For if you look at the personal financial decisions of the bankers involved in securitisation in that period – at the very heart of the credit bubble – it seems many believed their own hype. Many of them not only bought large quantities of housing stock at the worst possible moment (ie in 2005 and 2006), but also did so in some of the most “bubbly” markets, such as southern California. They then failed to sell those properties in time – and thus were left nursing losses after 2007. Or to put it another way, the bankers who were repackaging housing loans not only lived by the mortgage sword, but suffered under it too. ...Here is the underlying research. The question I have is whether the top-level executives behaved differently from the mid-level folks. I doubt it, but it's certainly possible.
[The researchers] started by combing through the published lists of bankers who attended the 2006 American Securitisation Forum’s annual conference in Las Vegas and randomly selected 400 mid-level securitisation bankers from organisations such as Citigroup, Lehman Brothers and Wells Fargo. They then cross-referenced the names against publicly available data – extensive in the US – on subsequent real estate transactions and mortgages, and analysed whether those people had been trading properties, and whether they made or lost money.
Next, the three economists repeated a similar exercise for a randomly selected group of 400 lawyers and 400 Wall Street equity analysts who were not involved in housing analysis. The aim was to see whether patterns among those real estate transactions were unique to the housing experts – or just reflected something that all wealthy professionals tended to do.
The results were striking. Before conducting the research, the economists had expected that securitisation experts would be good at judging when to sell properties and how to avoid housing market losses; after all, they were close to the front line of the mortgage industry and supposed to know all about real estate. But in reality, the number-crunching showed “little evidence of securitisation agents’ awareness of a housing bubble and impending crash in their own home transactions”, as the paper says. The supposed experts “neither managed to time the market nor exhibited cautiousness in their home transactions”. Furthermore, they actually suffered bigger losses on housing than the random “control” group of lawyers who were not “experts” on housing at all.
IPE @ UNC
IPE@UNC is a group blog maintained by faculty and graduate students in the Department of Political Science at the University of North Carolina at Chapel Hill. The opinions expressed on these pages are our own, and have nothing to do with UNC.
Bookshelf
Tags
Academia Adjustment Afghanistan Africa AIG America Argentina Austerity Bailout Banking Bargaining Basel Bernanke Bias Blogging Business cycle; recession; financial crisis Cap and Trade capital controls capital flows central banks; moral hazard Chavez China China Trade Climate Change Contentious Politics Cuba Currencies Currency Crises; financial crisis Current Account Data Debt Debt; China; United States; Decession Politics Decoupling Deflation democracy Democrats; Trade policy development Diplomacy Dollar; China; Currency Manipulation; Exchange Rates dollar; exchange rate policy ECB ECB; Fed; Monetary Policy Economic Growth Economics Egypt election EMU; monetary union Environment EU; Agriculture; Common Agricultural Policy Euro Europe; labor; immigration European Union Exchange Rates Farm Bill; Agriculture FDI Fed; Monetary Policy finance financial crisis financial crisis; subprime Fiscal Policy; monetary policy; elections Fiscal Stimulus Foreign Aid Foreign Policy France Free Trade Agreements G-20 G20 Summit Game Theory Germany global recession globalization Grand Theory Great Britain Greece health care reform Hegemony Human Rights Iceland imbalance IMF immigration Incentives income distribution income inequality; globalization India Inequality inflation institutions Interests international finance International Law International Monetary System International Relations Investment IPE Iran Iraq Ireland ISA Italy Japan labor markets Latin America Libya Macroeconomics Marxism Mexico Microfinance Miscellany monetary policy Monetary policy; Federal Reserve moral hazard Narcissism Networks Nobelist Smackdown North Korea Obama Oil PIGS Pirates Political Economy Political Methodology Political Science Political Survival Political Theory Power Protectionism Protests Public Choice Public opinion Rational Choice regulation Research Review Russia Sanctions Security Dilemma security threats Soccer Social Science Sovereign Debt Spain Sports Statistics stock markets Systems Tariffs TARP Taxes TBTF Technocracy technology terrorism Trade trade policy UNC Unemployment United States US-South Korea Venezuela WTO WTO; Doha
Blog Archive
-
▼
2013
(95)
-
▼
March
(14)
- The Devil's Trifecta
- Time to Update the Priors: Not All Policies Matter...
- All Networks Are Not Equal (and Financial Crises A...
- Against the "Evil Rapacious Bankers Wut Did It" Vi...
- Brad DeLong Versus Political Science: Grasping Nar...
- A View from Cyprus on Austerity
- Military Keynesianism and the War on Terror
- Defining Austerity Down
- Global Trends Are Not Caused by Local Factors
- Listen to Krugman (No Sarcasm!)
- Trade-related News
- Paradoxically, you had me at hello.
- Climate Change and the Arab Spring
- The Eurozone Political Crisis in One Picture
-
▼
March
(14)
Sunday, March 24, 2013
Against the "Evil Rapacious Bankers Wut Did It" View of Financial Crises
Subscribe to:
Post Comments (Atom)
0 comments:
Post a Comment