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Even the Committee on Science and Technology Wants a Piece of the Financial Crisis

2009_5_19 029.jpgIt's borderline adorable to watch the various congressional committees scramble for a piece of the financial crisis. Yesterday, for instance, the Committee on Science and Technology held a hearing on "The Science of Insolvency." Those are words, I admit, that I never quite thought to put together. And I have to imagine the clever staffer who thought up the approach is getting some high-fives in the cloakroom today. It was certainly a more high-profile event than the "R&D for High-Performance Buildings, Industries and Consumers" hearing, or the "Coordination of International Science Partnerships" panel.

After all, even a tangential congressional committee can attract some good witnesses, and so Dean Baker, Simon Johnson, Jeffrey Sachs, and David John all showed up to testify. Baker, in particular, offered a depressing analysis for those hoping home prices roar back:

There is little reason to expect prices to bounce back from current levels. The run-up in house prices in the years 2004-2007 was quite obviously an asset bubble. There was no obvious change in the fundamentals of the housing market either nationally or in the most affected cities that could have justified this increase in house prices. Furthermore, the increase in house prices was not associated with any remotely corresponding increase in rents. If the fundamentals of the housing market had been responsible for the run-up in house prices, then there should have been some comparable increase in rents in this period. Instead, real house prices were mostly fairly stable. The plunge in house prices in the last two and a half years is now bringing them back in line with rents. There is no obvious reason that house prices should turn around and go back toward their bubble peaks.

You can download all the witness statements here. Think of it as a particularly substantive op-ed page.

(Photo credit: The the Committee on Science and Technology.)

By Ezra Klein  |  May 20, 2009; 10:00 AM ET
Categories:  Congress , Economic Policy , Solutions  
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