob Dylan & Sam Shepherd.