tag:blogger.com,1999:blog-7905515.post6222482083400014453..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: Stiglitz's FreefallEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger33125tag:blogger.com,1999:blog-7905515.post-85684343156911445992010-03-11T19:37:49.662-06:002010-03-11T19:37:49.662-06:00"Okay, I'll bite; how does a program sold..."Okay, I'll bite; how does a program sold as helping low income people buy houses, that, in the way of all govt. programs, became subsidies for middle income people, exonerate the CRA from being ground zero in the financial crisis?"<br /><br />It doesn't. The point I was trying to make was that Eric suggests the problem was poor people borrowing. It seems the bigger problem was middle income people borrowing. And I would guess the CRA was less important in ensuring the flow of credit to that income group.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-37062120611970794762010-03-11T14:13:29.510-06:002010-03-11T14:13:29.510-06:00Free information about penis enlargement products,...Free information about <a href="http://www.buypenisenlargement.com" rel="nofollow">penis enlargement</a> products, how it works, price of products, top products, and review of penis products. Visit http://www.buypenisenlargement.com<br /> - <a href="http://www.male-sexual.com" rel="nofollow">male enhancement</a> - http://www.youtube.com/watch?v=pobXsnw7CWsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-45623931372022353652010-03-11T10:49:13.610-06:002010-03-11T10:49:13.610-06:00Oh! This is great! Thanks for dispelling many
con...Oh! This is great! Thanks for dispelling many<br /> confusion I have heard about this lately.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-108229341282975102010-03-05T19:37:44.135-06:002010-03-05T19:37:44.135-06:00Okay, I'll bite; how does a program sold as he...Okay, I'll bite; how does a program sold as helping low income people buy houses, that, in the way of all govt. programs, became subsidies for middle income people, exonerate the CRA from being ground zero in the financial crisis?Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-21189033276586431532010-03-05T17:19:40.410-06:002010-03-05T17:19:40.410-06:00eric, why your focus on the cra may be misplaced.....eric, why your focus on the cra may be misplaced...<br /><br />from the recent mckinsey deleveraging study:<br /><br />"contrary to conventional wisdom, the greatest increase in leverage occurred among middle-income households, not the poorest...Most borrowers who did not qualify for the prime mortgage category, in fact, were middle and higher income households with poor credit histories or no down payments, or poor documentation of income --- not low income households buying a house for the first time."Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-67913076326319944582010-03-05T10:16:06.834-06:002010-03-05T10:16:06.834-06:00Naja, ob das alles so richtig ist..Naja, ob das alles so richtig ist..Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-66004350429676079832010-03-04T22:38:21.962-06:002010-03-04T22:38:21.962-06:00'Wait a second, I'm getting a feeling of d...'Wait a second, I'm getting a feeling of deja vu.'<br /><br />You're not the only one.Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-43450935354796777582010-03-04T22:30:18.301-06:002010-03-04T22:30:18.301-06:00Addressing each line one by one:
1. Speculators d...Addressing each line one by one:<br /><br />1. Speculators defaulting on their home loans is not a financial crisis either, Patrick.<br /><br />2. The income tax code and the Iraq War also owe their very existence to the government officials, but that doesn't mean the Community Reinvestment Act is responsible for them. See if you can finish this train of thought on your own.<br /><br />3/4/5. So no investors lost any money when the housing bubble popped, because everything was guaranteed by the government. I was not aware of this fact; does Liebowitz document this in his magnum opus? It certainly seemed that many investments declined in value even when government bailouts went into effect. Maybe that was just a bad dream.<br /><br />6. As far as I am aware, regulators place minimum capital requirements on banks, not maximum capital requirements. Would you like to elaborate on how banks wanted to hold more capital but were prevented by regulators? I am not impressed by yet another the reference to Guru Stan.<br /><br />7. If community activists had extortionist business models, then they should be attacked for that, not for weakening underwriting standards. Eric says that underwriting standards were not obviously wrong and that the crisis was unpredictable, even thought the CRA was very publicly available information. But if that was true, then why get all up in arms about the CRA? If professional investors betting billions of dollars had no idea that relaxing underwriting standards was bad, then why should community activists be raked over the coals?<br /><br />Wait a second, I'm getting a feeling of deja vu.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-29703424380183242452010-03-04T21:41:11.898-06:002010-03-04T21:41:11.898-06:00'Some poor black people defaulting on a home l...'Some poor black people defaulting on a home loan is not a financial crisis.'<br /><br />You didn't read the Liebowitz paper very carefully. He clearly states, in plain English, that the problem was speculators (i.e. house flippers) not 'poor black people', walking away from their ARMs when it was obvious that they couldn't sell their houses at a profit.