JMc

Current Financial Crisis Is a Black Swan

It isn't a Black Swan but a case of the Emperor's New Clothes where con men convinced everyone that if they can't see the beautiful new avant-garde (non-existent) clothes it is because there is something wrong with you. This persists until a child sees the emperor parading naked and says so.

In the Midst of an Extreme Black Swan (Part I)

But it was foreseeable and there were numerous warnings. Rather than a Black Swan, it is more a case of the Emperor's New Clothes where con men convince everyone that if they could not appreciate the con men's new fashion garments - it was because the viewers were mentally or morally limited. Just like Wall Street said that if you couldn't understand the elegance of their securitization models, it was a failing in you not the models..

Fannie and Freddie Are Largely Responsible for the Housing Bubble

The GSEs did not force the rating agencies to mis-rate risk, did not force mortgage bankers and investment bankers to originate garbage in return for huge bonuses, did not force securitizers to spin tales of structuring the risk out of investments, did not force fund managers to buy toxic waste that they little understood, did not force regulators to dismiss concerns with blind faith in the marketplace and distribution of risk. What the GSEs did was expose the taxpayers to this mess even as they avoided most of the sub-prime waste. Perhaps it would have been better if they were still government entities and the taxpayers were clearly on the hook. But to avoid charges of "socialism" we moved them into government sponsored SIVs and paid foreign investors a premium to help us pretend that the weren't really backed by the Treasury (but wink, wink don't worry).

Commercial Real Estate Index Registers Its First Annual Drop

Commercial real estate will weaken as the economy weakens but perhaps more hazardous to its health will be the need to refinance aggressive interest only loans at today's lower LTVs and higher interest rates. Buildings with stable cash flow will still be forced into default due to increasing debt service.