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-- Fantastic Barron's Interview With Columbia Prof On Financial Crisis (http://www.elitetrader.com/vb/showthread.php?threadid=241018)
Fantastic Barron's Interview With Columbia Prof On Financial Crisis
http://online.barrons.com/article/S...abs_article%3D1
Excellent interview. He points out the critical role of CRA and regulatory pressures on lenders to make bad mortgage loans in the market meltdown. Fro example, WaMu was required as a condition of a merger to make a huge amounts of such loans and to funnel money to ACORN and other groups. He also points out what a disaster the GSE sector was and how they are a far bigger problem than anything addressed in Dodd-Frank.
He also notes how D-F and particularly the Volcker Rule would have done zero to prevent the crisis.
I am not a defender of Dodd-Frank by any means. However, this interview contains a number of glaring problems that have been addressed a number of times. Calomiris has some interesting and meaningful things to say, but some of what he says is just disingenous and untrue. Specifically, the claims people like Calomiris, Wallison and Pinto have made regarding the role of the CRA have been shown to be completely unsubstantiated by evidence. Moreover, he completely misses the point of the Volcker rule. Same with Glass-Steagall.
Very disappointing. I would have expected a lot better from Prof Calomiris. Coming from someone who is supposed to be a serious academic economist, the interview is too much politics and not enough substance.
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Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
This article, already being taken apart in the comments section, should start making the rounds in the blogosphere shortly. A good starting link to debunk this crap would be: Hey Mayor Bloomberg! No, the GSEs Did Not Cause the Financial Meltdown (but thats just according to the data).
Quote from Covertibility:
debunk this crap
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Quote from sle:
The right thing to say is "it was everyones fault and everyone is suffering now and will suffer for a while" instead of the usual blame game.
Quote from Covertibility:
The data from there at least tells you it's not going to play the "it was everyones fault and everyone is suffering now and will suffer for a while" game.
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I'm spending a year dead for tax reasons.
Quote from sle:
Problem is that both articles are mostly political and neither do real analysis. The second one "uses" data to prove a political point, the first one uses some data-driven conjectures but neither hold water. It's clear the GSE did play a part in the whole mortgage mess, at least from the liquidity perspective.
The right thing to say is "it was everyones fault and everyone is suffering now and will suffer for a while" instead of the usual blame game.
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Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
All this crap started in 1999 with Bill Clinton and Barney Frank telling Fannie and banks to ease lending requirements.
Quote from Martinghoul:
While I agree that it is everyone's fault to an extent (certainly including the GSEs), you can definitely rank your culprits.
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I'm spending a year dead for tax reasons.
1 It all started when Wall Street went from long term private partnerships to corporations in which the financial incentive became massive short term profits for massive bonuses...
2. The Fed eased lending standards in a bubble to help state budget short falls after cap gains revenues dropped. (and because the owner banks got hooked on mortgage profits - which was essentially premium selling on a massive scale.)
3. Clinton and Rubin and Graham got together to end Glass Steagal.
4. Forcing banks to make stupid loans was just part of the banks business model. No one forced them to make 100% loans at standard rates to anyone who asked. That was just insane. NiNja Loans? Please Barney Frank is a liar. His lover was on the board at Fannie or Freddie. Y
es they caused bad loans to be made -
but they did not cause the massive fraud which allowed 100% loans to be passed out on no docs. That took Greenspan and the Fed, Chinese money looking for a return, and Wall Street looking for bonuses instead of long term viability.
Quote from Martinghoul:
...
.... Unfortunately, Calomiris's emphasis is entirely political and not very useful as a result.
Quote from Stok:
All this crap started in 1999 with Bill Clinton and Barney Frank telling Fannie and banks to ease lending requirements.
Quote from sle:
Problem is that both articles are mostly political and neither do real analysis. The second one "uses" data to prove a political point, the first one uses some data-driven conjectures but neither hold water. It's clear the GSE did play a part in the whole mortgage mess, at least from the liquidity perspective.
The right thing to say is "it was everyones fault and everyone is suffering now and will suffer for a while" instead of the usual blame game.
