Financial Regulation

Barry Ritholtz Responds

|

"Peace out," says Barry Ritholtz.

Barry Ritholtz sends in this response to my comment on his recent Washington Post column: 

Dear Reason and Tim

I was disappointed to read your comments about my "Big Lie" column. You seem to have completely misread who I was blaming and what the Big Lie actually is. 

Only one of two explanations suffice:  Either I did a poor job communicating what the issue was, or you purposefully mischaracterized what I wrote. 

On the possibility it's the former and not the latter, allow me this further explanation.

The quote that I critiqued was Mayor Bloomberg's whopper that the crisis was caused by Congress forcing banks to make ill advised loans to unqualified people. That statement is demonstrably false, and it is what I wrote in the WP.  Not, as you described, that government was blameless. 

Indeed, beyond the Post column, I have pointed a finger at Washington DC repeatedly. From the very early stages of the collapse, I have stated DC was a significant contributor. Indeed, early in the crisis, I described the government as "Uncle Sam the enabler."  (A Memo Found in the Street, Barron's September 29 2008).

In the Big Picture blog, I made a list of the top blamees (Who is to Blame, 1-25, June 2009) It is dominated by government players, including the Fed, Congress, SEC, various Senators and Presidents, two FOMC chairs, the OCC, OTS, Treasury Secretaries, as well as private bankers and organizations. 

And in Bailout Nation, I clearly detail how Congress did the bidding of Wall Street to allow special exemptions, waivers, and new legislation that contributed to the credit crisis, housing boom and bust, and Great Recession.

Your cartoonish argument is reductio ad absurdum – nowhere in the WP article do I remotely suggest the "big lie" was that Washington, DC played no role. But I do call out the nonsense Bloomberg was peddling, and you are pushing, that banks and Wall Street were  merely innocent bystanders in all of this, and somehow were forced into these bad loans.

I would love to see any evidence you can muster that government forced banks to stop verifying employment and income, mandated no credit checks, eliminated debt servicing review, forced 120% LTV lending, or somehow pushed 2/28 ARM mortgages.

Less silly, please.

P.S.  The print edition of the article,  as well as my online edition has 12 points numbered, not bulleted. That's either a font or a browser issue on your end.

I appreciate Ritholtz's clarifications. If his objection is in fact limited to Bloomberg's comments, I agree with it. Presumably Hizzoner's claim that Congress forced banks to make loans to unqualified borrowers  is a reference to the Community Reinvestment Act, which is frequently blamed by conservatives and libertarians for the increase in bad lending during the real estate bubble. While I believe the CRA is a bad law and its role in the immiseration of already low-income earners deserves more attention, there is not a lot of evidence that CRA requirements played a major part in creating the bubble that has now been partially corrected (by the force of gravity, not by any new regulation or government policies — which as I have written are clearly geared toward debasing lending standards).  

The state doesn't always use direct force to cause trouble, however. Ritholtz knows enough about economics to understand that incentives matter, and the incentives that were used to inflate the real estate debt balloon included but were not limited to: tax policy; GSE involvement in the secondary mortgage market; consistent exaggeration of the benefits of home ownership by a Crony Cabal of mortgage lenders, Realtors, congresspersons and presidents going back at least to Ronald Reagan; the land use regulations that our own commenter Joshua Corning has ably described; and more than any of the above the maniacal quest for low interest rates by the Federal Reserve. 

If I'm guilty of making a cartoonish reductio ad absurdum, then Ritholtz is doing the same thing by implying I have called banks "innocent bystanders" who were "forced" into ruinous lending policies. In fact, I and many others at Reason have been arguing since before the TARP, even before the Fannie/Freddie conservatorship, that the responsible parties should be left alone to suffer the consequences of their own errors. I even think the public is better off when shitty banks go out of business. Admittedly, it's a radical position to say that you make a situation worse when you force actual innocent bystanders to bail out the willing parties to a contractual agreement, and it stops short of the Occupy movement's call for "all of Wall Street" to be arrested. But then I think we have too many people in prison in this country to begin with. Don't know how Ritholtz feels about any of this, and again, I appreciate his reply. (But I wonder what this "print" thing is he mentions in the PS.) 

