{"id":1908,"date":"2008-10-02T19:05:38","date_gmt":"2008-10-02T19:05:38","guid":{"rendered":"0"},"modified":"2008-10-02T19:16:10","modified_gmt":"2008-10-02T19:16:10","slug":"looks_like_cra","status":"publish","type":"post","link":"http:\/\/marcdanziger.com\/?p=1908","title":{"rendered":"Looks Like CRA Didn’t Cause It After All…"},"content":{"rendered":"

Just went to a presentation at the Milken Institute on “Demystifying the Mortgage Meltdown: What It Means for Main Street, Wall Street and the U.S. Financial System” (video here<\/a>). And it was v. interesting in a number of ways.<\/p>\n

It also reminded me how toxic, partisan, and useless most of the discussion of the issue has been over the last month. On both sides.I’ll try and do a longer post on it (or add to this one) if I have time later, but for now one quote is worth noting immediately. In response to an audience question that asked, in short, whether the CRA requirements imposed by Congress were at the root of the problem, the answer was a resounding “no”.<\/p>\n

We looked at CRA pools and the [post-default] returns on them is higher than the equivalent return on conventional pools.<\/i><\/p><\/blockquote>\n

In a nutshell, they blame the crisis on three things: <\/p>\n

*A massively overleveraged financial sector (with FHLMC as the worst culprit);<\/p>\n

*Horrible underwriting at every level from loan origination to S & P;<\/p>\n

*’Toxic’ loan products which – combined with poor underwriting – allowed unqualified borrowers to take out loans they never could have been expected to repay.<\/p>\n

Those loans were immediately securitized into the highly overleveraged financial institutions – instead of being held by the originating institutions which would have had skin in the game as to real loan quality – and when they unsurprisingly blew up, the negative leverage effects killed the institutions. This was, of course, made worse by the array of poorly designed (but fee rich!) risk-managing tools that made up much of the secondary markets (see Taleb’s Black Swan yet again)<\/p>\n

Check out the pdf Powerpoint<\/a> of their presentation.<\/p>\n

One other note – in slide 78 they show a very disturbing survey which demonstrates how little consumers know about the loans they are taking out. I’ve been cynical about loan disclosure standards as a tool for improving loan quality, but this slide is seriously changing my mind.<\/p>\n

Right now I’d love to ask the partisan hacks weighing in on these issues take a steaming cup of STFU and let the rest of us sit down and try as best we can to figure out what’s really going on.<\/p>\n

One of those things is apparently a fairly healthy base economy – productivity of labor and capital continues to improve in the first part of 08, and their argument is that the ‘Main Street’ economy is not going to be nearly as badly hit as the ‘Wall Street’ economy. <\/p>\n

That’s borne out by my personal experience; I’m in the middle of setting up some six-figure lines of credit for a company I’m a partner in, and we’ve received three attractive proposals in three weeks of looking.<\/p>\n

More later…<\/p>\n","protected":false},"excerpt":{"rendered":"

Armed Liberal goes to mortgage school.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"_links":{"self":[{"href":"http:\/\/marcdanziger.com\/index.php?rest_route=\/wp\/v2\/posts\/1908"}],"collection":[{"href":"http:\/\/marcdanziger.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/marcdanziger.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/marcdanziger.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/marcdanziger.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1908"}],"version-history":[{"count":0,"href":"http:\/\/marcdanziger.com\/index.php?rest_route=\/wp\/v2\/posts\/1908\/revisions"}],"wp:attachment":[{"href":"http:\/\/marcdanziger.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1908"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/marcdanziger.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1908"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/marcdanziger.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1908"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}