Coruscation

If this works then why are you telling us about it and not doing it yourself?
There are many responses, including Wilmott's response:

1. I don't have the ability to do it myself, this is my marketing pitch, want to back me?

2. Ideas are cheap, I know which ones are good or bad but not everyone can tell the difference

3. Do you know all the barriers to entry? $1million in lawyers fees to set up a fund, months of software writing, years of knocking on doors trying to raise money. Forget it!

4. This is a great idea, but I've got better

5. I don't want to spend the rest of my life doing this, even if it is profitable, variety is the spice of life

6. I did, and now I've retired or, more simply, I've got enough money already

7. My lawyer/doctor/wife says I mustn't

And, Of course, if this worked in practice I wouldn't be telling you about it.

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Can you park here now ?

Posted in NY transit language.

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Does the recession leave more or less free time ? The evidence is mixed.

Raoul Felder, the Manhattan divorce lawyer, said that cases involving financiers always stack up as the economy starts to slip, because layoffs and shrinking bonuses place stress on relationships -- and, he said, because "there aren't funds or time for mistresses any more."

Once it was seen as a blessing in certain circles to have a wealthy, powerful partner who would leave you alone with the credit card while he was busy brokering deals. Now, many Wall Street wives, girlfriends and, increasingly, exes, are living the curse of cutbacks in nanny hours and reservations at Masa or Megu. And that credit card? Canceled.

Many of the women said that as the economic crisis struck last fall, they began tracking the markets during the day to predict the moods that the men they loved might be in later. On big news days, like when the first proposed government bailout failed in Congress, or when Lehman went belly-up, they knew that plans to see their partners would be put off.

"I was like, 'O.K. I signed up for that, it's fine,' " said Ms. Cameron. "But all of a sudden," she said, her boyfriend "couldn't focus. If he stayed over he'd be up at some random hour checking his BlackBerry, Bloomberg and CNBC."

DABAGirls.

NEW YORK REGION
It's the Economy, Girlfriend
By RAVI SOMAIYA
Published: January 28, 2009
A group called Dating a Banker Anonymous offers support to women whose romantic relationships have suffered from the economic downturn.

See also Leveraged Sellout and Bankers Ball.

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The companies doing the least hiring right now are very often the companies that offer the safest jobs.

-- Susan Houseman, a senior economist and labor expert at the Upjohn Institute, a research group in Michigan.

With employers shedding half a million jobs a month, some economists, like Nancy Folbre of the University of Massachusetts in Amherst, liken safe jobs to high ground amid the turbulent flood waters of lost employment.

"There is a danger in using the term 'safe jobs' for this perch," Ms. Folbre said. "That makes them sound like sinecures, and they are not."

BUSINESS
Bad Times Spur a Flight to Jobs Viewed as Safe
By LOUIS UCHITELLE
Published: January 25, 2009
There is a new allure around jobs likely to keep a person employed, at reasonable pay, through a prolonged downturn.

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He woke as usual at 5 a.m., swam a mile at the Y, read papers and was in the office at 7 for the senior staff meeting at 7:30. There was a meeting in the Situation Room about Afghanistan, a leadership meeting, a conversation with the Senate majority leader, Harry Reid, a meeting with Senator Orrin G. Hatch, budget meetings, several conversations with the president.

He has be equally solicitous of Republicans in Congress (who also have been given access to Mr. Emanuel's private contact information). On days he does not swim, he works out -- and conducts business -- at the House gym: 25 minutes on the bike, 20 minutes on the elliptical, 120 sit-ups, 55 push-ups and many sweaty conversations with his former colleagues.

U.S. / POLITICS
Partisan, Playful and Profane, Obama Aide Tries to Hold It In
By MARK LEIBOVICH
Published: January 25, 2009
Rahm Emanuel is reconciling his bombastic ways with the cool and deliberate style of Obama World.

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I think it's wise to be wary of nationalization. It should be a last resort, and I've gotten a sense recently that a lot of people are talking about it awfully casually. Still, it's true that there are some benefits to nationalization, and one of them is that it allows us to avoid the problem of valuing and buying up toxic assets from troubled banks. If the government owns the whole bank, then the bad stuff can be easily hived off without any kind of valuation at all, and then left to sit for a while before it's sold off.