Advertisement

NEXT: Reason.tv: Pot Prevails! Rob Kampia Discusses Marijuana's Recent Political Triumphs

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

    1. +1 to me

  1. Girls, please, you’re both pretty. But lenders were threatened with discriminatory lending investigations if they did not relax their standards. Thank you CRA.

    1. The problem was, among other things, this nonsense about the government trying to help everyone get a home, while simultaneously taking ridiculous steps to limit pricing based on the risk of the borrowers. The CRA is just a symptom of the overall problem.

      On top of all of that, the banks and lenders that took insane risks in loan origination and in the secondary market–largely due to the existence and policies of Fannie and Freddie and to the largely accepted belief (now confirmed) that they’d get bailed out in the event of a crash–didn’t have to pay the piper for their behavior. Sure, WaMu and a few other large financial institutions vanished, but what should’ve happened is that the banks that went nuts during the boom should’ve failed and had their assets taken over by the smarter large institutions and the more conservative mid-tier banks.

      Without a bailout, I doubt seriously that the lenders would have sat on processing foreclosures the way they have been, which is one reason housing prices haven’t gone down even further.

      1. Without a bailout, I doubt seriously that the lenders would have sat on processing foreclosures the way they have been, which is one reason housing prices haven’t gone down even further.

        From the viewpoint of govt, housing prices not going down is a good thing. Decreasing housing prices -> pissed off voters.

        1. I agree–they want to boost housing prices. It also affects assessments for local tax purposes.

        2. And pissed off teacher unions….

      2. The banks are holding back on foreclosures for several reasons. First, the mortgage servicing divisions of the banks are extracting revenue from defaulting mortgagees as noted on numerous 4closure web sites. Second, the banks have obscured the titles to properties by intentionally not registering titles as legally required with local governments; instead, they are tracked on the MERS database as part of the broader commoditization of debt. This has resulted in clouded titles, potentially thousands of lawsuits, and charges of origination fraud. Third, the banks have sold the mortgages as parts of mortgage backed securities, where the pools of debt are organized by risk levels and sold as rated securities. The ratings groups have very generously rated the securities as AAA, the best, because they were paid to. The mortgage originators saw a need and filled it as loose money sought returns in these securities, so were incentivized to commit fraud with the knowledge of the banks in the origination of the loans, jokingly called “liar loans.” If the bank has to make good on these securities marked to their actual market value, as opposed to their face value or modeled value, the banks will all crash and so will the GSEs, pension plans, mutual funds, etc. all over the world that bought these fraudulent instruments. This is why we have been playing “extend and pretend” games-to prevent an unmanaged default of the entire world financial system. The GSEs could not fiddle with these instruments like the private money could-thus the lobbying of Congress and the appreciative sympathetic ear of the then-ruling GOP who let the GSEs into the crazy market at the tail end, like the tag along little sister. This counts as picking winners and losers, however, and the losers don’t seem to own private jets or houses in the Hamptons. Go figure.
        An instructive metaphor would be Cleavon Little in Mel Brook’s Blazing Saddles, when he holds himself hostage to avoid the townspeoples’ wrath.

    2. Yes I know. Some of them were even subjected to the toturous sanction of government lifting its finger at them and saying: “naughty, naughty, naughty” if they didn’t lend at least some of the deposits from poor areas to people living in those areas. If I had been threatened with that kind of finger-lifting, I would also immediately have lend billions and billions to middle class people so they could move into bigger houses than they could afford.

  2. Re: alt text

    Pretty sure the hand gesture Barry is giving with the palm facing inward means “fuck you”, not “peace”.

    1. I’m pretty sure you are correct.

    2. I see I am too late.

    3. It is on the other side of the pond anyways. It’s a substitute for flippin the bird.

      Disclosure: I went to a limey school for 7 years.

