Well I finally got around to reading Bailout Nation. If you want to save some time this morning then just go buy the book, read it and then plan on reading again in six months. If you want some color from me on why I think you should read the book then keep reading this post.
As far the general tone of the book, remember you are reading what will be viewed as a reference piece of what happened, it reads very easily and very familiarly for anyone who usually reads Barry's blog.
One thing that struck me is how many moving parts there were to this and how they each had their seat at the table contributing to the blow up. When was the last time you thought about SIVs? They were front-page important for a while there and now you probably go weeks without thinking about them. How much do remember about Indymac and what a huge player it was? How the hell could Fannie and Freddie blow up like that? Fannie and Freddie. Do you really know how insidious the entire AIG saga is?
I like that Barry goes out of his way to point readers to other references for more detail on quite a few subjects--this contributes to the blog like feel of the book. Barry chronicled most of this as it occurred so it was easy to draw from that writing to cull the book together, point being that it captures what was happening at each step along the way instead of trying to piece it together with third party info.
Barry draws many conclusions and offers a lot in the way of possible solutions. I did not necessarily agree with every conclusion however. For example Barry does not think the Community Reinvestment Act played a role in the meltdown and he thinks arguments that it did are misinformed. His argument is quite sound because as he says CRA didn't force banks to lend money to people who had no shot of paying it back. No argument.
I'm not going to out debate Barry on anything except maybe fire suppression tactics or Red Sox trivia but WRT to the CRA argument I would wonder (and to be clear I do not know the answer, just asking the question) what sort of environment CRA contributed to creating in terms of some sort of suasion that may have existed.The question is subtle, I don't think was addressed in the book and could be a non starter but there was a collective consciousness at play and it is possible that CRA contributed to it. I don't know the answer but at one point in the book Barry talks about minorities generally getting hosed because of redlining and there have been many accounts of those folks getting hosed on mortgages. The two might be connected.
Page 232 lists who is most to blame and number one on the list in Alan Greenspan of whom Barry says "history will not be kind to the Maestro."
There was a nitty gritty accounting if just about all the major players and institutions throughout the book to the point of being funny and sad at the same time.
There was quite a bit of humor in the book, there were several instances where I literally laughed out loud. I'll close out the same way I started; get the book and read it. You will know more about what happened than you do now.
14 comments:
I know you didn't ask for comments on your blog's "new look" but for this 63 year old, poor sighted male reader, I love it. No more squinting for me.
Will purchase book for Father's Day...sounds great.
Happy Father's Day to all:
"I started early teaching my kids the value of a dollar. From then on, they demanded their allowances in gold."
I concur with your comments on the current financial mess, CRA, and Greenspan. Also concur on Anon 6:02's comment on the new format; much improved, keep the white background and the font that goes easy on us with older eyes.
Thanks for the blog. You are a daily read for me.
JCarr
Have you read the Ivy Portfolio yet, Roger? Mebane has some good data up on his site, so I guess I'd better take a closer peek.
Ditto to anon 6:02. Great job.
Thanks as always.
If you have a question about the CRA, it should be this: Since the CRA hasn't been repealed or modified, why aren't the banks still making all the forced bad loans?
In the old days, banks would not lend to people who could not pay their mortgages or offer mortgages on properties not likely to be worth the mortgage over the life of the mortgage.
This was called sound banking. This was also called redlining. CRA was to address redlining.
Activists grabbed hold of CRA and other outright extortionate tactics to coerce banks into bad loans. Wouldn't it be a shame if something happened to that nice branch bank of yours in our neighborhood?
Banks countered with mortgage backed securities to bundle up mortgages into packages that included marginal loans to move them off their books.
People outside the activist/ banker dynamic noticed that there was money to be made here and moved in. People like Angelo Mozillo. They were making money, their prime directive, without regard to long term effects.
The rest is history.
Did you miss the name Aaron Task on the cover? Ritholz's unique contribution to the book is snark. I expect to pick up Bailout Nation from the remainder pile in a few months. I want to see Aaron's research.
thanks for all the input on the layout. this will be it for a while, i still expect some smaller tweaks (but maybe not).