-- Kevin Drum

and gets comments like

First, from the perspective of national goals, the American financial and banking system has been a dismal failure, with real industries, most particularly capital goods, and public infrastructure, STARVED for funds for almost three decades now. Instead, the financial and banking system has supported ever increasing debt, and ever more complex derivatives based on that debt, none of which has done an iota of good for the real economy.

-- Tony Wikrent

The best way for the government to avoid the obvious outcome in such a situation is for the government to take over and run the bank: nationalization. Since the government has an interest in protecting its own liabilities, rather than maximizing shareholder value, the chances of crazy gambles will be minimized. In any case, since the government is taking virtually unlimited downside, it should by rights have all the upside as well -- i.e., ownership.

-- Felix Salmon

and gets some smart comments (David Merkel)

Debt-for equity cramdowns may not work in some cases because at larger banks the debt is usually at the holding company, and the bad assets are at the operating banks subsidiary. Better for the FDIC to force some sort of compromise where the operating subsidiary is made whole, while forcing holders of securities in the holding company (common, preferred, sub debt, sen debt) to face an uncertain future, while the healthy bank subsidiaries continue to operate.

Our biggest banks would identify their bad loans and foolish investments. And they would then pay a fee to a new state-backed insurer to protect themselves from losses over a certain level on these stinky assets.
But the banks would retain these bad assets on their balance sheets. They would not be transferred to a new toxic bank. We as taxpayers wouldn't own the stinky loans - though we would be liable for losses on them over a certain level

-- Robert Peston

Finally, Eugene F. Fama has the clearest mind:

The FDIC may simply shut the failed bank, auction its assets, and use the proceeds to pay off depositors and other liability holders in order of priority. If the market value of the failed bank's assets is less than its insured deposits, the FDIC supplements the bank's assets to pay off the insured deposits. If the FDIC charges appropriate premiums for deposit insurance, the insurance is a fair game and does not produce losses for taxpayers, at least on average.

There are many variants of FDIC intervention, but they typically have one common property. They solve the debt overhang problem. Non-insured debtors are paid off only to the extent that the market value of the assets of a failed bank exceeds its insured deposit liabilities. This means that any new equity capital injected after the reorganization increases the market value of assets and the market value of equity capital dollar for dollar.

And pithy:

The Fed's advantage over the Citis and Wamus: No shareholders, no reporting requirements, zero transparency, and no mark-to-market.

To quote Mel Brooks, "Its good to be the king . . ."

Willem Buiter.

Note that the guarantee component of the Bank of America package (like the earlier insurance of/guarantee for $300bn worth of Citigroup toxic assets provided by the US Treasury) does not avoid the problem of valuing the toxic assets. The problem of determining a price or value for the illiquid assets stopped the TARP from being used as originally intended - for buying toxic assets from banks and in the process becoming a price and value revelation mechanism for illiquid assets. There is a valuation embedded in the guarantee or insurance offered to Bank of America and Citigroup: the state will compensate the banks if the value of the securities falls below a certain level. But the valuation is rather well hidden, and may not be revealed unless the guarantee is actually invoked. Also, guarantees are off-balance sheet, and politicians, like bankers, like that.

The bad bank would hold the toxic assets and collect the cash flows associated with it until a liquid market for these assets is re-established. This may never happen, in which case the bad bank would hold the toxic assets to maturity.

The publicly-owned banks would be reprivatised when financial markets stabilise and the economy recovers. It would be good if a better regulatory and supervisory regime for banks and other highly leveraged entities were in place by that time.

Ironically, by partially nationalising some of the banks, by making this injection of public capital expensive financially and as regards other conditionality, and by holding the threat of possible future (partial) nationalisation over the remaining banks, the authorities created an incentive structure that is biased strongly against bank lending, and against bank risk taking generally. The best escape from this unfortunate halfway house is to go to temporary full public ownership of all the banks. It would be cheap. It should not cost more than £50bn for the state to buy the rest of the UK high street banks. It could wait a while and get them even cheaper - possibly for nothing. But time is more precious than money in this case.

That depends on whether the government takes a short- or long-term view. If it intends to be a long-term owner, then it will probably sell off the brokerage, investment-banking and other auxiliary operations as nonessential to the core banking business. If, however, the government sees its step as a short-term fix to shore up the system temporarily, then it may hang on to such operations.

What other products and services might be affected?

If the government takes over a bank, management will be under even more pressure to cut costs. Expect more branch closings and poorer customer service. "Think of the bank as the DMV of the future, run by government employees who have little upward mobility," says Mr. Kaytes.