      1. I am so sorry

      2. With usual British inefficiency, they take two fingers to signal what we Americans accomplish with one.

  3. You could take away the CRA and very little would have been different. The CRA does not require lending to people who can’t repay, and only a small portion of subprime mortgage originations had anything to do with the CRA. The primary motivator behind the bad lending practices was private sector profits. If there was coercion going on to encourage the behavior it was going in the opposite direction from what you’re claiming.

    1. That was meant for Fist.

      1. I worked at a bank in the early 1990s. I took some banking courses that they offered. One was in CRA. Care to guess the skin color of the bank’s CRA officer? Yes, the bank had to pay someone to be their CRA officer, to make sure they weren’t “REDLINING”, that is, denying mortgages based on neighborhood. That’s where liberals reveal themselves to be economic illiterates. If a lender can expect to make a profit on a loan, it makes that loan. If it expects to lose money, it turns the loan app down. Since the War on Poverty has reduced some neighborhoods to war zones, thus making lending there to be risky, the liberal statists have to force the banks to make those loans. Or they don’t get their charter renewed, can’t expand, can’t buy other banks, etc.

    2. This is crap. The CRA does require making loans that a bank would not willingly make on its own, and Congress and the bureaucrats doubled down on the CRA by pushing harder and harder for the banks to lend to increasingly marginal loan applicants, with the threat of doing nasty things to the banks if that loan volume did not increase.

      Basically, there was the “old” CRA, and then a policy change was made that effectively made it into the “new”, much worse, CRA.

      The CRA was only one piece of the government’s coercion leading to the perverse incentives that caused the mess, but it was a very big piece, and to claim that if that legislation had been repealed a decade ago that things would have turned out exactly the same is delusional.

    3. The CRA does not require lending to people who can’t repay, and only a small portion of subprime mortgage originations had anything to do with the CRA.

      No but that was the effect of the policy. Watch here as HUD secretary Andrew Cuomo beats his chest about forcing Accubanc to make available “$2 billion to families of low or moderate income across the country for mortgages …”

      http://www.youtube.com/watch?v…..r_embedded

      1. Liberals are sickening.

      2. “Every empirical study that has looked at CRA loans has concluded that they were safer than subprime mortgages that were purely profit driven, and CRA loans accounted for a tiny fraction of total subprime mortgages.”

        1. Science, Tony, that is super-stupid, even for you.

          The loans that were forced upon the company produced better than the ones they choose of their own free will? Because government knows better than banks who is most likely to pay? Wait, the government wasn’t concerning itself with who could repay, but they just got lucky and picked winners?!!!

          Science H. Logic!!

        2. “Every empirical study that …

          Good job Tony … ignore the fact that Cuomo held a gun to banks head to make loans to people who never should have gotten them, all based on a flawed study by the Fed (The Fed is the source of some of these “empirical” studies). In effect the CRA increased demand in the housing market. Tony, do you know what happens when demand increases? Thats right Tony, prices increase. The increasing prices made a lot of people think they were richer than they really were (not just CRA beneficiaries). Some took out equity loans to buy a boat or some other luxury item … others treated housing as an investment. Hell there was even a TV show called “Flip my house”. You see Tony a “consensus” doesn’t impress me. If you can’t make an argument without resorting to an appeal to authority then you are not thinking for yourself. You are intellectually lazy.

          I have read a few of the “empirical” studies and none of them approach it from ‘how did CRA affect market demand and prices’. Care to show me one?

          1. Actually, appealing to relevant authorities is the best thing I can do to convince you, since I am not myself an economist. The problem is you have a politically colored set of beliefs and nothing anyone says is going to change it. In theory if I tell you that all empirical research has indicated something, then you need to show why they’re wrong and not invoke conspiracy theories.

            1. Actually, appealing to relevant authorities is the best thing I can do to convince you, since I am not myself an economist.

              I don’t have to be a car mechanic to know if I got a lemon. And if you’re ignorant of something why do you think you are in a position to convince other people of your belief? Do you think you have a special connection to the high priests of reality? Are you just arrogant?

