tag:blogger.com,1999:blog-7905515.post896546984658810956..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: First a Tragedy, Now a FarceEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-7905515.post-63601093104593018822010-08-19T21:58:34.794-05:002010-08-19T21:58:34.794-05:00I think the problem was that folks saw rising real...I think the problem was that folks saw rising real estate prices as the way to affluence. CRA and other pressures for easier mortgages followed from that. A mechanism to prevent big gains from real estate ownership could have avoided that, as well as reduced taxes on actual productive activity, thus opening a way to real affluence.taxpayerhttp://menaceofprivilege.comnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-51020701300932356032010-08-19T11:59:26.423-05:002010-08-19T11:59:26.423-05:00I really don't know anything about Spain, what...I really don't know anything about Spain, what their underwriting criteria are or were. If their underwriting remained constant over the past 10 years, this would indeed be somewhat puzzling. However, given the US mortgage collapse tainted investment demand for all housing, perhaps the simple story is that investors errored by labeling all mortgages as the same regardless of underwriting going up, and going down.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-23355162094002069872010-08-19T11:44:57.497-05:002010-08-19T11:44:57.497-05:00I'm still curious about Spain's real estat...I'm still curious about Spain's real estate bubble, which occurred without ACORN, the FHA, Fannie & Freddie, etc. (Did Spain have similar institutions? Or did the cause of its bubble have nothing to do with affordable housing policies?).Davehttp://steamcatapult.com/noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-66643941495122887382010-08-18T10:58:59.825-05:002010-08-18T10:58:59.825-05:00Whether or not it was sustainable was apparently f...Whether or not it was sustainable was apparently fundamentally unknowable until the bubble popped, so I see no reason to be especially critical of community activists for their actions before this time. We should hold them to a lower standard than investors, not a higher one.<br /><br />By the way, if it had been sustainable I'm highly skeptical that you would be singing the praises of ACORN now. I'm much more of an ideological liberal than you are and *I* would have given the lion's share of the credit to financial innovation. If an activity can make someone rich, ideological motives seem rather irrelevant.Anonymous #5noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-5085960081449682992010-08-18T10:12:34.962-05:002010-08-18T10:12:34.962-05:00If it was sustainable, it would be a good idea. I...If it was sustainable, it would be a good idea. It wasn't and isn't, so it's not a good idea.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-6577483461088520422010-08-18T09:58:57.600-05:002010-08-18T09:58:57.600-05:00With hindsight, I hope I would have said "thi...<i>With hindsight, I hope I would have said "this is unsustainable, and many of these homeowners will default on their mortgages, causing them to lose the home they are getting for almost nothing, and for investors to lose a lot of money".</i><br /><br />Eric, but what if it turned out that it was sustainable? Would the community activists then get credit for the increase in minority homeownership? If they get a share of the blame when things go bad, do they get a share of the credit when things go well?<br /><br />I get the feeling this is a heads-you-win, tails-I-lose issue. The power of community activists to change the world only becomes evident when things go to hell.Anonymous #5noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-17310829659902014222010-08-18T09:40:36.040-05:002010-08-18T09:40:36.040-05:00The responsability for how and why this smallish s...<i>The responsability for how and why this smallish socio-financial issue caused a worldwide panic and recession rests on the shoulders of the habitual financial geniuses.</i><br /><br />Well you might think that. But what should we do? Change the "culture" of Wall Street? Improve the moral fiber of bank CEOs? As our clear-sighted and completely apolitical friend Eric would tell you, this is naive and foolish. Wall Street is about one thing, making money. That's the one thing that counts. The desire for profits cannot be denied.<br /><br />Oh, unless you're talking about an ideology of wanting to increase minority homeownership. Then before you know it AIG will blow up, investment banks will go out of business, and the entire globe will plunge into recession. Ideas are terrible, terrible things; do you know how much suffering Saul Alinsky has caused, more than 30 years after he died?<br /><br />I enjoy Eric's writing very much but on this issue he seems to have decided that since booms and busts are basically inevitable, we can only assign real blame to ideas and actors that he finds politically disagreeable. The financial crisis strongly suggests that markets may only be self-regulating on a time scale that most people are not very comfortable with ("in the long run we are all dead"), but somehow the big takeaway is that the Democratic Party sucks (oh, and George W. Bush too, for fair-mindedness' sake), which oddly enough is exactly what people thought before.