Sunday, October 05, 2008

A Paragraph in Today's NYT story on Fannie Mae stands out to me


Mr. Mudd added that it was almost impossible during most of his tenure to see trouble on the horizon, because Fannie interacts with lenders rather than borrowers, which creates a delay in recognizing market conditions.

FWIW, I came late to the group of people who thought there was a housing bubble. But by 2005, it was clear to me that things were out of whack in San Diego, the Inland Empire, Las Vegas, Arizona, and Florida. If it was obvious to me, it should have been obvious to the CEO of a company in the mortgage business.


Edward said...

The bubble insanity was also obvious to my elderly mother, who grew up in the Depression. She sold her CA home in mid-2005. While she is very smart, she has no formal training in business, economics or finance. But she was absolutely right when she had said "the bubble is going to burst". A lot of highly paid executives, financial advisers and economists were wrong. I suspect they spent too much time playing with computer models and too little time connecting to the real world.

Anonymous said...

Perhaps the risk models should be vetted by people with common sense.

Sam said...

That's a bogus comment and Mudd knows it. I worked in the economics group and we thought it was the 100 year flood 3 years in a row in 2003 when we didn't think prices would continue to increase like they did. The problem is the private company/public mission model doesn't work -- there's moral hazard. Fannie bought a bunch of Alt-A despite the fact that it made reaching the housing goals much harder. The reason? Private profit -- the public mission was thrown out the door.

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