<br /><br />'It is also revealing that you blame the CRA for poor ratings because rating agencies are somewhat affected by government regulation...'<br /><br />'Somewhat affected' = owe their very existence to?<br /><br />'...the Liebowitz paper contains no adequate response to your point about investors not having a problem with lowered underwriting standards.'<br /><br />Hogwash. Andrew Cuomo's pressuring the FMs into buying the loans was interpreted (correctly, as it turned out) as a Federal govt guarantee of their investments in those securitized mortgages. As Stan clearly recognized. <br /><br />'Patrick's blaming the CRA for the very existence of mortgage securitization ...'<br /><br />Neither Patrick, nor Stan Liebowitz, ever said any such thing, speaking of sloppy reasoning.<br /><br />'If investors are morons who are happy to throw their money away...'<br /><br />On US govt guaranteed investments?<br /><br />'No one forced investors to buy crappy mortgage-backed securities. And no one forced any financial institution to hold less capital than it should have.'<br /><br />In fact capital requirements under banking regulation--the Basel accords-- did exactly that. Again, Stan clearly understands this.<br /><br />'...why should community activists be raked over the coals?'<br /><br />Oh, maybe because their business models were essentially extortion.Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-37903599038134059672010-03-04T20:58:20.421-06:002010-03-04T20:58:20.421-06:00One last thing: Eric (who actually is generally qu...One last thing: Eric (who actually is generally quite insightful about economics) defends investors by saying that the relaxing of underwriting standards was actually reasonable, not obviously wrong. He says that the crisis was basically unpredictable.<br /><br />But if that was true, then why get all up in arms about the CRA? If professional investors betting billions of dollars had no idea that relaxing underwriting standards was bad, then why should community activists be raked over the coals?<br /><br />Patrick R. Sullivan replies: "Stan Liebowitz addresses your point in his paper which I linked to above."<br /><br />Oh OK, thanks Patrick.Anonymous #5noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-32233138865776110342010-03-04T20:48:32.381-06:002010-03-04T20:48:32.381-06:00Gee Patrick, I'm even less impressed by your r...Gee Patrick, I'm even less impressed by your rebuttal to my reubttal.<br /><br />Some poor black people defaulting on a home loan is not a financial crisis. Proving that the CRA weakened underwriting standards is not the same as proving that the CRA caused the financial crisis. It is also revealing that you blame the CRA for poor ratings because rating agencies are somewhat affected by government regulation; it shows that you are a remarkably sloppy thinker.<br /><br />Travis, contrary to what Patrick claims, the Liebowitz paper contains no adequate response to your point about investors not having a problem with lowered underwriting standards. Liebowitz simply suggests that investors were victims of politically correct brainwashing and were scared of being called racist. (In fact, he actually explicitly says that there may be no adequate explanation of investor decision-making.)<br /><br />Patrick's blaming the CRA for the very existence of mortgage securitization is just another sign of economic illiteracy and sloppy thinking. If investors are morons who are happy to throw their money away, plenty of people on Wall Street will be happy to create products to accommodate them. The CRA's impact on lending standards was publicly available information; if it was as bad as Patrick claims, then surely rational investors could have seen disaster coming from a mile away.<br /><br />No one forced investors to buy crappy mortgage-backed securities. And no one forced any financial institution to hold less capital than it should have. (If a bank understood that regulators and rating agencies were underestimating the risks it faced, there's no reason for it to listen to those parties; regulators demand an upper bound, not a lower bound, for risk-taking.)<br /><br />Of course these points have been made about 30 times in this thread now, and all Patrick has said is "Stan Liebowitz has all the answers, you should subscribe to his newsletter."Anonymous #5noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-9562484457756067912010-03-04T19:45:35.610-06:002010-03-04T19:45:35.610-06:00Travis, I've linked already to Stan Liebowitz&...Travis, I've linked already to Stan Liebowitz's paper. The explanations for your points are handled there.Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-34112468359870734762010-03-04T19:13:55.093-06:002010-03-04T19:13:55.093-06:00@Patrick Sullivan: How can you explain a universal...@Patrick Sullivan: How can you explain a universal decline in underwriting standards, not just in areas covered by CRA?<br /><br />Also, how can you explain all the buyers of those securities willing to purchase them given the problems with the underwriting? How can you explain banks being able to raise millions from investors to sink into a business that was (supposedly) compromised by CRA?