<br /><br />This is the usual case of confirmation bias that afflicts everyone, but I really get the idea that Eric believes he is rising above politics with this stuff.Anonymous #5noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-32406098609101412312010-08-18T06:56:44.403-05:002010-08-18T06:56:44.403-05:00There seems to be a bit more to the story about On...There seems to be a bit more to the story about OneUnited Bank that's come out in the last day and that maybe Maxine Waters's grandson was the one who was overreaching. Hard to say. What seems wrong with this whole situation is that the FDIC was apparently clueless about the extent of the family investment in the bank. If they had been aware, would the conversation have taken a different direction? If I were Ms. Bair, I'd have the FDIC staff scrub every financial disclosure form of every elected official in the Congress and be sure that it knows any elected official or family member who owns equity in any insured institution. This does not exonerate Ms. Waters or her staff but it makes the FDIC staff look a bit amateurish. I wonder if the FDIC data base would allow for a search for the identity of shareholders of all banks with an ugly Texas Ratio.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-5779540479783563112010-08-18T03:22:29.105-05:002010-08-18T03:22:29.105-05:00The estimates I have seen of the total unpaid subp...The estimates I have seen of the total unpaid subprime mortgages are between 0.3 and 1.0 billion dollars. The American financial system can easily absorb this loss, or to use Rev. Bacon's expression, investment in tranquillity.<br /><br />The responsability for how and why this smallish socio-financial issue caused a worldwide panic and recession rests on the shoulders of the habitual financial geniuses. They should be hanged but not for excess greed but criminal incompetence. Hanged in effigy, may be.Jhttps://www.blogger.com/profile/05676167615981895061noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-69156568190479336002010-08-17T20:27:19.353-05:002010-08-17T20:27:19.353-05:00Eric,
Could you briefly give your take on the non...Eric,<br /><br />Could you briefly give your take on the non-U.S. housing bubbles? What you write above -- that government efforts to extend mortgage credit to marginal borrowers aggravated the housing bubble -- makes sense, but what about the housing bubbles elsewhere that occurred at the same time?Davehttp://steamcatapult.com/noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-27254812024964683822010-08-17T20:20:16.360-05:002010-08-17T20:20:16.360-05:00Eric, well done as usual. You always bring intell...Eric, well done as usual. You always bring intellectual rigor to the debate without the political spin. Unlike many others...<br /><br />Until recently, I was a career senior Examiner at the FDIC and had a front-row seat to how the FDIC failed to hear the siren call by many examiners in the field as the crisis too hold. The only explanation for this is the politics at the top of the agency, ... unfortunately a remnant from the prior Chairman of the FDIC, Donald Powell. Mr. Powell can be blamed for limiting the role of the FDIC, causing it to be to a much less effective regulator as the financial crisis took shape. While Chairman Bair is a highly regarded communicator and is heralded as being very consumer-oriented, much of this is "showmanship" with little substance. She cares much more with giving speeches than with remaining in her office and providing leadership and organizational reform. Every one of the executives hand-chosen by Don Powell remain in their key positions. Therefore, it should be little wonder why the FDIC was behind the 8-ball during most of the crisis.<br /> <br />I can tell you that politics has played a key role in many banks getting favorable treatment by the FDIC. If Congress or the public knew half the story, I am afraid that the FDIC would fare no better than the OTS. There ought to be an investigation taken up by the Justice Department not only on OneUnited Bank, but on the "skulduggery" by the agency relating to a host of other banks, such as Wachovia and Washington Mutual, Indy Mac, National City, Corus, and Citigroup.<br /> <br />The best way to clean-up the agency is to secure a safe channel for the flow of evidence by implementing whistleblower protection rights for current and former federal regulatory employees. Until that time, sadly there will continue to be costly bureaucratic cover-ups by top regulatory personnel. In the meantime, keep up your excellent reporting since the public can only help but get angry and finally seek real reforms from learning from your work. The Dodd-Frank bill does not address any of the issues of real regulatory reform as most informed observers know.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-34676203784834652172010-08-17T19:02:00.548-05:002010-08-17T19:02:00.548-05:00S - what did the UK have in common - well Northern...S - what did the UK have in common - well Northern Rock (the first Bank to go under IIRC) was offering upto 125% mortgages. Hell I got my first house on a 105% mortgage - bought at 66k in 2002 sold at peak in 2007 for 120k. Moved to Canada in 2009.<br /><br />Also how important or relevant is/was being able to just walk away from the debt. Not able to do that in the UK, as far as I recall, you are on the hook for the difference after the foreclosure sale.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-44656385176795783582010-08-17T18:32:03.905-05:002010-08-17T18:32:03.905-05:00hmm. With hindsight, I hope I would have said &quo...hmm. With hindsight, I hope I would have said "this is unsustainable, and many of these homeowners will default on their mortgages, causing them to lose the home they are getting for almost nothing, and for investors to lose a lot of money".<br /><br />The fact that investors too, made this error I think can be explained by any bubble, where some new fad comes along and is thought different (tech, railroads). Most investors believed in the same thing the do-gooders believed. Indeed, justice is generally consistent with how we think the world actually works, in that one would not think lowering underwriting standard was just if you did not also believe they were arbitrarily too high. This assumption was wrong, not everyone made it, but many did.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-73605518365639873922010-08-17T16:25:08.217-05:002010-08-17T16:25:08.217-05:00Ah yes, the Community Reinvesment Act.