"I think we can expect that over time, the nationalized banks will be less open to innovation and new product development, more conservative in their approaches, and more constrained in their actions and subject to tighter scrutiny," says Jim Eckenrode, banking and payments research executive at TowerGroup.

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So sorry ?

Are you as sorry as you were four years ago ?

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The less money your peer group has, the more bling you buy, explains Virginia Postrel.

About seven years ago, University of Chicago economists Kerwin Kofi Charles and Erik Hurst were researching the "wealth gap" between black and white Americans when they noticed something striking. African Americans not only had less wealth than whites with similar incomes, they also had significantly more of their assets tied up in cars. The statistic fit a stereotype reinforced by countless bling-filled hip-hop videos: that African Americans spend a lot on cars, clothes, and jewelry--highly visible goods that tell the world the owner has money.

But do they really? And, if so, why?

The two economists, along with Nikolai Roussanov of the University of Pennsylvania, have now attacked those questions. What they found not only provides insight into the economic differences between racial groups, it challenges common assumptions about luxury. Conspicuous consumption, this research suggests, is not an unambiguous signal of personal affluence. It's a sign of belonging to a relatively poor group. Visible luxury thus serves less to establish the owner's positive status as affluent than to fend off the negative perception that the owner is poor. The richer a society or peer group, the less important visible spending becomes.

Russ Alan Prince and Lewis Schiff describe a similar pattern in their book, The Middle-Class Millionaire, which analyzes the spending habits of the 8.4million American households whose wealth is self-made and whose net worth, including their home equity, is between $1 million and $10 million. Aside from a penchant for fancy cars, these millionaires devote their luxury dollars mostly to goods and services outsiders can't see: concierge health care, home renovations, all sorts of personal coaches, and expensive family vacations. They focus less on impressing strangers and more on family- and self-improvement. Even when they invest in traditional luxuries like second homes, jets, or yachts, they prefer fractional ownership. "They're looking for ownership to be converted into a relationship rather than an asset they have to take care of," says Schiff. Their primary luxuries are time and attention.

Young Jee Han
affiliation not provided to SSRN

Joseph Nunes
University of Southern California - Marshall School of Business

Xavier Dreze
University of Pennsylvania - The Wharton School

September 2, 2008

Abstract:

Consumers use products to signal status in different ways. We propose a classification system employing four tiers to explain consumers' choice among subtly or conspicuously branded items based on how and to whom they wish to signal.

The first tier consists of consumers who are well-acquainted with luxury brands and thus relative experts. They are designated as patricians. Patricians signal horizontally, spending more to buy brands that are labeled discreetly and are recognizable primarily to other experts.

Relative novices to luxury brands comprise the second tier, the parvenus. They crave status and thus buy more accessible (less expensive), conspicuously branded goods that signal to those below and to other neophytes that they have arrived. Using data from two of the world's largest luxury brands, we substantiate a negative relationship between the conspicuousness of the brand on the product (what we call "Brand Prominence") and price for status goods. In addition, a survey reveals how a greater need for status leads to displaying the brand loudly, while greater expertise leads to the opposite. Further, a field survey of patricians and parvenus demonstrates that while patricians can recognize and value luxury goods even in the absence of brand markings, parvenus cannot.

Our third tier is labeled poseurs; they cannot or will not buy authentic luxury goods but instead buy copies of what they believe will signal status, the products favored by the parvenus. This creates a significant market opportunity for loud copies of luxury goods. We study this market using data from Thai counterfeiters and online sellers of knockoffs revealing how counterfeiters disproportionately copy louder, less expensive, products.

The lowest tier, dubbed plebs, does not participate in the market for luxury goods. Taken together, our field and lab experiments, along with the analysis of market data for authentic and counterfeit luxury handbags, supports the proposed model of status signaling behavior based on expertise, need-for-status, and brand prominence.

Keywords: Luxury Goods, Status, Brand, Counterfeits, Brand prominence

JEL Classifications: M10, M31

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The New York Times looks at the impact of gathering at Sundance to watch environmental films.

Still, a stroll here this week down Main Street -- where a dozen idling trucks were unloading supplies and equipment, while an oversize band bus, with trailer in tow, spewed fumes outside a soon-to-be-busy party site -- framed the obvious quandary: how can you cram some 46,000 people, roughly equivalent to a fifth of Hollywood's total work force, into a pretty little mountain town without contributing mightily to the problems your films hope to solve?

...

