July 4, 2015
Paul Krugman on the ‘Conscience of a Liberal’
Posted on Nov 16, 2007
By James Harris
The New York Times columnist brings his liberal conscience and economic expertise to bear on the housing crisis and sheds light on the dirty secret behind many political victories by conservatives: “The consistent source of [Republican] success has been race.”
Click here to listen to this interview.
James Harris: This is Truthdig. James Harris here in-studio with renowned New York Times columnist and author of the new book “The Conscience of a Liberal,” Paul Krugman joins us today. Paul, how are you doing today?
Paul Krugman: I’m OK.
Harris: All right. Well, you’ve been doing a lot of writing lately about the subprime mortgage crisis. Everybody has. It’s the talk of the town. Here we had millions of people buying houses that they simply could not afford and we had a Fed chair that sat idly by while this was going on. We had a corporate America that was happy to let it happen because their profits were through the roof. Tell me, though: Where did Alan Greenspan miss on this? Did he have not some responsibility in preventing this type of crisis?
Square, Site wide
Krugman: Oh, sure, he did. Members of his own board—Ned Gramlich, who died recently—were saying, “We’ve got a problem here.” This was a new kind of lending. It goes outside the normal banking channels, doesn’t have any of the safeguards. I’m saying it shouldn’t happen, but false advertising, misleading borrowers, and then misleading investors who bought the loans off the lending banks—. He basically said the market would take care of itself, and it didn’t.
Harris: The problem I have is that we talk about no oversight with regard to spending on military defense.
Harris: No oversight with regard to FEMA spending. Where’s the oversight here? And why does Greenspan not have to pay for this major failure in communication?
Krugman: Yeah. No oversight because, you’ve got to remember that Alan Greenspan is a devotee of Ayn Rand. He thinks the less the government does, the better. I don’t know how you make him pay except he should be at least verbally held accountable. He screwed up. He left us with a big mess that’s going to lead to probably millions of people losing their homes and might cause a recession.
Harris: At this point is there anything the new Fed chair, [Ben] Bernanke, can do? Do you think he’s making the right steps now?
Krugman: So far he’s been doing most of the right thing. You’ve got to try to prevent a panic on the markets. He’s pushing money into the banks, although that’s not quite where the problem is. But, still, it helps a bit. But I think they should be getting together to do a real—. I think the Fed—it doesn’t have direct authority but it could help to orchestrate a workout for a lot of the borrowers. So I think the Fed is moving too slowly.
Harris: As an economist, and a respected economist at that, do you think it’s fair that people who responded to these social pressures—they needed a house ...
Harris: ... whether it was half a million dollars, whether it was a million dollars. Do they deserve to be bailed out?
Krugman: Yeah, they do, because, look, a lot of what happened was that there was deceptive advertising. We don’t know quite how bad it was, but, as people pointed have out, there are simple mortgages and that it’s easy to understand. Then there’s these complicated things: 2/28s, two-year concessional rates, blah, blah, blah. And the 2/28s and all of that was marketed to the people least in a position to assess. Hard-working, lower-income people. A lot of minority-group home buyers. The people who were most vulnerable were not given any of the oversight. They are, in a large sense, victims. It’s also in everybody’s interest. Foreclosing on a house wastes a lot of money, aside from screwing up people’s lives. If you can find a way for the person to stay in the house and not have to go through all of that, it’s much better, but it takes some coordination. So, no, this is something we really ought to be doing.
Harris: I think the thing that you’re alluding to is that now we’re starting to see that perhaps some of these lenders were complicit in providing shady loans. Angelo Mozilo over at Countrywide is now having to answer some questions about $57 million that he pocketed last year, Countrywide being one of the largest lenders, and in this case, one of the largest subprime lenders across the country.
Krugman: There’s some indication that Countrywide actually had a systematic policy of guiding less sophisticated borrowers into higher-cost mortgages. He deserves to be put under the hot spotlight.
Harris: A little bit of hot water. Moving to this question. I was reading your column yesterday. You write Mondays and ...
Krugman: And Fridays.
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