There was a reader Q&A this Wednesday morning on the Washington Post site with business columnist Steven Pearlstein, who won a Pulitzer for his 2007 coverage of the financial crisis and has continued to write great stuff (via Romenesko). I link to it mainly because I’m getting asked more questions these days than I can ever answer, so when I find someone whose answers sound a lot like mine I’m more than happy to outsource (as I did with Tyler Cowen yesterday). A sample:
Savage, Md.: I’m sure this has been asked a million times, but I don’t remember the answer. Why did lenders ever think highly variable and exotic products like ARMs with artificially lower teasers or interest-only options were ever appropriate for subprime borrowers with bad credit? I can understand the existence of subprime mortgages — higher rates reflect higher risk, just like with jumbo mortgages — but if the lender had wanted to minimize risk, wouldn’t the only sensible thing be a constant payment schedule?
Steven Pearlstein: I have never explained it because it is simply inexplicable, other than by the conclusion that the people making and brokering thse loans knew full well that it was stupid but that (1) it wasn’t their money at risk (2) the fees were great and (3) the borrower would get into trouble and then simply get out of trouble by refinancing the loan (with another set of fees) later, and using the higher price and added equity to get into a more reasonable loan. When the prices stopped rising and refinancing was no longer possible, the Ponzi scheme ended.
The one part of the Q&A I didn’t like was when he responded to a question/complaint about the bailout bill being “rotten to the core” thusly:
Steven Pearlstein: The left wing bloggers are out in force on this one — they see this as a seminal issue, like the Iraq war vote and the vote on warrantless searches. But other than not really understanding the problem and not really having studied the proposal, you guys are doing just great! Thank God there is a mainstream media out there that actually does reporting and has people who understand thing, because if the flow of information and news to the American people were left solely to bloggers, we’d be in a big mess.
Can’t we just pass some kind of law decreeing that people at mainstream media organizations are no longer allowed to make sweeping statements about the bloggers? Maybe it could be part of the bailout bill! The Paul Wellstone Emergency Economic Stabilization, Non-Laminated Wooden Arrow Excise Tax Exemption and Mainstream-Media Undiscriminating-Blogger-Denigration Prevention Act of 2008, or PWEESNLWAETEMMUBDPA.
I mean, I’ve criticized the same silly this-is-the-new-Iraq argument that Pearlstein is talking about. Guess what: So have some lefty bloggers! The lower barriers to entry of the blogosphere do mean that more unadulterated, uninformed nonsense is spouted there than in the pages of the Washington Post or Time magazine. But they also mean that the blogosphere produces huge quantities of more specialized, more informed, more intelligent commentary (and on occasion better reporting) than much of what you find in the Washington Post or Time magazine. I know the comments to this blog often contain far more intelligent and informed discussion of the affairs of the day than I can muster.
Okay, off my soapbox. I still think professional media are indispensable, although there’s no law saying they have to look like our existing mainstream media. I just hate the whole bloggers this or bloggers that line of discourse. It’s so 2005. Criticize the “the idiots” or the “the lunkheads” or the “the zealots” all you want, Pearlstein. Just not “the bloggers.”