Note to NYT: Dick Syron is Not Clairvoyant

So somehow Dick Syron should have been able to foresee the housing crackup because his chief risk officer wrote him a memo in 2004? A few thoughts:

1. The memo was written in 2004. By virtually all accounts, subprime lending standards didn’t start to become imprudent until late 2005 at the earliest. So, literally, the dire events Andrukonis warned of never came to pass. Why should he take a victory lap now?

2. Too many blind sources! The Times says it spoke with “more than two dozen current and former high-ranking executives and others”—virtually all of whom insisted on anonymity. Helpful! If Syron’s judgments were as manifestly awful as the Times implies, some of those people would likely have been willing to speak on the record. 

3. More than most companies, the GSEs have to deal with key constituencies, particularly the federal government, that carry a lot of weight and whose interest can occasionally be at odds with shareholders’. The Times’s Charles Duhigg implicitly slams Freddie (FRE) for putting shareholders at risk by taking on too much leverage and growing too fast. But it wasn’t too long ago, recall, that the government lifted capital restrictions on the company so it could grow even faster. It’s easy to fault Syron in retrospect. It wasn’t so easy at the time he was making the decisions he made.

4. In his and Syron’s defense, Daniel Mudd makes an obvious point: “You’ve got the worst housing crisis in U.S. recorded history, and we’re the largest housing finance company in the country, so when one goes down, the other goes with it.” Duh!

5. As Tanta points out at CalculatedRisk, Syron’s resume is a lot longer and more relevant to the job than Duhigg discloses.

6. I did like this bit of candor from Syron himself, though:  “If I had better foresight, maybe I could have improved things a little bit. But frankly, if I had perfect foresight, I would never have taken this job in the first place.” I can only imagine.

Bonus tidbit: Freddie is really considering Alan Schwartz as Syron’s replacement?

More: It turns out the reason Andrukonis left Freddie to teach school is that he was canned, Freddie says in its response. Also, no one seeme to have a copy of the memo he says he wrote. 

Comments

[SoCalsurfbum:]

I worked in this industry during this period... and late 2005 was not when bad underwriting began. If I was to put a date on it I would say about 2003-2004 is when we started seeing questionable deals at questionable pricing, etc... It just became overly apparent in late 2005 because the volume ballooned, and writing bad loans became Standard Operating Procedure for some companies.

The government lifted capital restrictions because the company lobbied heavily to take on more loans so that they could make more money even though they were undercapitalized even at that time.

Syron's 'Foresight' comment is about as believable as Mozillo's "No one saw this coming"... a lot of people saw it coming in 2003-4 when housing was overpriced then... and we prepared for the end of the mania appropriately.

If Syron truly believed a 3 standard deviation move in housing price and volume was sustainable and appropriate... his resume might have a lot of pretty titles on it but he obviously didn't have enough real world experience to hold that job.

2008 Aug 06 10:12 AM

[Can'tSpotAB...:]

Horse Hockey !

1. Not 2005, as early as 2001 were underwriting standards questionable. When I was offered a mortgage for more than 10 times my income I decided to become a renter instead.

2. Nobody in this mess wants to fess up to their part in it. That is why this will continue to drag on for quite some time.

3. Don't get me started on the GSE's. They should go into receivership and be wound down until they no longer exist.

4. Duh! Anyone with half a brain who has been paying attention should know this fact....

5. I usually like Tanta's analysis.

6. Duh! See #4

7. Please stop posting on Seeking Alpha, I truly do not enjoy your contributions. They are lacking in every respect.

2008 Aug 06 07:30 PM