I’ve given up reading anything from the AEI. They are idiot savants, minus the savant part.

Its a bore reading the same discredited, data-free memes: The CRA caused the crisis, Fannie Mae caused the crisis, the FHA caused the crisis. Its become embarrassing to read.

Their latest release combines all three memes in one giant clusterfuck of imbecility:

“What caused the financial crisis? This is an important question if the U.S. is not to repeat past mistakes. AEI scholar Peter J. Wallison examines a study by Brookings Institution scholars Martin Neil Baily and Douglas J. Elliott in which they take a look at three popular narratives of the crisis and conclude that it was not caused by faulty government housing policy, but by a decline in risk aversion resulting from the continuous growth period of 1982 to 2007.

Analyzing the narratives in his latest Financial Services Outlook, Wallison explains why neither the Baily-Elliott analysis nor the conventional view about lack of regulation and predatory lending satisfactorily accounts for the financial crisis. He notes that U.S. government social policy — using the government’s financial and regulatory power to boost homeownership by increasing available credit to low-income borrowers — put Fannie Mae and Freddie Mac in direct competition with the Federal Housing Administration and the banks that were required to make the same loans under the Community Reinvestment Act, resulting in the creation of 27 million subprime and high-risk loans in the U.S. financial system by 2008. The defaulting of these loans caused the financial crisis. The only real risk in all of this was taken by the taxpayers, who will have to pay for all of the losses.”

Instead of email press releases, they should have a tiny car pull up, with streams of brightly dressed clowns pouring out of the car shooting confetti versions of this.

Simply embarrassing junk . . .

Category: Bailouts, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

33 Responses to “AEI: Continually, Unrepentently, Embarrassingly Wrong”

  1. srvbeach21 says:

    What I find striking is that in the table showing Subprime and Alt-A loans by type at 6/30/2008, while the number of loans marked as “Federal Government” is much higher than private-label, the dollar is not different by nearly the same amount. The average loan amount shown for Gov’t loans is around 140k, but for private-label it is 243k – over 70% higher.

    I notice there is nothing showing default rates by type. Anyone know where to find that information?

  2. maximo says:

    This are the same guys who in 2001 predicted the Bush tax cuts would produce millions of jobs by 2008. lol

  3. Andy T says:

    Not going to even delve too far into this tired subject….

    Just have a simple question for Barry:

    Are Fannie and Freddie needed? Should such an entity exist today?
    Should the government backstop trillions of dollars (of debt) to entities that give mortgages?

    It think that’s the “crux” of the argument….

    These are some simple “Yes” or “No” questions.

    ~~~

    BR: That is a very different question than: FNM. FRE and CRA caused the crisis

  4. maximo says:

    oops! These* are the same guys who in 2001 predicted the Bush tax cuts would produce millions of jobs by 2008. lol

  5. gethoht says:

    That’s the problem with ideologies, they act as blinders. If all you have is a hammer then all you see is nails. If you’re a conservative then the only problem you see is government. Nevermind Greed, Corruption and Fraud. There is a small amount of truth in what they’re talking about, the government is to a degree part of the problem, but the truth is it’s a bit more complicated then “it’s the government’s fault”.

  6. einniv says:

    That is a very odd interpretation Andy T. If they are wanting to answer a question shouldn’t they make valid arguments about the answer they give?

    George W Bush was an alien from outer space sent to destroy planet Earth. Don’t you agree he should have never been President of the United States? This is a simple yes or no question.

  7. RW says:

    As right-wing think tanks go AEI used to produce a higher grade of propaganda but it looks like they’re going to join the Heritage Foundation in the cellar now.

  8. Ilya says:

    These idiots from planet Jacov get paid from tax exempt institutions and are expected to produce ‘studies.’

    God help us if they ever had REAL jobs. Consider the AEI squints in the private sector designing antilock brakes! Kaboom-woops-crash carts!!! But from their viewpoint, theoretically they should have worked!

    Common sense is less common than imagined by even the most severe cynics.

    Guilty yer Honour…

  9. obsvr-1 says:

    And unfortunately Peter Wallison is on the Financial Crisis Inquiry Commission (FCIC.org), hopefully his narrative will be confined to this report and not have much impact on the rest of the commissions report the real facts behind the crisis. There are many others with strong opinion and influence (Bill Thompson for one) that should be able to call BS on the Wallison narrative.

    — Narratives 2 and 3 with a bunch of fraud, criminal and unethical activity thrown in to build the bubble to gigantic proportions.

