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.
Well, I haven't looked at the second article, but there's a whole lot of meaningful, insightful commentary out there (Andy Haldane, Simon Johnson and Michael Simkovic are my favorites). Calomiris's interview, sadly, is too political to be of any use to anyone who's seriously interested in understanding the causes of the crisis.
While I agree that it is everyone's fault to an extent (certainly including the GSEs), you can definitely rank your culprits. Unfortunately, Calomiris's emphasis is entirely political and not very useful as a result.
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.
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.
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.
.... Unfortunately, Calomiris's emphasis is entirely political and not very useful as a result.
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.
All this crap started in 1999 with Bill Clinton and Barney Frank telling Fannie and banks to ease lending requirements.
Basically that article in 1999 predicted the future. And the other important learning lesson here is that Democrats have to buy votes in order to stay in power...this was exactly what they (Slinton and Frank) wanted with the easing of lending requirements....buy more votes.