              The problem is you have a politically colored set of beliefs and nothing anyone says is going to change it.

              You are projecting Tony. You are the one that doesn’t appear to have read any of the studies. You are the one with the unquestioning “politically colored set of beliefs” but absolutely convinced you are right. You are the one arguing from ignorance. How pathetic.

              In theory if I tell you that all empirical research has indicated something, then you need to show why they’re wrong and not invoke conspiracy theories.

              Conspiracy theories? Where did I “invoke conspiracy theories” Tony? I actually read some of the studies, you did not. I asked a relevant question. How did CRA affect market demand and prices? You have no answer to that question and none of the studies apparently have either. Since supply and demand is pretty basic economics a failure to address it makes that “empirical research” bull shit. There you go Tony, the studies are inadequate for a very fundamental reason. Failure to address supply and demand. So “in theory” you will believe politicized pap passed off as “empirical research” because you are to intellectually lazy to actually read it and find out if it is what it portends to be. You Tony, are a useful idiot.

  4. Reductio ad absurdum is a valid logical argument, not a fallacy as Ritholtz implies. Of course, neither of you are making that form of argument, which involves showing that your opponents claims, taken to their logical conclusion, produce an absurd result.

    I think he’s referring to a strawman, not RAA.

    1. Hey, you say strawman, I say argumentum hominis stramine facientis. And I say it loud and proud!

  5. “But I do call out the nonsense Bloomberg was peddling, and you are pushing, that banks and Wall Street were merely innocent bystanders in all of this, and somehow were forced into these bad loans.”

    I’ve read most of what Cavanaugh’s written here for years, and I never had the impression that Cavanaugh thinks Wall Street is blameless in this.

    I’m almost certainly more pro-Wall Street on this stuff than Cavanaugh, and even I don’t think Wall Street was blameless. I just think they should have suffered the consequences of their poor choices and left it at that.

    I look at Lehman and Bear’s lagging effect on the economy, and I wish some of the others had gone just like them. I look at things like Countrywide and Merrill Lynch dragging on BofA’s earnings, and I don’t think to myself, “Gee, aren’t we glad they didn’t go the way of Lehman and Bear.”

    A lot of people are talking past each other these days. I’ve seen people make assumptions about Cavanaugh before that weren’t true–notably on television when someone seemed to think that because he was criticizing the finances of certain municipalities, that must have meant Cavanaugh was standing behind the most extreme interpretations of Meredith Whitney’s…

    People think just because we’re libertarians, that means we’re guilty of all the intellectual sins that have been attributed to Ron Paul Moonies or Tea Parry people over the years…

    It’s hard enough to talk through these things and get our voices heard without also having to counter all the libertarian monsters in everybody’s heads. Tough job.

    But Cavanaugh’s great at it!

    1. Tea Parry

      Which law is it that the typo is funnier than the original comment?

      1. Rc’z Law.

        Thanks for asking.

  6. P.S. The print edition of the article, as well as my online edition has 12 points numbered, not bulleted. That’s either a font or a browser issue on your end.

    In Google Chrome, it’s bullets, then numbers (4-9), then bullets again, which means it’s a coding issue on WaPo’s end, actually.

    Also, I don’t see Ritholtz backing away from his cliched invocation of the largely irrelevant Glass-Steagall.

    1. Same in Lynx.

      At first I thought “my online edition” referred to another post in his blog (as opposed to the WaPo version) but there is none. And of course the print edition status is essentially unverifiable.

      1. >He uses in lynx….

        Seriously, best web browser, or best web browser?

        1. You can drop the ‘in’…

    2. It’s hard-coded into the text. Instead of using list items to automatically turn into bullets or numbers, they’re paragraph tags.

