All Is For The Best

Bear Stearns' chief economist David Malpass seems unusually optimistic, as everyone else flees from the sub-prime mortgage crisis as if from a volcano. In Tuesday's Wall Street Journal opinion article (available for those unfortunate enough to subscribe here), he makes several statements I think are at variance with reality. But then, I have no training in economics, so maybe I just don't get it:

According to the bears: As goes the credit market, so goes the economy.

Fortunately Main Street is not that fickle. Housing and debt markets are not that big a part of the U.S. economy, or of job creation.

Yes, the sturdy burghers of Main Street, in debt up to their eyeballs themselves, will save us from the looming chaos.

...the housing- and debt-market corrections will probably add to the length of the U.S. economic expansion.

A soft landing? Then why all the screaming people?

The bearish view is that Americans live, breathe and spend their houses and mortgages. ... Jobs matter more.

Yes, true, but houses matter quite a bit too.

Neither the economy nor job growth has been dependent on housing.

Once again, housing's impact is underestimated. Housing rules in California....

Those overstating housing's impact on jobs often use dates spanning the 2001 recession, as in the widely quoted calculation that 37% of the net new jobs were in housing...From the end of 2003 through present, jobs from residential construction plus real estate and mortgage brokers created only 3.6% of the net new jobs, 5.3% if all credit intermediation jobs are also included.

Yes, but people involved in residential home construction have been continually-employed since 2001, and thus do not contribute to these new job growth statistics. Their sudden unemployment would explode like a bomb in the economy!

...the threat of mortgage-rate resets is providing the latest fixation. It shouldn't. ... If the mortgage rate is adjusted upward by an average two percentage points, that's $10 billion in added payments. To put this in perspective, wages in nonsupervisory workers increased by $296 billion over the last 12 months. The July 27 revision alone added $130 billion to the last year's total U.S. personal income....

Where did these weird numbers come from? I find them hard to believe. In any event, even if personal income is up, how much of the increase went to people experiencing the mortgage resets? Can they bear the $10 billion added payments?

No wonder Bear Stearns is in such trouble! All is for the best, in this, the best of all possible worlds!