<br /><br />If you blame CRA, you have to blame investors for not seeing that lowering underwriting standards would cause problems. Isn't it more likely that investors had no problem with lowered underwriting standards, CRA or no CRA?travishttps://www.blogger.com/profile/06472292158044630584noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-34209625252958808342010-03-04T17:20:03.472-06:002010-03-04T17:20:03.472-06:00'Wall street investment banks didn't secur...'Wall street investment banks didn't securitize and float mortgage bonds because of CRA.'<br /><br />No, but the CRA was the <i>sine qua non</i> that allowed Wall Street to securitize BAD mortgages that eventually blew up. Without that, we don't have anything to talk about, do we?<br /><br />'Moody's and S&P didn't rate the risk in those bonds incorrectly because of CRA.'<br /><br />Incorrect. As Stan Liebowitz mentions in his paper, the ratings agencies exist (as near duopoly) thanks to politicians. Cross them and your privileged position can be taken away.Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-21846061700358616122010-03-04T17:14:36.191-06:002010-03-04T17:14:36.191-06:00I'm distinctly underwhelmed by your supposed r...I'm distinctly underwhelmed by your supposed rebuttal to Stan Liebowitz, Anon5. Can you actually provide me with some errors on his part rather than simply implying he's a racist for not wanting Black Americans to buy more houses?<br />Does it not seem likely that this (quoted by Stan from the Boston Fed pamphlet):<br /><br />'<i>Did You Know?</i> Failure to comply with the<br />Equal Credit Opportunity Act or Regulation B<br />can subject a financial institution to civil liability<br />for actual and punitive damages in individual<br />or class actions. Liability for punitive damages<br />can be as much as $10,000 in individual<br />actions and the lesser of $500,000 or 1 percent<br />of the creditor’s net worth in class actions.'<br /><br />is an answer to your: <br /><br />'Liebowitz takes to task "regulators, academic specialists, and housing activists" for undermining underwriting standards and inflating the housing bubble. My hypothesis is that if you don't have an instinctive repulsion towards these groups, you will not be convinced by Liebowitz's case for singling them out. It will not be clear why housing activists are more responsible for underwriting standards than, say, underwriters or investors in mortgage-backed-securities.'<br /><br />Just for one example of his pre-empting your complaints.Patrick R. Sullivannoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-55242505721861149322010-03-04T17:05:51.625-06:002010-03-04T17:05:51.625-06:00Wall street investment banks didn't securitize...Wall street investment banks didn't securitize and float mortgage bonds because of CRA. Moody's and S&P didn't rate the risk in those bonds incorrectly because of CRA. <br />So blaming CRA is just nonsense. <br /><br />And I can't understand why smart, well informed people bend over backwards to come up with a reason to blame CRA ... without thinking that part of the reason has to be racism.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-84260470087345963402010-03-04T17:01:33.552-06:002010-03-04T17:01:33.552-06:00So let me see if I get this right: Because commer...So let me see if I get this right: Because commercial banks were incentivized to lend money to Afro-Americans in Watts (LA), it made the tens of thousands of buyers of new construction homes being built in Riverside county default?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-74314893443810826182010-03-04T16:58:13.071-06:002010-03-04T16:58:13.071-06:00Re: CRA causing the bubble -- The innovation in m...Re: CRA causing the bubble -- The innovation in mortgages didn't originate (no pun intended) with the commercial bankers. It was the new breed of lenders (Countrywide) teamed with investment bankers. The investment bankers wanted product to securitize. The easiest way to get it was to start lending to a new segment of the market.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-18670960516129595202010-03-04T16:50:24.822-06:002010-03-04T16:50:24.822-06:00Stiglitz falls into the "huckster" categ...Stiglitz falls into the "huckster" category of Nobel winners, with Gore, Obama, and others. You'd think that the worldwide historical failure of these ideologies would give pause to the likes of Stiglitz and Chomsky, but hubris knows no governor. I wipe my rear with the "ideas" of this failed communist....Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-90637637051662051462010-03-04T15:50:03.133-06:002010-03-04T15:50:03.133-06:00There's a lot of drive to call the bubble hous...There's a lot of drive to call the bubble housing market irrational. Instead I would call it lots of people responding to short-term greedy incentives and an awareness of opportunities to exploit idiots. Did any of the worst actors in this fiasco suffer net losses? Most of the bankers looted enough compensation to be set for life. Most of the flippers made money for years. Pre-2000 homeowners who wanted to get out did so with huge gains. The losses mostly got put to pension funds, retail investors, and the government. Seem to me like everything went according to plan.