  7. And the whole point of the blame game is what are the appropriate policies, right? Correct me if I’m wrong but isn’t the libertarian position that the banks ought to be able to engage in the same practices that led to the problem, only we promise not to do bailouts when it all goes to shit? Except aren’t we still trying to recover from the global financial crisis that resulted, and which everyone thinks would have been much worse if more firms were allowed to do a Lehman? The whole point is that it’s not just individual bad actors who were punished for the behavior, but everyone involved in the system.

    1. So why didn’t the banks engage in those practices prior to the CRA?

    2. You seem to be suggesting that things would have been better if we hadn’t bailed out Wall Street, Detroit, homeowners, et. al. Because limiting the damage to the people who willingly put their money at risk–would have been better for the rest of the country and the world?

      Well done, Tony!

      There’s just this one nuance I always see you trip on.

      A society in which people are allowed to do things–but only so long as it doesn’t negatively impact anyone else–is not a free society.

      I’m not here for your benefit.

      Just because I shouldn’t be compelled by the government to bailout Wall Street is no reason why individuals on Wall Street shouldn’t be free to invest their money as they see fit. If you’re gonna start circumscribing my freedom every time it might negative impact other people, there’s not gonna be much freedom left.

      1. I’m saying we wouldn’t be better off without the bailouts (unless even more aggressive action happened in its place). The entire global economy was negatively affected by these “investments”–a reality of the modern marketplace and especially with finance that libertarianism just doesn’t have a good answer for.

        1. a reality of the modern marketplace and especially with finance that libertarianism just doesn’t have a good answer for.

          I always hear “libertarianism doesn’t have a good answer for _____”. And in almost every case, the true thing to say is “I don’t like the implications of libertarian’s solutions.”

          That’s because you’re looking for a an answer that will fix the problem and keep every government manipulation you favor in place. The problem is, and always has been, that these manipulations are unsustainable.

          No statist wants to hear that, so they stick their fingers in their ears, saying “lalalala” when libertarians offer actual solutions.

          1. Yeah I don’t like the implications. Civilization is a delicate thing and it won’t be maintained by a holistic and simplistic political ideology. The fact of the matter is too much financial innovation, hedging, and bubble inflating was allowed in the private marketplace. Government is totally to blame, but the answer isn’t get rid of government. That’s the answer you have for everything. The problem here wasn’t too many rules, the Big Lie explained here notwithstanding.

            1. If you’ve figured out a rule to keep money and power from finding each other, I’d love to hear it.

              1. Ditto for his rule to stop “hedging and bubble inflating” from happening again. We’re on about the 20th try or so and still not getting any better at it.

                We just can’t help ourselves: http://www.youtube.com/watch?v=qH2f4iyy1k8

    3. which everyone thinks would have been much worse if more firms were allowed to do a Lehman?

      No, not everyone believes this. The correct belief is in questioning the inconsistencies: why AIG, why not Lehman, why Bear Stearns, why not Washington Mutual.

      When no one knows who will be bailed out based on what criteria, that causes uncertainty, which is where we find ourselves now.

      1. No argument from me that it was a clusterfuck of unfairness and moral hazard, but letting everything fail would have meant all the more problems for real economies.

        1. Is there any situation that the economy could go through that you wouldn’t think the bailouts were necessary? We’re already going through the stagnation and continued bailouts predicted by many who opposed the original bailouts. Shit, we took it global.

          1. Of course, an economy in which the risk of individual companies was shielded from affecting the system as a whole. We wouldn’t need bailouts with a stronger government with better rules, but that’s never ever going to be your solution for anything is it?

            1. We wouldn’t need bailouts with a stronger government with better rules,

              We didn’t need bailouts as is. But, by all means keep parroting what your corporate masters tell you.

  8. The primary motivator behind the bad lending practices was private sector profits.

    In that case, rescuing/guaranteeing profits where none should exist does not exactly improve the incentives.

    1. You know what else was motivated by private sector profits?

      1. According to many absent posters, Shyrim.

        1. And I even hit preview first… SKYRIM!

      2. Anna Nicole Smith?

        1. Me?

  9. One of the other things that interesting in all this, in reference to Glass-Steagall, is that there were an awful lot of people who were applauding when the federal government was seizing weaker retail banks like Washington Mutual and selling them to investment banks like JPMorganChase. When they were…ahem…cobbling together Merrill Lynch with BofA.

