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NYT Effort to Fill the Insatiable Market for Financial Crisis Stories: William D. Cohan Edition

Prior to the collapse of the housing bubble and the resulting financial crisis there was little interest in major news outlets in pieces warning about the bubble and the risks it posed to the economy. These days there seems to be a large demand for such pieces. Unfortunately, in choosing these pieces, news outlets seem little better informed today than they were in the housing bubble years.

Today’s contribution comes from William D. Cohan and appears in the New York Times. The center of his story is corporate debt. The argument is that we have a large amount of debt that has been taken on at very low interest rates. If interest rates go up, then many debtors will be unable to pay their debts and we will be back in the 2008 financial crisis.

To get the ball rolling, Cohan pulls off one of the best bait and switches I have seen for a long time. He tells readers:

“The $30 trillion domestic stock market seems to get all the attention. When the stock market sets new highs, we instinctively feel things are good and getting better. When it tanks, as happened in the initial months of the 2008 financial crisis, we think things are going to hell.

“But the larger domestic debt market — at around $41 trillion for the bond market alone — reveals more about our nation’s financial health.”

This is a great bait and switch because he uses the $41 trillion figure for the bond market, but the rest of the piece is essentially devoted to corporate debt. Most of the $41 trillion in bonds either comes from the federal government ($17 trillion), Fannie and Freddie ($6.7 trillion), and state and local governments ($3.1 trillion). The portion that is attributable to non-financial corporations, which is the focus of the piece, comes to $6.2 trillion.

CEPR / August 09, 2018