Combining Data, Reaching a Clear Conclusion

Brad DeLong:

Spa Talks with Former Not-So-Senior Administration Officials...
Four points emerged:

Doing something large-scale and effective about housing in 2009 would have been really, really hard because most underwater homeowners were making their payments, would have regarded it as grossly unfair for the government to have bailed out their peers in default, and banks had no interest in taking any haircuts at all on mortgage loans that were current--no matter how far underwater the borrower was.

The failure of the PPIP and other policies in 2009 to achieve significant scale and actually boost the economy-wide supply of safe assets that the market was so desperate for is actually the fault of Krugman, Sachs, and Stiglitz for opposing it...

DeLong comments:

I am very skeptical of (2)--Jeff, Joe, and Paul seem to have had no influence on anything else, so why should they have been decisive here?

But a pattern is emerging, and we can leap to conclusions in the manner of Young Sherlock Holmes ("You accused the French ambassador!" "It was the Russian ambassador.")

Yesterday, many of us thought that Richard Koo was bitter, or at least mishearing things.

Today, in the aftermath of The DeLong Revelation, we know better. Koo heard the official correctly, and probably was just too polite to call the person an idiot.

Today, we know that the problem is that the Administration has someone reading Krugman who knows how to play politics but hasn't the slightest understanding of what he reads.