Utility officials said there was no way to determine how much extra wattage was being poured into the valley for the festival's spotlights and the strings of colored bulbs lining Park City's streets. "Pinpointing use for one city," said Margaret Oler, an information officer with Pacificorp, which provides power to the area, "can be pretty difficult."

Most electrical implements, bulbs included, have power consumption in Watts printed right on them.

MOVIES
The Films Are Green, but Is Sundance?
By MICHAEL CIEPLY
Published: January 17, 2009
This year's Sundance Film Festival has a schedule that's greener than Fifth Avenue on St. Patrick's Day, but what's the environmental impact of the festival itself?

Today, MM feels inspired to defend such energy and resource consumption.

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Basic principle of web design: If it's not on the screen, I can't see it.

Here we see Barry Ritholtz' Big Picture. On a T61 laptop in a high resolution mode, more than 60 percent (5 inches) of the screen is used for static branding graphics, and only 3 inches is available for the actual content.

The Big Picture is a timely survey of economic news and views. In its own words, it tries (and I think succeeds)

to give you a unique combination of original content, as well as referencing the best of what I find elsewhere -- MSM, Wall Street, Video, other blogs. Typically, I post a long, original piece in the early morning. Several additional pieces during the day pull information from elsewhere -- charts, news, other resources. The goal is to provide a steady stream of relevant information -- leavened with my perspectives -- all day.

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Public goods are a great outlet for soveriegn spending. But are new projects really shovel-ready ?

Commuter trains are topping the charts at citizensbriefingbook.change.gov.

NIMBYs are organizing.

Supporters of trains are lining up.

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Strange story planted in the NYT on the travesty of federal employees having to work on federal matters

Federal prosecutions of immigration crimes nearly doubled in the last fiscal year, reaching more than 70,000 immigration cases in the 2008 fiscal year, according to federal data compiled by a Syracuse University research group. The emphasis, many federal judges and prosecutors say, has siphoned resources from other crimes, eroded morale among federal lawyers and overloaded the federal court system. Many of those other crimes, including gun trafficking, organized crime and the increasingly violent drug trade, are now routinely referred to state and county officials, who say they often lack the finances or authority to prosecute them effectively.

Push on Immigration Crimes Is Said to Shift Focus
By SOLOMON MOORE
Published: January 12, 2009
Federal judges and prosecutors say immigration cases are overloading the court system and eroding morale.

Peter Carr, a spokesman for the Justice Department, said that felony prosecutions of immigration crimes had increased 40 percent from 2000 through 2007 but that most other prosecutions had remained steady. But Justice Department statistics Mr. Carr provided to The New York Times did not include tens of thousands of misdemeanor charges and prosecutions conducted before magistrate judges. Data from the Syracuse group, known as the Transactional Records Access Clearinghouse, or TRAC, included those cases, which are driving the sharp growth in immigration cases.

Prosecutorial priorities are expected to change after President-elect Barack Obama takes office, said Mark Agrast, a senior fellow at the Center for American Progress, a liberal research and policy institute that is closely associated with the transition team. "There will be a reassessment of whether aggressive targeting of criminal aliens through the use of federal criminal statues is an effective use of scarce law enforcement resources," Mr. Agrast said.

The Bush administration bolstered its enforcement of immigration crimes by increasing the number of Border Patrol agents from 9,500 in 2004 to 15,000 in 2008 and adding several hundred federal prosecutors assigned to immigration crimes.

On heavy days, single courtrooms along the border process illegal immigrants on an industrial scale, sometimes more than 200 in a day. Misdemeanors usually carry a sentence of a few weeks to six months.

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gorillavsbear finds new music before it hits SXSW or Sirius; also uses nifty Yahoo flash mp3 player. Example: frankie knuckles x animal collective :: your love my girls mix.

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Advice to Abnormal Returns, one of Coruscation's daily reads.

We like the Abnormal the way it is -- an an efficient linkfest. We liked even more the longer posts when we blogrolled it back in 2005.

• Have a pledge week if you like.

• Keep the advertising from taking over the blog content or taking over the layout.
  Keep the simple efficient design. Do not make users click through teaser ledes just to increase page views

• Do not let advertising keyword choice take over your writing topics. Keep covering topics that interest you. Do not take on hot or salacious topics or post provocative remarks (trolls) just to promote page views.

• Present only audience-appropriate ads.
  Adsense keyword advertising often mismatches the sophistication of the audience with the products offered. For example, by promoting credit repair hucksters where investment analysts.
  

