Fantastic Barron's Interview With Columbia Prof On Financial Crisis

Discussion in 'Economics' started by AAAintheBeltway, Apr 18, 2012.


    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.
  2. 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.
  3. 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.
  4. The second article is just a starting point. 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.
  5. sle


    A simple question - if GSEs were not warehousing any risk that turned out to be truly toxic, why did they blow up so spectacularly in 2008?
  6. 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.
  7. Stok


    All this crap started in 1999 with Bill Clinton and Barney Frank telling Fannie and banks to ease lending requirements.

  8. 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.
  9. jem


    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.
    #10     Apr 18, 2012