    Reading the Wallison narrative is like reading a Dan Brown novel (e.g. Da Vinci code), which is a “Faction”, a mash-up of fiction, non-fiction, facts, myths and conjecture to make a interesting and entertaining story, but not 100% factual or truthful — or — Simply embarrassing junk . . .

    Wallison’s use of a static view from 2008 data does not present a truthful view of what happened from 2004-2008 as the Private Label Security (shadow banks, I-Banks) created and drove demand for the sub prime and alt-a loans for securitization (insert fraud, misrepresentations, MBS, CDO, CDO squared, CDS shenanigans) and the originate to distribute model (keep the fee, pass the risk, obscure the risk, misrepresent the risk) that ran rampant in the private sector. FNM and FRE followed the path of the private sector (I banks) to compete for market share as that was the private side of the GSE mandate (greed) to drive profits (Exec Bonuses).

  10. obsvr-1 says:

    >Reading the Wallison narrative is like reading a Dan Brown novel (e.g. Da Vinci code), which is a “Faction”, a >mash-up of fiction, non-fiction, facts, myths and conjecture to make a interesting and entertaining story, but not >100% factual or truthful — or — Simply embarrassing junk . . .

    Oops: I didn’t mean to call the Da Vinci Code Simply embarrassing junk …

    what I meant to say, in the case of the Wallison report it is Simply embarrassing junk.

  11. franklin411 says:

    As the right-wing hubbub over the whole “Obama’s trip to India is costing $200 million/day!” shows, the facts don’t matter to wingnuts. All that matters is that somebody said it, and if someone said it and it fits the right-wing worldview, it will be repeated over and over and over and over and over again.

    The great thing about unreality is that you get to create it on the fly, so it’s always fresh baked!

  12. wngoju says:

    “I’ve given up reading anything from the AEI”

    -I- never took it up! Nya Nya Nya…

  13. Kris Dannon says:

    Whats really scary is not just the birdbrains (scholars) who write this stuff… but the pundits who believe it… the lobbyists who pitch it… the politicians who address it… the legislators who craft it… and the poor gullible citizens who end up with it … ten thousand pages of legislative pulp-speak that no one in congress bothered to read…but guaranteed to prevent any future financial crises.

    We can call it ….The Risk-Aversion Regulatory Act of 2011.

  14. ToNYC says:

    Scoff as you might about this example of palliative narrative massaged to be digested by the 80% that can go either way. They have been educated K-Baccalaureate to inscribe the right logical answer by the corporate tool preparation machine that now exists to turn the generation post 1980 to serfs and scions of the few. They’ll feed a few logical bits through a Glenn Blecch! or a Sarah Paleo-Grizzlee and we’ll get the rage on a roll. The few who are left to see the bigger picture with 3-D pixels need to be building better tunnels and a real, local connections to their daily bread and fight to keep the internet neutral.

  15. tawm says:

    BR, as your media star rises, your political bias is becoming more blatant — bash Sarah Palin day 1, bash all things AEI day 2…. Whatever happened to your “non-partisan” focus on issues? Fannie Mae is blameless?

    ~~~

    BR: Non Partisan does not mean non factual.

    The facts, as supported by exhaustive data, is that the Federal Reserve, the banks and the radical deregulators were the prime causes of this crisis.

    Radical deregulation (especially of derivatives), a 1% funds rate, and the creation of non depository lend-to-securitize mortgage underwriters who irresponsibly abdicated traditional lending standards (LTV, FICO, Income, Debt load) are what caused the crisis. Add the ratings agencies, the wall street banks, misguided compensation schemes, crony corporate boards, and there is 90% of the causes.

    If you want to insist on blaming factors that had little (FNM) or nothing (CRA) to do with the crisis, but confirm your fact-free world view — like the AEI just did — then you are a waste of my time. For efficiency’s sake, you get moved into the category of “Idiots-not-worth-paying-attention-to.” AEI is now in that category.

    Your membership card is in the mail

  16. Mike in Nola says:

    Surprised it took a smart guy like BR this long to come to this conclusion. It’s pretty obvious why this joint was a favorite venue for speeches by W and his cronies. I’m sure they are flourishing with all the right wing money trying to influence the country.

    My fervent hope is that these guys, their sugar daddies, the banksters and the similar Cato guys are first against the wall when the revolution comes.

