Deep Breath Time

There has been a recent spate of attacks on several other blogs on a post I wrote, authors writing at The Confluence, and the PUMA movement in general. Riverdaughter, who I respect and like tremendously has already given her view point.  This is mine and I take full responsibility for it.

While it may be the habit of these other blogs to find their sources in the talking points of political campaigns and other blogs.  It is not mine.  These bloggers have not have checked any of my sources (which were indeed rooted in academic research and not either the MSM, the blogworld, or some political campaign with an agenda) nor have they learned anything about me personally and/or other PUMAs.  Rather they appear to rely on caricatures.

I’m not one to drag charts and statistics in to blogs when I speak about economic issues because it tends to make folks remember their economics courses and become disinterested.  When I wrote the post in question, one of my major sources was the academic work of Stan J. Liebowicz.  He is a professor of economics at the University of Texas Dallas.  This is his article cited once more for you.  It is called Anatomy of a Train Wreck: The Mortgage Meltdown Crisis .

Read this article please. If you look at his numbers you will see, that his study and that of others cited in the article do not bear out the story of a group of poor down trodden folks being lead to their demise by greedy lenders and placed in subprime mortgages.  In fact you will see that most of the problems of defaults are in the prime mortgage markets.  Increased foreclosures have happened in both the subprime and prime markets with the same intensity.  If you look at his figures, you’ll see that subprime loans do not perform any worse than prime loans.  There is no evidence to support any claim that this problem started in subprime mortgages. Both markets were hit at the same time. 

There were lax lending standards in both markets encouraged by politicans trying to appease their consitutients.  Lax underwriting standards were pushed by both Freddie and Fannie.  The executives were paid bonuses based on increased production and were not punished for encouraging bad lending practices.  If anything, they were rewarded by congressional praise and fat bonuses. These folks also encouraged the institutions they dealt with to lower their lending standards. In fact, the Fannie May foundation continually encouraged and praised Countrywide for its ‘innovative’  underwriting practices. I quote from one of their reports.

Countrywide tends to follow the most flexible underwriting criteria permitted under GSEand FHA Guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE program.

When necessary–in cases where applicants have no established credit history, for example–Countrywide uses nontraditional credit, a practice now accepted by the GSEs.

At this same time (2000), Countrywide was named “Corporation of the Year” for their outstanding work in the Latino Community.  If this corporation, was guility of preying on minorities with nasty subprime loans, you sure wouldn’t know it then.  They were being rewarded for extending home ownership. They were considered outstanding corporate citizens.  

I can cite many more examples, but rather than just paraphrase Dr. Liebowiz’s work any further or the other underlying sources he cites, go READ them.  In fact,  if you search the academic literature, you can read many, many examples of studies that cite lax underwriting standards as the problem not subprime mortgages. This is why Fannie and Freddie both failed!  They were actively buying and packaging loans that were bound to fail if the economy worsened!

I’d also like to bring to your attention this series of interviews with top financial economists done recently.  I’m using this to point to the fact that most financial economists see Fannie and Freddie and their loose underwriting guidelines as the basis of this problem rather than the subprime mortgage market.

 Economists Raise Concern about Bailout Plan

This link is worth a read.  Here’s one quote from that link.

The economists offered a range of explanations for the problems, but they did agree on a few things. All were concerned about the way that the government set up Freddie Mac and Fannie Mae, though they did not all agree that it should be fixed immediately as part of the bailout. Jon Berk pointed out:

Freddie Mac and Fannie Mae — all of us knew it was going to happen. You don’t have an implicit agreement where you cover their losses and don’t expect these types of problems (their large financial losses).

 It is worth mentiont that the aforementioned Dr. Johnathan Berk is from Standford and the on record as an Obama supporter.

Here is another point.

In addition, most of the economists criticized the federal government for restricting mortgage lenders’ ability to require down payments and properly check credit scores, but they were not unanimous on how much of the problem could be attributable to this.

On a more personal note, I think you should know that I have lived within one mile of ACORN for about 13 years now so I have some first hand experience with them.  I live in the ninth ward of New Orleans. I do not teach at a university full of happy suburban faces with rich parents.  I choose to teach at schools where many students come from the same inner city neighborhood that I live in or the surrounding rural areas. I have a Freddie loan myself.  My city councilman is black, my mayor is black, my congressman is black (although I’m hoping we can replace $Bill Jefferson with an hispanic woman or with another black man who is a state representative), my state representative is black, and my state senator is black.  If I was a racist republican redneck, I really doubt I would have made the lifestyle choices that I’ve made. I live my convictions.

Through out this election, it has become de rigueur to throw the racist label at anything that disagrees with you.  It is getting tiresome and it is densensitizing people to the true problems we still face with racism. I live in New Orleans and have seen black politicians take advantage of their constituents just as readily as I’ve seen white politicians do the same.  Enriching yourself off the vulnerable is not limited to one race or one part of the country.  It is also not limited to one political party.  Before you start throwing that label around, I’d suggest you do your homework for a change rather than jump to conclusions without citing fact or circumstance.  I’m not a Republican and I’m not using Republican talking points.  I’m an economist, and I’m using academic, peer-reviewed research.  If the data doesn’t fit your worldview, please don’t call my friends and me names because you have no other response up your sleeve.