A Capital Catastrophe:

Why a Little-Noticed Crisis Portends Economic Disaster This list of adjectives the media used to characterize the economic meltdown of 2008 runs long: grim, catastrophic, unprecedented, stunning, devastating, unexpected, confusing . . . . The adjective no news writer or broadcaster has used to describe the economic crisis is unnoticed. With the exception of the election of Barak Obama as President, no development in 2008 commanded more media attention than the meltdown. Time put the meltdown first in its list of “Top 10 News Stories of 2008.” Yet the headline preceding Time’s retrospective discussion of the ‘meltdown—”When We Realized the Sky Was Falling”—points obliquely to an often-forgotten truth: the sky may start falling before the media begin to realize it. As late as May 2008, the Florida Times-Union was still assuring readers, “The economy doesn’t look great, but it doesn’t appear headed into recession, either.” Surveying the economic data during the same month for the Register-Guard of Eugene, Oregon, an analyst went even further in predicting that the stimulus package Congress enacted in February “should make the second-quarter numbers look better.” A month later, the Los Angeles Times was still carrying assurances from a UCLA economist predicting that although the financial outlook was “subprime,” the U. S. “economy w[ould] likely avoid falling into a formal recession.” Policymakers were generally just as myopic. In January 2008, the Congressional Budget Office (CBO) authoritatively declared, “Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession.” Things still did not look too bad in May 2008 to Treasury Secretary Henry Paulson, who declared, “Later this year, I expect growth will pick up.” Referring to the two quasi-governmental agencies at the very center of the credit c
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