Grass is Green, Sky is Blue, The WSJ Lies to You

Among their editorial suggestions for replacing Tim Geither as head of the New York FRB:

Better choices would include …David Malpass, an economist who worked at the Reagan Treasury and long predicted the credit bubble….

Yes, you saw that correctly.

David Malpass.

Strangely, they don’t describe him as “David Malpass, former Chief Economist for Bear Stearns, who long advocated taking monies out of your house because appreciation in housing prices changed “the structure of the household portfolio.”

And that “long predicted the credit bubble”? This is a family blog, so I can’t call that horseshit. So let’s look at what Malpass said in August of 2007—the point at which his firm was issuing bonds at what were essentially junk levels—about the bubble, in the very pages of the WSJ:

Another aspect of the market disruption is a dramatic stand-off between bond buyers and sellers: Buyers in both housing and debt markets are using the market discontinuity to claw prices and terms back to Earth. The slowdown talk weighing on equities also reflects the Wall Street view that debt, mortgage and takeover businesses have replaced General Motors as the economy’s bellwether. According to the bears: As goes the credit market, so goes the economy.

Fortunately, Main Street is not that fickle. Housing and debt markets are not that big a part of the U.S. economy, or of job creation. It’s more likely the economy is sturdy and will grow solidly in coming months, and perhaps years.

Unlike the 1998 seizure in credit markets to which many are now drawing comparisons, reservoirs of global liquidity are full to overflowing, not empty as they were that year. The deep 1997-1998 Asian crisis has been replaced with an all-cylinder boom. Unemployment rates are falling all around the world, while China’s equities have continued hitting new highs. [emphases mine]

The other nominees are little better, including the Gary Stern, current head of the Minneapolis Fed of “Credit Crisis? What crisis?” fame. (At least Stern admits he doesn’t care about finance as much as some other things.) But Malpass—and the lies told in support of him—should be beyond the pale even by WSJ standards.

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