<br /><br />No one gives a neg-am mortgage because they want to hang out to collect a balloon payment 30 years from now or for noble racial motives. Be serious. Underwriting standards deteriorated because everyone in the system was playing to grab short-term money. There's enough dumb money in the world to give it to them. The semi-sophisticated people who lost big in the bubble are those who thought they could get out in time but didn't.najdorfnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-70785441129324557942010-03-04T08:47:43.749-06:002010-03-04T08:47:43.749-06:00I agree with EF on lots of things, but do think th...I agree with EF on lots of things, but do think that the CRA is just one of a large number of factors influencing property bubbles. The fact is, there have been property bubbles throughout history and across numerous countries that didn't have the CRA. They did almost all have central banks and governments creating credit booms however. The CRA is more of a Republican Party created scapegoat, but I think the better explanation can be found in the Austrian economic theory of credit booms and busts. Government definitely played a role. Stiglitz is of course a blind fool for seeing free market fundamentalism in an industry (banking) thoroughly regulated, directed by a central planner in the Fed, with liabilities (deposits) insured by the goverment.AHWesthttps://www.blogger.com/profile/09829802681623277432noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-1345203341734407492010-03-03T21:27:14.523-06:002010-03-03T21:27:14.523-06:00Man I hope you review Michael Lewis's new book...Man I hope you review Michael Lewis's new book.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-38217242890497685852010-03-03T21:12:10.150-06:002010-03-03T21:12:10.150-06:00By the way, I agree with this:
Most importantly, ...By the way, I agree with this:<br /><br /><i>Most importantly, as housing prices never fell year-over-year, the lowering of underwriting standards was logically tenable, not obviously wrong. </i><br /><br />But if that was true, then what does the fear of being called a racist have to do with the price of tea in China?<br /><br />Liebowitz is not ironically blaming community organizers in the same way that other people may blame greedy bankers. This is the beginning of the Executive Summary of his report:<br /><br /><i>Why did the mortgage market melt down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere as risky as they actually turned out to be? This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending.</i><br /><br />He's not very subtle about his preferred scapegoat.Anonymous #5noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-71565742172375285742010-03-03T20:55:20.480-06:002010-03-03T20:55:20.480-06:00I guess I should actually leave a name if I make 5...I guess I should actually leave a name if I make 5 comments in a thread.<br /><br />Look, if the crisis was truly unpredictable and no one could have seen it coming then why does Liebowitz make it seem as if it was just a natural consequence of the CRA and associated attitudes?<br /><br />I mean, reading his article, you can't help but get angry at all that effort to weaken lending standards. It's so predictable!<br /><br />But the banks never saw it coming either. Why not? Liebowitz's answer: because of all the liberal brainwashing.<br /><br />So to wrap up.<br /><br />Q: Can we change the "culture of greed" on Wall Street through better regulation??<br />A: No, because wishful thinking is no match for the profit motive. Aren't liberals economically illiterate morons for even suggesting that?<br /><br />Q: Can we blame political correctness for the financial crisis?<br />A: Yes, many psych studies show the power of the herd and as a result bankers are very sensitive to the regulatory environment. Investors will gladly make bad investments if they think part of the money goes to helping poor minorities.Anonymous #5noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-13267879208239630962010-03-03T20:12:22.199-06:002010-03-03T20:12:22.199-06:00A key point is that political pressures to increas...A key point is that political pressures to increase housing for minorities, was neither necessary nor sufficient for the crisis. Being a historical event, one can't therefore prove it was causal (which would mean repeating 1000 times and seeing the probability under various environments). <br /><br />In a similar way, one might say drinking caused a car wreck where the driver was drunk, drinking is neither necessary for an accident: you can have a car accident without drinking, and you can drink and drive and not have an accident. The data are mainly from what we know about how alcohol affects reaction times, coordination, and focus. <br /><br />As to whether banker short-sightedness was the cause, it was definitely a mistake, and essential. Yet, no bank could really exist ignoring the CRA, they would have lost all their privileges. Many phsych studies show the power of the herd, as when Nazi's or Japanese in WW2 behaved like monsters. Most importantly, as housing prices never fell year-over-year, the lowering of underwriting standards was logically tenable, not obviously wrong. Any time a trend happens for 50 years, there will be credentialed experts saying it's an exogenous trend. Indeed, even Robert Shiller argued, in 2005, that 'housing price's recent abnormal increase probably won't continue, and that some areas may experience a decline' (read: still no year-over-year aggregate decline of significance). And this is a guy who many people assert 'called' the crash.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.com