Quote from AAAintheBeltway:
I disagree. He is pointing out that politics, specifically the urban populism as he terms it, was largely responsible for the problem. You can't lay political blame without being political to a degree, but he also says republicans were complicit.
Liberals want to say that CRA was not a problem, but that is clearly untrue. You don't encourage sound lending when you start making mergers contingent on payoffs to groups like ACORN. Or when you start pushing FNM/FRE to buy up no doc loans from iilegal immigrants et al.
Similarly, he points out we had the benefit of the S&L crisis of the late '80-s-'90 era to demonstrate the danger of government-backed entities, yet pols like Barney Frank and Chris Dodd blocked efforts by the GSE's regulator to rein them in. Whether it was because Frank's boyfriend was an exec there or because the GSE's were run as slushs funds for out of work democrat politicians, I can't say.
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Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
Excellent post.
Quote from Martinghoul:
That assertion is falsified by a whole variety of factual evidence.
[B]
It's not about liberals or conservatives. CRA can be seen as part of a larger problem, but, yet again, there's all sorts of evidence that pretty much disproves that the issues had a lot to do with CRA. I also would like to point out that "it's all the CRA" argument, for which Pinto and Wallison are the main standard-bearers, is something that is pushed very aggressively by the banking lobby, because it absolves the industry of pretty much all responsibility. Given that Calomiris is getting on this bandwagon and judging by his attitude to the Volcker Rule and Glass-Steagall, I suspect he's yet another advocate of letting the banks carry on as before. That, regardless of your political leanings, is criminal, IMHO.
[B]
Well, I don't think it's sensible to single out the Democrats or specifically Barney Frank. The entire political establishment in the US, Republicans and Democrats alike, didn't have a good idea of the risk represented by the GSEs. In 2003 and 2005 both Democrats and Republicans suggested very similar ideas for reform of the GSE regulatory framework (neither of the two made it into law), but the Republicans have repeatedly stressed how important the GSEs are for the US economy. So it's revisionist history to somehow suggest that it was all the evil Democrats' fault and the angelic Republicans were pure as the driven snow.
Again, in my view, any serious analysis of what happened and how things went wrong can't start with a politically-motivated bias. IMHO, the issue at its root has to do with the US financial-political oligarchy (both Republican and Democratic alike) that has been consistently able to engineer outcomes favorable to itself. If you want a much more eloquent description of the problem, read "The Quiet Coup" by Simon Johnson. Inasmuch as the GSEs were simply part of the oligarchy, they're most certainly to blame.
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The future chaos is determined by the current chaos, in a chaotic manner.
Quote from sle:
The right thing to say is "it was everyones fault and everyone is suffering now and will suffer for a while" instead of the usual blame game. [/B]
Quote from sle:
Yep, everyone is at fault, from the home buyers and realtors (blatant cheating and fraud) and all the way up to the Fed and the country leadership. Some are less and some are more.Personally, i think the MtM-linked annual incentive model on Wall Street is one of the bigger drivers which gets ignored.
GSE are up there with the best of them. While subprimes blew up a bit earlier, the prime mortgages (as witnessed by the current state of the serivicing right market) proved, on returns and exposure-adjusted basis, to be about as bad. I am not even talking about the fact that GSE-driven compression in prime yields created the need for subprime lending in the first place.
Well AAA, the moral of the story....don't post articles from colombia....
Seriously though, I read a lot and early on I learned to take a pass on articles from Colombia, There is better stuff out there.
The CRA has been around for a long time in one form or another I think since Carter, we would have had problems long before "08.
Quote from LincolnArmy:
.... or can we just finally give up on this pretense of capitalism and democracy?
Most subprime lenders weren't subject to federal lending law
CRA. Fannie. Freddie. Coup de grāce.
More CRA Idiocy
I know the Fed has quite a few papers but there are those people out there in the wildnerness who don't believe anything their govt tells them unless it's happy thoughts from a republican govt that is running things into the ground.
Maybe the Columbia prof is just trying to get on Team Republican the way Mankiw is on it. Mankiw, btw, is to be Romney's chief economist.
Some of the attitudes displayed here are exactly why the so-called reforms are a joke. There is more effort being put into deflecting blame and protecting political constituencies than protecting the taxpayer. As the article pointed out, the reforms would have done nothing to prevent the crisis. D-F and the Volcker rule addressed areas that were not really issues.