Rustico, what you say is true however if there were a suasionary effect at work of which CRA was a small component of--well that is over so it does that does not necessarily answer my question. Again I concede it may be the wrong question.
anon 8:42 i used to work with Aaron Task when he was with TSCM he edited quite a few of my article. Further I owe him a debt of gratitude. He lent me a sport coat so I could get onto the NYSE floor for the open a few years ago. It was my first of two visits to the exhcnage floor--almost as cool as going on to the field at Fenway.
My failure to mention Aaron was not cool. apologies.
Then you are going to have to wait for Aaron's book, because 90% of the research and writing in this was mine.
I hired Task to be my editor, not my Ghost writer. I did so because a) Publishers dont edit much, and 2) I knew Aaron to be an excellent editor from our work together at TSCM.
The book was written in real time on the blog -- I would do a 500 post, get ideas and feedback from readers, and rewrite and extend the post into a 2000 word chapter.
Aaron did an excellent job keeping it focused, contributed lots of structural ideas, and also some writing. But his main job was to keep me focused and on target, and prevent me from going off on tangents.
As to your waiting for the remainder pile -- you obviously havent been reading the Big Picture, or you could afford to pay full price. Send me your snail mail address, and I will personally send you a special dispensation/hardship copy.
Hey Roger you ever look at ALFA.SEK as a nice Swedish infrastructure play? Good dividend, good products. Long since fall of 08 and rode it down and back (ouch). Good volume on it too.
cheers
>>His argument is quite sound because as he says CRA didn't force banks to lend money to people who had no shot of paying it back. No argument.<<
The CRA didn't force anyone by itself. When Barney Frank called bankers and threatened them to lower standards or else, the 'else' was the threat of government harrassment guaranteed by the CRA.
FWIW, for those further interested in the 50DMA/200DMA versus 200DMA and SMA versus EMA issue:
http://www.decisionpoint.com/ChartSpotliteFiles/090619_sb.html
At least for me, reading decisionpoint's weekly Friday updates is a must to get technical perspective. If one goes back and reads the archives, you'll see he is pretty good.
The cover art on Bailout Nation is brilliant. It needs to be a poster.
Calculated Risk provides a summary at http://tinyurl.com/l9teb6 of the most recent State of the Nations Housing report that puts another nail into the coffin of the bizarre argument that "CRA and the GSE's played a significant role in the mortgage meltdown."
Shorter version: Not that this will stop any of the nattering nabobs of the right from insisting it was really the government's fault but the worst mortgages were private label and the worst of the worst were both private and unregulated.
Richard: Guess Ken Lewis over at BoA never got that "or else" from Barney Franks. BoA was in pretty good shape until they bought up troubled companies later on. This is not to say that CRA did not make any contribution to the crazy mind set. Barry nailed it with the repeal of Glass-Steagal, which had already been violated by CitiGroup and then two years later the Commodity Futures Modernization Act. Those gave us investment bank thinking in the commercial banking world plus all the little derivatives, CDOs and CDSs, that are dicey enough when used for a few well scrutinized large investment transactions, but are totally crazy when computerized for the high-volume commercial banking world. Mike Stathis wrote about all of this before it became common knowledge, back in 2006, and predicted which financial services companies would fail and when with pretty good acuracy. Since then Mike has gone native somewhat, ranting like a mad man, so Barry offers a less emotional while equally truthfull and thorough telling of the tail. Low interest at the Fed would have still inflated housing cost and caused a little recession without the huge cash flow from the soft equities market getting diverted into commercial real estate loans, but that and the CRA might have tanked Country Wide still, but not the global financial markets and all the major investment banks in the US along with most of the hedge funds. The Great Depression originated from an over-capitalized equities market tanking commercial banks that had over-large holdings in publicly traded private corporate equity. This melt-down was from over-capitalization of the real estate market leading to real estate deflation and losses in investment banks holding the CDO and CDS obligations. Either way, Glass-Steagal made a lot of sense.
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