Monday, July 21, 2008
Correlation is not causation
Anyway, for the second year in a row my Adirondack vacation has coincided with serious dislocations in the financial markets, so while I note that the r-squared of my vacation and financial catastrophe might seem particularly high, correlation is not causation.
I did manage to keep tabs on things, generally through the lenses of my favorite financial blogs Calculated Risk, Naked Capitalism, and Mish's Global Economic Analysis. The last couple weeks of all three are worth a scroll if you need to catch up on things, although far too much for me to link to.
One exception: Tanta at Calculated Risk put up a great post entitled On Maes and Macs which would be very useful for anyone sort of following things financial but confused about the difference between, say, IndyMac (seized by regulators a couple of weeks back) and Freddie Mac (apparently too big to fail.) A short excerpt:
Anyway, the players long ago accepted the nicknames to the extent of actually legally changing their names to Ginnie Mae, Fannie Mae, and Freddie Mac, which was great for those of us who had to type Assignments of Mortgage. At some point the student loan corporation climbed on board and we got Sallie Mae, plus the agricultural loan guarantor known as Farmer Mac. By the mid-80s, if you were a government agency or GSE involved in the secondary loan market, you were almost always a Mae or a Mac of some kind. The Federal Home Loan Bank Board never did accept "Freddie Bob," which some of us thought was unsporting but there it is.
Regarding various Maes and Macs I will admit to outrage over Paulson's and Bernanke's approach to Fannie and Freddie, and also to some selfish joy at the failure of Indymac cause I was their whipping boy in 1993 when I was working on their mortgage deals. Rather than make this post interminably long, I'll expand in the comments should anyone give a damn.
3 Comments:
By 
, at
Tue Jul 22, 01:33:00 PM:
Whipping boy? Please, give us the dish.
By , at
Tue Jul 22, 02:08:00 PM:
I give a damn! Several in fact. Do tell!
By 
Charlottesvillain, at
Wed Jul 23, 08:57:00 AM:
Not as interesting as you might suppose, but back in the day I was a hard working Mortgage Backed securities analyst for a major rating agency. At that time, IndyMac was known as Countrywide Mortgage Conduit or something like that, and was acquiring and securitizing, or attempting to securitize, somewhere in the neighborhood of $500 million-$1 billion a month in mortgages.
Back in those days, rating agency analysts gave a lot of bad news to prospective issuers. They would send in a pool of mortgage loans for analysis, and we'd work on them and tell them what subordination levels would be required for them to issue a AAA. At that time, Indy was experimenting with a lot of the new products that have since come into ill repute, particularly very low LTV loans. Every time I told my contact the results of our analysis, she would blow a gasket, call me an idiot, and immediately call my boss or the head of the department and rant at them. Fortunately they were supportive of me, although occasionally they would make allowances that I didn't necessarily agree with. It didn't help that the woman really did not have a clear understanding of how the credit process even worked. She just yelled until she got her way.
For months I took this and never raised my voice to this woman, but a day came was she was reading me the riot act over something she got totally wrong and I lost it let her have it. She never yelled at me again.
Anyway, she left Indymac long ago but I still associate them with her, so my emotional reaction to their troubles was not one of sorrow, as unjust as I admit that is. I had a meeting once with the CEO, Mike Perry, and he seemed like a decent guy.
Oh well, whaddya gonna do.