    An awful lot of people stood on sidelines and cheered that on back then, and it’s just interesting that what a lot of people think is good for the stability of the economy seems to change–depending on if we’re in crisis mode.

    If in certain situations it behooves us in the name of financial stability to allow stronger institutions to bid on and own weaker institutions, then it’s probably not a good idea to make that illegal. I mean–hell–isn’t stronger institutions bidding on weaker ones the alternative to bailouts?

    This is probably a good test for whether something like Glass-Steagall was a good idea–if a regulation needs to be abandoned in real time during an economic crisis, then that’s probably a good reason why it shouldn’t require an act of Congress to get rid of it again.

  10. P.S. The print edition of the article, as well as my online edition has 12 points numbered, not bulleted. That’s either a font or a browser issue on your end.

    I opened the article in Internet Explorer 9, Firefox 8, and Chrome 15, and all three had the mixed bullets and numbers just as in the original blog post.

    1. Lynx too, which means I doubt it’s the font either.

  11. Correct me if I’m wrong but isn’t the libertarian position that the banks ought to be able to engage in the same practices that led to the problem, only we promise not to do bailouts when it all goes to shit?

    Once again your ability to be intentionally obtuse is impressive.

    Absent the “safety net” of bailouts, those practices might have been contemplated (perhaps even tried by a few brave souls), but would in all likelihood have been discarded in favor of policies likely to generate sustainable profits.

    1. Maybe, but I don’t see how you completely eliminate the possibility of bailouts when their whole purpose is to shield the rest of economy from damage. How do you eliminate the systemic risk in our financial system just by leaving them alone?

      1. Don’t micromanage how they are run. Tell all business: no bailouts. Hundreds of American car companies have gone out of business, leaving not a Big 3, but a Last 3. Somehow, cars kept being built, and improved. As a liberal I assume you’re believe in evolution. Survival of the fittest works.

        1. My impression was that the Big 3 leaned heavily on government to restrict other competitors and that’s why there is a Last 3. The movie Tucker, if it can be believed, chronicles some of this collusion.

      2. “I don’t see how you completely eliminate the possibility of bailouts when their whole purpose is to shield the rest of economy from damage”

        Bailouts don’t shield the rest of the economy, they MAKE the rest of the economy eat the losses. Letting individual banks go bankrupt and be dismembered by their more healthy brethren would shield the rest of the economy.

      3. You’ve got it completely backwards, Tony. There was a policy of serial bailouts put in place, going back all the way to the Penn Central bankruptcy (and chronicled in Ritholtz’s own Bailout Nation) which aggravated and amplified systemic risk. The mechanism is pretty simple, as investors see that the extra potential rewards from higher leverage are not offset by any potential threat of failure (which the government is promising to prevent with its backstops), so debt ratios get run up to the moon until you eventually create a crisis situation that’s too big to bail. 2008 didn’t quite get there but some other crisis down the road will.

        In the depths of the Great Depression, when real GDP had fallen by half, only about 2% of the US banking system was considered insolvent, despite the government’s willingness to let bank failures run their course. In 2008, by contrast, the GDP only fell by a few percentage points at most, but nearly half the banking system was seen as potentially insolvent. Bailouts clearly have a much *worse* track record for handling systemic risk than allowing failures does.

  12. If Cav just learned how to read better instead of frothing at the mouth the minute someone doesn’t make a 100% blame-the-gov’t argument, this whole back and forth could have been avoided.

  13. Wait, so how exactly is Ritholtz a libertarian?

    1. He’s not. I’d say somewhere between a neo-liberal and a left-leaning Republican. His blog comment-editing policy gives the impression he’s hard-TEAM BLUE-left. “Shrike” is almost a composite caricature of several frequent The Big Picture commenters

  14. Obviously Libertarianism is one great big Turing Test of some new government computer. Basically you put in some situation and out pops a computer-generated “blame the govm’t” response. I strongly suspect that sites like Reason will ultimately be exposed as an elaborate government conspiracy to give us the illusion of a free-thinking society.