Prior beli...Ah yes, the Community Reinvesment Act.<br /><br />Prior beliefs: Do-gooder racially conscious liberals suck, while markets create something close to the best of all possible worlds.<br /><br />Event: Housing bubble, collapse of investment banks, financial crisis, deep recession.<br /><br />Posterior beliefs: Do-gooder racially conscious liberals suck, while markets create something close to the best of all possible worlds.<br /><br />Come on now. To be fair, Eric writes: "Markets abetted the housing crisis as investors were co-conspirators with everyone else, but at least they learned a lesson." But I don't think this adds up to a very large shift in worldview.<br /><br />Under the "CRA theory of the financial crisis," the government strong-armed banks into making bad loans... only to watch the entire financial system eagerly devour such loans and demand more and more of them. Of course, as Eric has said many times, investors had no way of predicting the housing bubble. Fascinatingly, underwriting standards had been devastated by ACORN and Saul Alinksy but investors had no way of knowing this. Basically the idea is that political activists are destructive while market participants are following inexorable laws of nature, so whenever anything bad happens you have no choice but to blame the political activists, it's just basic logic see.<br /><br />At least Eric has not succumbed to the view that investors made all these bad investments because they were terrified of being called racist (see Stan Liebowitz).<br /><br />Eric, as a conservative you always have a choice when it comes to describing the efforts of the champions of social justice: you can classify their activities as counterproductive or merely futile. Let's circle back to 2005 or so, and say some community activist points to high rates of homeownership in minority communities, and claims this as a victory of social activism and proof of the power of progressive politics. What do you say to him?<br /><br />Is it: "Yes sir, community activists are true forces for positive change in the world."<br /><br />Or is it: "How naive, the banks made these loans because they wanted profits, let's give the credit to where it really belongs, to crafty Wall Street financiers who are normally dismissed in the popular press as being greedy leeches?"<br /><br />Or do you just wait 5 years to see how everything turns out, because there's no way of determining causality unless you know if the outcome is good or bad?Anonymous #5noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-24617485251265450162010-08-17T12:52:32.911-05:002010-08-17T12:52:32.911-05:00Barry flaked out on a debate with Steve Sailer in ...Barry flaked out on a debate with Steve Sailer in which Steve Sailer argued the same thing you're arguing above.PRCalDudehttps://www.blogger.com/profile/04536108855155262530noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-54768681862847502652010-08-17T09:54:18.380-05:002010-08-17T09:54:18.380-05:00Given that the US housing bubble was smaller by ma...Given that the US housing bubble was smaller by many measures than those in many other countries (Ireland, UK, Spain, Australia for starters), it would seem more likely to find reasons in what these countries had in common than in the US-specific programme under discussion.Snoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-44805457347444151622010-08-17T09:35:05.893-05:002010-08-17T09:35:05.893-05:00Barry, Barry, I think you've painted yourself ...Barry, Barry, I think you've painted yourself into an intellectual corner. The pat explanation that the CRA did it is wrong, but the opposite, that the housing politics was not merely insignificant, but orthogonal, is also wrong. <br /><br />You claim that those claiming housing politics created the crisis are driven by politics, so the circle is complete. Isn't it strange how debates usually converge to a point where both sides accuse the other of, at a deep level, the same thing, be it short-sightedness, demagoguery or intolerance? I think it's useful to note the motives, in that as everyone in the financial industry moved their debt/income ratio and down payment criteria, they were being cheered by academics, nonprofits, regulators, and politicians who thought this was consistent with social justice. Politics didn't lean against this crisis, it aggravated it. The lack of a year-over-year aggregate housing price decline of significant magnitude provided the other leg to this stool, which did not stand very long. <br /><br />Your 20 point explanation highlights your problem. Each point is kinda true, so the sum is some sort of Law of Large Numbers proof? No. The Talmud notes 'when a debater’s point is not impressive, he brings forth many arguments'. A diagnosis of the rise and fall of Rome based on 20 factors isn't even wrong, and so is your housing thesis.<br /><br />But I generally find your other writings trenchant.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-35211881049753927082010-08-17T09:04:53.838-05:002010-08-17T09:04:53.838-05:00These are more than "semantic debates." ...These are more than "semantic debates." <br /><br />As an investor, I am concerned with what happened, what reality was, aka, the Truth -- as opposed to those (like Mr. Pinto) who have a political agenda.<br /><br />If I deploy capital based on a false narrative, my clients lose money. Hence, getting tot he underlying facts is crucial to me. <br /><br /><br />For a fact based, data driven narrative consider this one: Understanding Context: The Housing Boom & Bust http://www.ritholtz.com/blog/2010/08/understanding-context-housing-boom-bust/<br /><br /><br />You may not find it politically satisfying, but it is based on actual data, not squishy or wishful thinking . . .Ritholtzhttps://www.blogger.com/profile/08608448405502237269noreply@blogger.com