  17. Andy T says:

    “George W Bush was an alien from outer space sent to destroy planet Earth. Don’t you agree he should have never been President of the United States? This is a simple yes or no question.”

    Yes.

  18. The AEI analysis is not all rubbish.

    “using the government’s financial and regulatory power to boost homeownership by increasing available credit to low-income borrowers”

    Certainly this is true, the government did not restrict risky activities (ie, adjustable rate loans, liar loans, etc).

    Consider Alan Greenspan’s comments on the desirability of adjustable rate mortages at the top of the cycle….and then President Bush’s comments on the desirability of home ownership….

    All of this commentary from the top results in action (or more precisely the lack of action) at regulatory agencies and in the market…

  19. notakid says:

    OK, so AEI is correct , the gvt allowed and/or forced all the bad loans to be made.

    Now, what do we do to stop that going forward and since the loans were forced by the gvt is the gvt now to raise revenue to cover all the bad loans that they forced.

    Other than a useless debate , what is their solution?

    No regs no oversite no ……………………
    Should the gvt discourage home ownership? Take away any favorable tax treatment?

    Well AEI???

  20. notakid says:

    Do they really think this is the first time in history that incentives were in place to loan out OPM for short term profits?

    Really……………reeeeeeallllly?????????????????

    Of course to try to stop this going forward the people who played fast and loose inside the gvt rigged pigpen should have all their profits redistributed, right AEI????

    Just because an immoral system is setup up doesn’t absolve those who played it for gain of their free will to not play the game. Or does it AEI?

  21. notakid – it is not that the government forced people to make bad loans, rather, the problem was that Greenspan, etc did not halt practices that led to disasters in the past — although that past was so long ago that nobody in the general population really experienced them.

    I refer specifically to lending policies in the 1920s — installment loans (in modern times payday loans), interest only loans and other extremely toxic practices were allowed to proliferate in the 2000s when there had been experience with these types of loans before which was highly negative!

    The role of government should be to moderate reckless behavior – and are not adjustable rate mortgages reckless? Why should ordinary Americans speculate on interest rates when the collateral is their home?

  22. redline21 says:

    Dear Barry:

    You’ve been carping about those who have a difference perspective about the financial crisis (like AEI, Thomas Sowell, etc) for two years. Why don’t you contact Wallison (AEI) or someone from Hoover to enter into some kind of debate (written or on youtube) so your readers can view side to side the sources of disagreement and the responses? I think this would be a great thing to post on your site. What do you say? And if you don’t want to even attempt to contact those with competing opinions, then please explain why?

    ~~~

    BR: I have spoken at AEI in the past.

    I used to believe they were searching for the Truth, albeit from their perspective.
    Now, they only seem to be looking for confirmation of ideology.

  23. formerlawyer says:

    Firing David Frum didn’t help the AEI either.

  24. gman says:

    AEI also was one of the lead pitchmen for…the most alarming of the WMD scenerios, all the rosie occupation projection and inflation worries back as far as 07, Bush tax cuts paying for themselves etc

    Barry said it best “always wrong”…yet always listened to and taken seriously!

  25. gman says:

    Oh yeah..i think the author of Dow 36000 put his shingle up at AEI as well!

  26. DrSandman says:

    BR said:

    “Radical deregulation (especially of derivatives), a 1% funds rate, and the creation of non depository lend-to-securitize mortgage underwriters who irresponsibly abdicated traditional lending standards (LTV, FICO, Income, Debt load) are what caused the crisis”

    And who was it that forced the abdication of traditional lending standards? Dad’s bank was TARP’d and taken over because they were left holding 3 months of mortgages that the feds said, “Thou shalt make these loans without asking for thine FICO scores!” when FNM stopped securitzing said loans…

    These loans didn’t meet the bank’s minimal credit requirements, but the central planners said that these people should own their own homes. It was only under threat of jack-booted government thugs that these loans were made in the first place. (I know, I got my $416k mortgage from my Dad — and he had to have a witness attest to my own race!)

    ~~~

    BR: I am sorry to disabuse you of the false narrative to which you are so enamored of, but you have your facts are wrong. Indeed, you have no facts at all.

    No one forced these lenders to do anything. Understand that the vast majority of these loans came from non-depository, non-banks underwriters. These were the shops that were set up with a finite amount of capital to underwrite mortgages, then sell them to Wall Street, then start all over again.

    Understand this: They were non depository institutions. As such, they were not covered by CRA, not under any conforming mortgage mandate from Fannie Mae, not insured by the FDIC. These were the lenders that Greenspan called “financial innovators” and they should be allowed to innovate without government interference. 387 of these have since imploded under the weight of their own bad lending.