    1. Terrible joke? Retarded leftist? Brilliant satire of a retarded leftist?

      And is there really any difference between the three?

      1. Sadly, I don’t think it’s satire.

  15. you put in some situation and out pops a computer-generated “blame the govm’t” response.

    Unless the response is “blame the gov’t for not doing *enough*.”

    1. The gov’t never does *enough*. The fact that rich people still exist is proof.

  16. I seem to remember Herbert Hoover pushing homeownership and cheap loans for the same as Commerce Secretary, and then as president…so this notion in thepoliticians minds of homes (houses, not just a place to live) being necessary to prosperity is mich older than Reagan.

    1. Many have confused effect with cause – they think home ownership causes responsible citizenship, when in fact responsible citizenship creates home ownership.

  17. I would love to see any evidence you can muster that government forced banks to stop verifying employment and income, mandated no credit checks, eliminated debt servicing review, forced 120% LTV lending, or somehow pushed 2/28 ARM mortgages.

    “Forced” is a pretty meaningless concept in this case.

    How about, “Government, by maintaining effectively negative interest rates from 1996-2006, destroyed any ability for retail banks to invest in guaranteed securities (a la treasuries), or for consumers to build any wealth from savings… and both institutions and individuals were *effectively* forced to invest in either risk-assets (e.g. equities), or hard assets, like *a home*. Government wanted to incentivize everyone doing the latter, believing that a higher proportion of home-ownership has both social benefits, as well as providing additional tax revenue on property.

    Basically, the rush to try and ‘securitize’ every mortage in America was basically incentivized by government, enabled by GSEs, and in cases, was the direct *goal* of some government policies.

    The fact that it turned into a hyperinflation of home prices was a direct, albeit unforceen consequence of Government policy.

    also, this…:

    stop verifying employment and income, mandated no credit checks, eliminated debt servicing review, forced 120% LTV lending, or somehow pushed 2/28 ARM mortgages.

    But the truth is, these things were not done by private “Banks” in the traditional sense either… but rather a wide array of mortgage originators, all of whom were utilizing the blank-checkbook approach of Freddy and Fannie, who would underwrite just about *anything*, and were encouraged to do so by their Buttfucking ‘regulators’ (see:Barney Frank)…

    Thee lowering of standards was primarily the decision of regional originators, because of the massive increase in the demand for MBS products. Accusing Goldman Sachs or somebody of “not doing credit checks” is as false a statement as saying “Government forced people to make bad loans”… They didn’t do any such thing… directly… but each of them in turn created influence for exactly that situation to take place.

    The way you figure out who’s “to blame”, is look at the top of the pyramid. No cheap money policy? No asset bubble. End of story.

    1. No cheap money policy? No asset bubble.

      Bolded for extra emphasis.

    2. GILMORE wrote: “The fact that it turned into a hyperinflation of home prices was a direct, albeit unforceen consequence of Government policy.”

      I know this is nitpicking, but it will show the bias.

      The way you use the term Government Policy is kinda like saying General Electric’s actions are the same as “US Policy”. While they are related, it is hardly a meaningful statement.

      The Fed started the whole debaucle by ZIRP. The Fed is not really the same as “the government” any more than if I were to call Mitch Daniels or the NCAA “the government”.

      C’mon people, this isn’t hard. If you want to know the answer to a question, you must begin by understanding your own bias or you will forever be shadow watching in a cave…http://en.wikipedia.org/wiki/Allegory_of_the_Cave.

      I know you all want to kill government, but let’s keep the arguments tight.

      Your namesake is also my favorite guitar player…

  18. I notice he didn’t try to explain why Gramm-Leach-Bliley was to blame for the crisis.

    1. Dick: NO DOUBT!

      I am EQUALLY glad Ritholz didn’t feel the need to explain “reductio ad absurdum” either. Thankfully he treated us all like adults who can connect simple dots ourselves.