For moderate advertising done well, see for example, web software makers 37 Signals' Signal vs Noise.

Update 2009 June: Abnormal Returns re-design succeeds.

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Is ever increasing car ownership a healthly goal. Or is mobility a healthier goal ?

I worry that the avalanche of troubles already ongoing will overwhelm Mr. Obama and his people. It's also well worth worrying whether they will pursue policies similar in kind to the ones pursued by Bush, namely throwing money at everything and anything, and it sure looks like they are planning to do just that. I am especially concerned about an "infrastructure stimulus" project aimed at highway improvement at the expense of public transit. This would be the epitome of a campaign to sustain the unsustainable middle class. We need to begin planning right away for a transition away from automobiles, not in order to be good socialists but because Happy Motoring is at the core of our unsustainability trap.

The car system is going to fail in manifold ways whether we like it or not, and it will fail due to circumstances already underway. For one thing, it will cease to be democratic as the remnants of the middle class find it impossible to get car loans, or pay for fuel, or insurance, and that will set in motion a very impressive politics-of-grievance setting apart those who are still able to enjoy motoring and those who have been foreclosed from it. Contrary to what you might make of the the current situation in the oil markets, we are in for a heap of trouble with both the price and supply of petroleum. And there is no chance in hell that any techno rescue remedy to keep all the cars running by other means will materialize.

-- James Howard Kunstler

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The NYT has a deeper look at quantitative financial risk:

MAGAZINE
Risk Mismanagement
By JOE NOCERA
Published: January 4, 2009
Were the measures used to evaluate Wall Street trades flawed? Or was the mistake ignoring them?

OP-ED CONTRIBUTORS
The End of the Financial World as We Know It
By MICHAEL LEWIS and DAVID EINHORN
Published: January 4, 2009
We have a brief chance to cure ourselves. But first we need to ask: of what?

OP-ED CONTRIBUTORS
How to Repair a Broken Financial World
By MICHAEL LEWIS and DAVID EINHORN
Published: January 4, 2009
There are obvious changes in the financial system to be made, to prevent some version of what has happened from happening all over again.

Yves Smith obsesses about the 'assumption of normality'.

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Facebook's targeted advertising throws up three very similar adjacent display placements onto one page. Is this evidence of a price searching algorithm, to ween wages too low to be tempting, or too high to be believed (not to mention too high to be actually available) ?

$92/hr ?

$75/hr ?

$88/hr ?

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Products under development "are in one of two states--either too early to tell or too late to change.''

He finished the book in 1982, after moving to Yale. No publisher would print it to his exacting standards. Tufte wanted the book to exemplify the design principles he articulated. It had to have lavish, abundant, high-resolution images and footnotes alongside the text so a reader wouldn't have to flip pages to find a reference. The book had to be printed on thick, creamy paper and sell for a reasonable price, about $30. "Publishers seemed appalled at the prospect that an author might govern design,'' he later wrote. So he took out a second mortgage at nearly 18 percent interest and produced the book himself.

---- Edward Rolf Tufte

Some longtime Tufte fans have responded with impatience. "Beautiful--but not on topic without stretching the imagination,'' Stephen Few, a consultant who specializes in data visualization, writes on the online Business Intelligence Network. Zach Gemignani, a founder of Juice Analytics, a data-consulting firm, says, "I wish that Tufte would focus more on the current state of information visualization in business today and encourage vendors to make better tools.''

But making better tools has never been Tufte's mission. His passion is fundamentals--the accuracy of expression and the wonder of the spectacle. And these sculptures, sitting on the grass or floating free in space, are wonderful spectacles. Changing with the shadows and the seasons, they grab a blade of grass, a buttercup, a mound of snow and reflect it back, transforming the familiar into an image to behold.

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Falkenblog (and aka Hedgefund Guy on Mahalanobis) is a frequent read, and if the book is as consistently interesting, it will be recommended.

Finding Alpha: The Search for Alpha When Risk and Return Break Down (Wiley Finance) by Eric Falkenstein (Hardcover - Jun 29, 2009)

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Primary Market - Loan Originations

Fannie Mae and Freddie Mac do not originate mortgages. More than 80% of subprime loans still outstanding were originated in 2004 through 2007. The top ten subprime loan originators in 2006 were: HSBC Finance, New Century Financial, Countrywide Financial, Citimortgage, WMC Mortgage, Fremont Investment and Loan, Ameriquest, Option One, Wells Fargo Home Mortgage and First Franklin Financial. Seven of the ten (the nonbank lenders, who were not regulated by the Community Reinvestment Act) no longer exist, or were merged into banks. The lists for 2005 and 2004 were similar, but also included Washington Mutual. The top ten lenders accounted for about 60% of ALL subprime loans in 2006.