    THEIR OWN PROFIT MOTIVE DROVE THEM TO MAKE THESE BAD LOANS

  27. DrSandman says:

    You say “greedy bankers”, but I suspect you’ve never actually met a banker who made those loans under fear of federal retaliation for not making them. They weren’t greedy. They weren’t trying to sucker the poor suckers in. They didn’t WANT to make the loans — the feds forced them to.

    So — BR — since you are the smartest person in the room: Explain exactly how CRA, FNM, and Central Planning are blameless in the financial debacle?

    ~~~

    BR: More nonsense. There is no data that supports your statement

    I made a substantial case in 343 pages exactly how this event took place. Data, analytics, facts, figures.

    If you have any data that supports your argument, roll it out. So far, you have only offered up fact-free ideological-driven narratives. (They have have zero credibility around here).

    It is not incumbent upon me to disprove the false narratives, fact free theories, and ideological idiocy of others. I PROVED my case, while you have not even begun to make yours.

  28. Liquidity Trader says:

    Why do you even respond to morons like Dr. Know Nothing?

    he is pushing the same tired partisan meme you have destroyed repeatedly in the past. Fuck this asshole, and move on to more productive work.

    I find it hard to believe that anyone as fucking stupid as Sandman made it through medical school.

  29. Rescission says:

    AEI is not all bad. Ayaan Hirsi Ali hangs her hat there. She is one of the few educated people who understand and speak out on women’s rights and how they are abused under Islam. She is brave, truthful and is worth reading and listening to. Your overall generalization about AEI isn’t correct simply because you believe they have this one issue all wrong. Certainly they cover many other areas other than what caused the financial crisis.

  30. DrSandman says:

    I congratulate you on your wonderfully readable book. I read chunks last night to make sure I was asking the right question. You are to be commended for bringing an almost scholarly take on the meltdown to the hoi polloi. It was an excellent overview from 30,000 ft of the meltdown. Very BigPicture of you. I think we are in violent agreement on about 90%.

    Let me try again without the dog-whistle codewords, because this is an earnest question to which I would really like you to address.

    You “PROVED” your case the macro sense, while painting every financial entity involved as equally responsible (stupid and/or evil), while excluding FNM, etc… I agree that the financial innovators, undercapitalized mortgage centers (etc), are basically evil incarnate, but I have a hard time extending that to the smaller family banks. Maybe the scale is too large that it doesn’t matter….

    I offer as data the first-hand anecdotal evidence (from myself, natch) of my mortgages in a small town. At [Dad's] bank there were three possibilities for the mortgage application: a) denied, b) meets [TARP'd bank]‘s credit quality (approved), c) doesn’t meet bank’s credit standards, but meets FNM or whatever gov’t entity was in the secondary market (approved and immediately sold).

    Months ago, I asked him why they approved the loans to people who couldn’t afford them in the first place and he gave two reasons: 1) The gov’t was guaranteed to step in and buy the mortgage and take it off their books, and, more importantly 2) [The TARP'd Bank] was terrified of the resulting federal investigations if they denied the marginal applications, because they had to document everything — hence the silliness of Dad having to accompany me to the notary in a town of 1000 people to attest to my race (human!).

    You’ll have to forgive me since I’m not as smart as you, but when [the bank] would not otherwise write a mortgage without the guaranteed securitization of FNM, and feared repercussions from the regulatory authorities if they didn’t approve it…. can you address how gov’t policies writ large are blameless?

    [The bank] went belly-up and was TARP’d when FNM stopped buying (without warning) the poor-credit mortgages in June 2008. In three months, the bank was TARP’d to its competitor, facts and data you can verify yourself in Kucinich’s testimony before the banking commission. (I watched it on CSPAN, since it hit a little close to home.)

  31. [...] are idiot savants, minus the savant part.” I did not add the emphasis.  This is from The Big Picture which is, in my opinion, the best source of practical financial insight anywhere.  This quote is [...]

  32. [...] AEI: Continually, Unrepentently, Embarrassingly Wrong (September 2010) PERMALINK Category: Analysts, Bailouts, Credit, Politics, Real [...]

  33. jd351 says:

    BR,

    Nice job again. As my Dad once said ” When you pay peanuts, you get monkeys”!!!!! Thats what we have with AEI.

    For a small fee I can provide the clowns