Hmm...

[elfs]

In a review of the book Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon, Jeff Madrick and Frank Portnoy write a scathing pushback against the book's thesis that Fannie Mae and Freddie Mac, or positive regulatory policies, bear the brunt of the responsibility for the market shock of 2008:

Private lenders made far riskier loans than GSEs [Fannie Mae and Freddie Mac - elf] bought or guaranteed, especially during the 1990s, when subprimes issued to borrowers with low income and poor credit were relatively new. You will not read in Reckless Endangerment that the GSEs bought very few subprimes in these years. Rather than leading the way, Fannie’s market share of the low-income home buyers fell behind private industry’s far riskier lending to poorer home owners and others.

The increased risk-taking of the GSEs during the 1990s, far more modest than what was to come in the 2000s in the private sector, had no bearing on the financial crisis of 2007 and 2008.

...

The GSEs never took nearly the risks that the private market took. Still, when housing prices collapsed so sharply, even modestly risky and traditionally safe mortgages produced losses. The risky lending was not driven by the affordable lending goals; nor did it cause the crisis.

...

Contrary to many commentators on Reckless Endangerment, and to its chief claims, it was Wall Street, not the GSEs, that fundamentally caused the 2007–2008 crisis, which was driven not merely by a headlong pursuit of easy profit but also by ethically dubious practices.

Hmm... I currently have this book on hold at the library. It's hold #108 on 40 copies. It'll be a while before I get my hands on it. #Should I cancel the hold?

Comments

[shockwave77598.livejournal.com]

The whole of the problem with our current economic model is this -- the stock prices MUST keep rising, at all costs. This is of course impossible, but everyone keeps pretending and striving for stock uber alles anyways. And eventually, when the credit engine stalls and the stocks nosedive, it all collapses.

There needs to be an additional factor besides quarterly profits. The value of the company should include "long term health", so CEOs can't just fire everyone to instantly make the costs zero while destroying the company, just to boost the stock price. How many companies in the past boosted their stock by laying people off? How ARE those companies doing today?

[kengr]

Alas, a Supreme Court decision says that if the stockholders want short term profits, the board of directors *cannot* go for lesser. long term profits, *even if it will be bad for the company*.

That made stock issuing companies have the same problem that pure democracies have. The voters can go for "bread and circuses" and run things into the ground.

*sigh*

The whole *point* of having representatives, be they Congresscritters or a board of directors is that they are supposed to be *smarter* and act as a *check* on the voters stupid impulses.

But we've thrown that out the window.

It's an excellent book, but...

[ideaphile.livejournal.com]

You won't like it.

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A coincidental reference

[ideaphile.livejournal.com]

I mention this here because I just ran across it:

http://www.federalreserve.gov/newsevents/speech/duke20090224a.htm

This is a speech by Elizabeth Duke in early 2009, explaining how the CRA (and, by extension, Fannie Mae and Freddie Mac) created perverse incentives that grossly distorted the entire banking industry and led to the financial collapse of 2008-- and, somehow, concluding that the CRA had nothing to do with it.

Indeed, she takes the position that the CRA should be extended to all kinds of financial service companies. Imagine what would happen to credit-card companies, or the layaway department at Target, if the government demanded that they offer some arbitrary level of service to people who are entirely unworthy of credit.

Oh, the fun we'd have.

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