Secondary Market - Wholesale Loan Buyers

In 2004, 2005 and 2006, securitized mortgages were 73%, 79% and 81% of all subprime mortgages. So for practical purposes the wholesale market was the securitization market. For the same three years, the total volume of subprime loans securitized was $521 billion, $797 billion and $814 billion respectively.

Almost none of those securities were issued by Fannie and Freddie. They were not in the business of purchasing and securitizing subprime mortgages, although they purchased some subprime mortgages to hold in portfolio, and issued about $6 billion in subprime securities in 2004 to 2006 (one-third of one percent of the market.) The top fifteen issuers of subprime mortgage-backed securities, accounting for about 75% of the market, in 2006 were: Countrywide, New Century, Option One, Fremont, Washington Mutual, First Franklin, Residential Funding (GMAC affiliate), Lehman Brothers, WMC, Ameriquest, Morgan Stanley, Bear Sterns, Wells Fargo Securities, Credit Suisse and Goldman Sachs.

Investors in Subprime Mortgage-Backed Securities

After the securities were issued, investors were needed to buy the securities, and thus to fund the mortgages. At this third stage, Fannie and Freddie did play a role, albeit a minor one. As of 12/31/07, Freddie held $234 billion and Fannie held $112 billion in subprime securities, out of a total market of $2,116 billion (i.e. $2.1 trillion). Most of these purchases took place in 2005 and 2006. A significant chunk to be sure (about 15%) but if you took out the GSE purchases, there would still have been a huge subprime market, and there is no way to know whether other buyers might have purchased those same securities if Fannie and Freddie had not (i.e. their presence was probably not vital to the growth of subprime lending and securitization.) Other purchasers of subprime securities included banks and thrifts, foreign investors including sovereign wealth funds, mutual funds, hedge funds, insurance companies, state and local governments, private pension funds, and wealthy institutions and individuals. It is also worth noting that Fannie and Freddie started buying subprime securities late in the game, years after the subprime mortgage market had been launched and its dangerous products deployed.

[Via Pubcit and Volokh ]

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There's several lines of thought here.

First, clearly, there were regulatory failures. The fact of the matter is that teaser mortgages were the result of the overriding of usury laws and preemption of state lender laws in favor of lax federal regulations that favored "the free market". And we don't have regulations of Credit Default Swaps and Hedge Funds because some powerful lobbies made "free market" arguments that libertarians accept. All these things contributed a lot more to the crisis than whether Fannie and Freddie guaranteed some loans they should have (remember, most of the bad mortgages were securitized by the private sector) or whether the government was overzealous in promoting minority homeownership.

Second, while Ilya is right about the governmental promotion of homeownership not being a libertarian idea, it is also not really one that libertarians spent a lot of effort trying to fight. Indeed, libertarians were promoting the "Ownership Society" along with conservatives, because libertarians tend to believe that property ownership has several beneficial effects on society. This doesn't mean that libertarians were necessarily supportive of efforts to lean on lenders, but it does mean that libertarians weren't exactly policing this issue (because it meant going after political allies as well as taking on an ideological contention about ownership that they had some sympathy with or mixed feelings towards).

Third, I think it's too broad to blame anything like this on libertarianism. Libertarians don't have a lot of political power; conservatives do and liberals did and will. But what Ilya seems to be really after is to counter any efforts to blame this crisis on laissez faire policies or free market policies. And that position seems untenable. Of course you can point to actions of the government that weren't good ideas which may have contributed to this. But the reality is that one of the problems with the free market is that if people can take their money out in the very short term, they don't have much of an incentive to price in longer term risk. And these mortgages lasted for 15 or 30 years. Thus, as long as someone else was going to be able to internalize the risk of a default, it made sense to make bad loans. This was true even without any pressure from the government or any "ownership society" programs.

The free market did this, because there are not any market mechanisms in the mortgage backed securities market to ensure the mitigation of long-term risk.

-- Dilan Esper responds to Ilya Somin

Volokhallian comments

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therealdeal vs The Real Deal.
New York real estate action.

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