There are three fundamental problems, and they are still unaddressed. One, is the system that allows originators of mortgages to assign them with no residual liability. If brokers are on the hook somehow for fraudulent loans, they have some skin in the game.
Two, the government has no business sponsoring GSE's. Maybe at one time it was a good idea, but now, there is plenty of private capital to do that job. We are paying an enormous cost , hundreds of billions at a minimum, but it is off the front page because there are a lot of forces that want to continue this game. If we have learned anything , it is that the government should no tbe involved. We got shoddy, arguably corrupt, management from the political hacks like Franklin Raines who were installed to run these firms. We got political interference with their regulation and management.
Three, there was a massive failure of regulation, stemming from both too much and too little government intrusion into the credit process. Too much, as in CRA and conditioning mergers, etc on payoffs to ACORN and other democrat-affiliated parasites. Too much , as in congress and reguglators forcing lenders to expand loans to borrowers with bad credit. Too little, in the Fed and bank regulators allowing a range of toxic products and practices, from no doc to very high loan to value rations to flawed securitizations.
We didn't learn the lesson of the S&L crisis, which was fundamentally an issue of moral hazard. Sadly, we learned nothing or, worse, the wrong lesson, from the latest crisis. That almost insures another one, and judging from how the last one dwarfed the S&L crisis, it should be a doozy.
You're certainly entitled to your view, AAA, however unsubstantiated and unsupported it might be by actual evidence. To be sure, there are some things that you say that I agree with.
__________________
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness...
I wonder if the D-F bill even address the rating agencies.
The rating agencies didn't have any skin in the game.
The Fed required a rating and yet it's only an opinion and no one could sue them (maybe that has changed, but at the time the rating agencies were bullet proof against a lawsuit)
First of all AAA is now correct in what he says.
But, don't you all really see what happened.
LTCM and Victor Neiderhoffer were the models.
Sell premium and suck out huge dollars til you blow up.
Mortgages were just like selling options for premium --- especially in non recourse states. These mortgages are still being put back on the banks today.
It was all done because Wall Street no longer had to answer to the partners and retired partners. Those partners no longer had the financial incentive to make sure the companies acted responsibly and rationally with their investments.
Make as much money as you could and take out massive bonuses. If you blew up Goldman or Bear... so be it. Then say no one saw this coming.
Follow the money.
Quote from Stok:
All this crap started in 1999 with Bill Clinton and Barney Frank telling Fannie and banks to ease lending requirements.
Quote from piezoe:
This issue has been studied ad nauseum. Do an internet search. The facts and the data show that programs to help less affluent buyers access mortgage money made only a negligible contribution to the crisis.
The origins of the crisis and its progression are very well understood by now.
The interview with the "professor" is rather ridiculous in that it contains one misleading statement after another. Remarks that are mainly correct as far as they go but misleading nevertheless. It is, however, a nice example of Barron's shoddy journalism standards. I quit reading Barron's a long time ago. They have become nothing but a Wall Street Shill.
From title of this guys chair at Columbia I would guess it is funded by the
Financial Industry.
Wallison and Calomoris were co-directors of American Enterprise Institute's Financial Deregulation Project.
That worked out really well.
They are just trying hard to scrub their tracks in enabling the 2nd Great Depression. That way they can keep giving BJ's to the banking industry for pay.
LOL! and speaking of Barron's, do you guys remember that giant headline to the effect of what a great buy GM is!? Just as GM was circling the drain of course. It did boost the stock for a few weeks, long enough for their buddies to dump it I suppose...
Quote from MarketMasher:
Wallison and Calomoris were co-directors of American Enterprise Institute's Financial Deregulation Project.
That worked out really well.
They are just trying hard to scrub their tracks in enabling the 2nd Great Depression. That way they can keep giving BJ's to the banking industry for pay.
__________________
The future chaos is determined by the current chaos, in a chaotic manner.
Still reading Barron's?
While watching 80s Wall Street Week on VCR?
Those monologues were the Real Holy Grail.
until they offed Lou for exposing the scam.
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