False Prophets

I think financial reporting is worse than science journalism, which is saying something. As WSJ is not open for free consumption yet, I am stuck with the NYT, which appears to have an inability to actually communicate what is actually going on in the market, and when it does it uses technical terms that are never defined (such as repo rates, etc). Here, to my feeble financial mind, is another example.

Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves.

Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford. -NYT

We discussed the same phenomenon in my class on China last night. After sovietologists failed to predict '89 they were excoriate for not seeing it coming. Now all experts on China swear that China is in transition to democracy so that when China transitions they can all say, "I told you N years ago China was going to transition!" If it is between stability and change, always predict change and one day you will sound like a prophet.

To my understanding Wall Street would have been terribly upset if the Fed had stuck its nose in the house market in 2000 (when Mr. Gramlich initially warned Greenspan of impending doom), and then in successive years when the housing sector was the strongest of the economy. How would it look if the Fed regulated away years of great prosperity? Furthermore, if the Fed chooses to panic, as the market did in August, it only leads to further volatility (I am sure that is a debated point among economists, however).

The point is, Donny, it is always easier to say I told you so. And also sounds pretty lame.