  19. I don’t see how you completely eliminate the possibility of bailouts when their whole purpose is to shield the rest of economy from damage.

    This only even makes sense in the context of your (libprogs generally) continued idiotic attempt to declare the failure of Lehman as Day Zero of the “collapse”.

    If the preceding fifty years or so of moral hazard had not been allowed to happen, there would likely have been no bubble; it certainly would not have had the size and scope of what we got.

  20. I don’t see how you completely eliminate the possibility of bailouts when their whole purpose is to shield the rest of economy from damage.

    There is no hope as long as this remains the conventional wisdom. And not to put too fine a point on it, but this one really is All Bush’s Fault.

    1. Yup, Paulson had nothing to do with it. congress didn’t vote for it, and the media didn’t use doomsday fonts to spread the stupid. Yup.

      1. Paulson worked for Bush. TARP failed to pass the first vote in Congress and only passed after extreme arm-twisting by the Executive branch. All Bush’s Fault is accurate.

    2. The fewer barriers between wall st. and government, the more likely bailouts, rather than more prudent action, will happen. Even if you think letting the banks all fall would have been a contained thing, how exactly do you ensure no bailouts unless you have strict rules separating private profits from public service? Which of those rules do you endorse?

      1. There was a document we used to follow which would have prevented bailouts. But it’s like, a hundred years old or something. Nobody really understands it anymore. I don’t think it’s even in english.

        1. INNURSTATE COMMERS CLAUZE!!!

    3. Tim:

      Correct! As long as bloodletting was seen as a cure, people bloodlet the sick.

      As an aside, in a capitalist system, there are no such things as bailouts. Only when theives make the rules do such things happen.

      And the decisions of how to react to the financial crisis were all set in motion under GWBush. And yes, those that did the actual lifting during this heist got promoted and rewarded by those that made off with the cash.

      Talk about Moral Hazard…

  21. I love that your reply to Ritholz is so withdrawn and muted. Tough talk till a superior intellect comes to town. Now run off back to your swamp.

    1. If by “run off to your swamp” you mean “get his permission to reprint his personal email in full, then give a three-paragraph reply noting where you agree with him, where you disagree with him, what work you and others have done in support of your views and how you feel he distorted your views in the same way he accused you of distorting his,” then yes, I’m running back to the swamp.

  22. As for the messed up bullet points/numbers has anyone checked the code:

    ?Fed Chair Alan Greenspan
    7 The demand for higher-yielding paper

    That’s not a problem on our end buddy.

  23. The moment someone says: “Only one of two explanations suffice…” then you know they are stacking the deck for their argument. Rarely is life so simple that only one of two explanations suffice.

  24. Ritholtz still can’t see the Big Picture when it comes to the housing crisis.

    Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rates, and launched what would prove the costliest social crusade in U.S. history.

    At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

    http://news.investors.com/Arti…..589858&p=1

    Fact of the matter is, there exists a belief among many policy makers (on both the left and the right) that home ownership is some kind of civil right. Until this changes, we’re in for more pain.

    To his credit, Ritholtz does get things right most of the time.

    1. ZIRP led to a general thirst for yield beyond typical avenues for large institutional investors (Demand). Newly devised SIVs were created which allowed subprime debt to be rated AAA based on faulty math (Supply). If the CRA was even a minor cause of the housing debacle, then why is the housing crisis global? Belgium and Ireland did not have CRA nor did it have large numbers of black people renting houses. You people are delusional and would believe a gnome lives in your nose if Fox News reported it to be true. It was the dumming down of this mag that caused me to cancel my 15 yr subscription about a decade ago now. I see that hasn’t changed much.

  25. Excellent post. I was checking constantly this blog and I’m impressed! Extremely helpful information particularly the last part I care for such information much. I was seeking this certain information for a long time. Thank you and good luck.

Please to post comments

Comments are closed.