…First, being a lifelong Californian and fifth-generation Sacramentan, Phil and I were friendly, did business together (My banks lent money to Phil and his real estate partners.), and I raised funds for his political campaigns, including his successful bid for State Treasurer. Phil called me at home the Saturday after IndyMac Bank was seized by the FDIC (July 11, 2008) and expressed his personal sorrow and well wishes to me. It is a moment I will never forget and always be grateful for and it is painful for me to have to so thoroughly (but respectfully) disagree with him and Mr. Min, who espouse the liberal view of the crisis. On this blog, I have offered to publicly debate Mr. Angelides anywhere, anytime and I would reiterate this offer and also extend it to Mr. Min. Mr. Angelides and Mr. Min both have fabulous educational, political, and government pedigrees, but they have absolutely no experience in banking, mortgage finance, or economics. Respectfully, I don’t believe they are equipped to opine on the causes and cures of the financial crisis. Don’t agree? Well, then let’s hope they accept my debate challenge.

That said, here is my rebuttal to Mr. Angelides’ and Mr. Min’s February 10, 2016, Quartz opinion article on the financial crisis (prompted by the release of The Big Short movie):

First, Mr. Angelides’ and Mr. Min’s Quartz opinion article(a relatively new and unestablished on-line business news publication from the liberal-leaning Atlantic Media) is titled with the false and inflammatory headline: ““Immigrants and poor people” were not the cause of the financial crisis”.

Mike Perry’s Response: “Of course “immigrants and the poor” were not the cause of the financial crisis and I am not aware of anyone who has made that outrageous and false claim? Yet Mr. Angelides and Mr. Min literally took a line out of The Big Short movie, where the character Mark Baum says: “In a few years people are going to be doing what they always do when the economy tanks. They will be blaming immigrants and poor people.” And somehow made it a FACT to lead with as the title of their article!!! This is a movie that went to great pains to say it was based on the book, but was not meant to be a factual account….so much so, that it was classified as a “comedy” in the Golden Globe Awards! I almost should stop rebutting their OpEd article here, right?”

Next, Mr. Angelides and Mr. Min say……”Unfortunately, the movie’s success has spurred Wall Street allies to dust off their revisionist claims that the federal government’s affordable housing and community lending policies caused the crisis. These assertions have been thoroughly debunked in every serious analysis of the crisis. Nine of 10 FCIC members, including five Democrats, three Republicans, and one independent, explicitly rejected these claims.”

Mike Perry’s response: “I don’t know about this sub-point in regards to just affordable housing and community lending, but I think Mr. Angelides and Mr. Min are being highly misleading with these comments. Why? I just pulled out the FCIC Report. In the Table of Contents, Commissioner Votes, viii….you have six Commissioners (including Mr. Angelides) voting to adopt the report and four Commissioners (including the Vice Chairman, the Hon. Bill Thomas) dissenting from the report. As I understand it, not a single Republican on the Commission voted to adopt Democratic politician Mr. Angelides’ report. Instead, the Republicans on the committee issued two separate dissenting reports. In other words, Mr. Angelides was unable to produce a bipartisan report. In fact, one of the dissenting Republican commissioners, Mr. Peter Wallison of The American Enterprise Institute, wrote an entire book about the fact that in his view, well-intended federal government pressure to reduce home lending standards (to expand home ownership), was a key cause of the U.S. mortgage crisis. And in his book, Mr. Wallison devotes nearly an entire chapter to explaining how Mr. Angelides was determined to produce a “liberal whitewash”, blaming greedy and reckless bankers (and poor regulation), no matter the facts. That contrasts pretty significantly with Mr. Angelides and Mr. Min’s false spin in the statements above of bipartisan agreement, doesn’t it? Read these two blog postings, which are excerpted from Mr. Wallison’s book, and you will see that Mr. Angelides and Mr. Min’s claims of “consensus” (support of their view) at the FCIC and among economic and financial experts is false:

April 8, 2015 – Statement 676: “It is telling that Congress adopted the (Dodd-Frank) act in July 2010, six months BEFORE the FCIC’s report was issued, a clear demonstration that the Democratic Congress knew well in advance exactly what this well-controlled commission would say.”, Peter J. Wallison, “Hidden in Plain Sight, Chapter 3: The Financial Crisis Inquiry Commission and Other Explanations for the Crisis”

January 28, 2015 – Statement 583: “Academic economists generally agree that the mortgage meltdown during the recent financial crisis was in large part a consequence of government “affordable housing” policies…

Next Mr. Angelides and Mr. Min say…”First, the vast majority of the subprime mortgages originated from 2002-2007 were made by non-bank lenders and then purchased, transformed into complex securities, and sold to investors by Wall Street. These fell outside the scope of federal community lending and affordable housing policies, which apply to Fannie Mae, Freddie Mac, and traditional banks with federally insured deposits.”

Mike Perry’s response: “The first part is true. The second part is not. Fannie and Freddie’s regulator gave them community lending/affordable housing credit for the AAA private MBS they bought. Paraphrasing from my memory, FCIC member Peter Wallison stated in his 2015 book: “Demand for subprime, Alt-a and other private MBS was driven by huge demand from Fannie and Freddie, who received (affordable housing) credit from HUD for these MBS purchases/investments.”

Next Mr. Angelides and Mr. Min say….”Second, Wall Street was where the action was during the housing bubble. From 2003 to 2006, Wall Street’s share of the total mortgage market soared, from roughly 10% in early 2003 to nearly 40% of the market (and 55% of all mortgage-backed securities) by 2005 and 2006. This surge in Wall Street’s mortgage securitization machine came almost entirely at the expense of Fannie, Freddie, and the traditional banks… Third, actual data on mortgage delinquencies and mortgage-related losses clearly tells the story of what drove the financial meltdown. It found that delinquency rates for loans purchased or guaranteed by Fannie and Freddie, which were subject to HUD affordable housing goals, were substantially lower than for mortgages securitized by other financial firms not subject to those goals….As, economist Mark Zandi noted in 2013, Wall Street MBS suffered realized loss rates of 20.3% from 2006 to 2012, compared to 5.8% for traditional banks,  and 3.7% for Fannie/Freddie MBS. In short, it’s hard to argue that affordable housing and community lending policies led to the financial crisis when entities responsible for financing and originating the riskiest loans were not subject to these policies.”

Mike Perry’s response: This is a half-truth. FCIC member Peter Wallison points out that by 2008, 57% of all mortgages in the U.S. were higher-risk, non-traditional mortgages (NTM’s) and that Fannie, Freddie, FHA, and VA owned, insured, or guaranteed 76% of these NTM’s (via whole loans or securities). So Mr. Angelides and Mr. Min are misleading us when they only talk about  Fannie and Freddie MBS performance. As already pointed out Fannie and Freddie drove the private MBS market with their massive purchases of AAA’s. In addition, because of Fannie and Freddie’s implied government guarantee, they had the lowest-rate mortgage and the Best Price (for mortgage originators)…so they were able to cherry-pick and did, the very best, lowest risk subprime and Alt-a mortgages, before private MBS securitization. Also, during and after the crisis, Fannie and Freddie MBS benefited from an explicit government guarantee and also from government programs for loan modifications (principal and interest reductions). The Private MBS market received no government help. In addition, Mr. Angelides and Mr. Min completely ignore FHA/VA. Had the private MBS market not existed and disbursed subprime and other nonconforming mortgage risk around the financial system, it would have been heavily concentrated at FHA/VA and at Fannie and Freddie and the government would have sustained massive, direct losses from the crisis. Don’t believe me that FHA is a subprime lender? Go look at the data. Their books of insurance business (during those bubble years) have similar delinquencies/defaults and losses to subprime mortgages. And when the subprime and private MBS market collapsed, whose market share exploded? FHA’s!!! And go look at the massive losses FHA knowingly took on it’s post-crisis (2009-2011) books of business. (Was it really responsible for FHA to encourage home buyers in 2008-2011 to catch a falling knife of declining home prices, with 3% down mortgages, when the entire private sector home lenders had pulled back and institutional home buyers were sitting on the sidelines, prudently waiting?) Here are three blog postings I have made on this subject:

April 13, 2015 – Statement 686: “Clearly, the SEC’s current securities fraud (disclosure) cases against the CEO’s and CFO’s of Fannie and Freddie, provide strong evidence to support your point about the non-disclosure of NTM’s (nontraditional mortgages) pre-crisis. I had no idea that by June 2008 that roughly 57% of all mortgages in the U.S. were NTM’s and I sure didn’t have any idea that Fannie, Freddie, FHA, and VA owned, insured, or guaranteed 76% of these NTMs (via whole loans or securities)…

February 26, 2013 – Statement 42:  Is FHA “A home wrecker”?

February 26, 2013 – Statement 41:  HUD/FHA is Not More Capable or Noble Than Their Private Sector Counterparts

Next Mr. Angelides and Mr. Min say..”Fourth, pegging government housing policies as the cause of the crisis ignores what has happened in the U.S. commercial real estate market and in housing markets in other countries such as Spain, Ireland, and the United Kingdom. Commercial real estate in the U.S. and some foreign housing markets experienced a bubble at least as big as that of the U.S. housing market. If government housing policies caused the U.S. housing bubble, what explains the bubble in commercial real estate and other housing markets?”

Mike Perry’s Response: “I agree with this argument, but it also applies to the private (Wall Street) MBS market. Take the last sentence, it could easily read, “If private (Wall Street) MBS caused the U.S. housing bubble, what explains the bubble in commercial real estate and other housing markets (around the world)?” Right? And if you follow your own logic here Mr. Angelides and Mr. Min, your liberal argument that “greedy and reckless bankers (and poor regulation) were the cause of the financial crisis” also can’t be right, can it? All the world’s bankers were greedy and reckless (and their regulators were hapless) at exactly the same time Mr. Angelides and Mr. Min? That makes no sense. And even if they were, what exactly did they do to cause all of these asset bubbles/busts around the world? Maybe that’s why not a single Republican commissioner signed on to your Democrat-FCIC report Mr. Angelides? And maybe Mr. Angelides your committee should have spent more time on government incentives and economic issues like government monetary policies and The Federal Reserve? Many influential economists (including Nobel Laureate’s) have written that monetary policies were the primary cause of asset bubbles and busts and/or that other government incentives also distorted housing and financial markets. But that wouldn’t fit with your liberal view that government is always good and right and the private sector is always bad and wrong, would it?

Next, Mr. Angelides and Mr. Min say…..”….there is a simple fact: While Fannie Mae and Freddie Mac required a bailout due to the nationwide drop in home prices of more than 30% and their sever undercapitalization, Fannie Mae and Freddie Mac mortgage securities did not cause the losses that rippled through the financial system in 2007 and 2008 and brought down firms such as Bear Stearns, Merrill Lynch, AIG, and Lehman Brothers. Fannie and Freddie mortgage securities essentially maintained their value throughout the crisis because of the implicit government backstop they enjoy, while the mortgage securities created on Wall Street crashed and caused significant losses at major financial institutions.”

Mike Perry’s Response: “This is outrageous and misleading and says nothing about the causes of the financial crisis. Mr. Angelides and Mr. Min are saying, “Hey, because U.S. taxpayers backed Fannie and Freddie with nearly $190 billion in capital and the full faith an credit of the U.S. government, they did not fail in the crisis and they were able to continue to fully guarantee the MBS securities they had issued.” Of course!!!! FHA and the FDIC also became insolvent during the crisis and were saved only because they were backed by the full faith and credit of the U.S. government and the American taxpayer. So what? Private firms failed who weren’t backed by the government? So what? What does that have to do with the true root-causes of the financial crisis and what we should do (or not do) going forward?”

Finally, Mr. Angelides and Mr. Min say…”Ever since the release of the FCIC’s report in 2011, there has been a furious effort on the part of Wall Street and its allies to rewrite the history of the financial crisis. But after five years of assaults, the accuracy of the FCIC’s report remains unblemished. It’s long past time to put their zombie lies to rest and get on with the business of ensuring that the recklessness on Wall Street so vividly portrayed in The Big Short never again puts our nation’s economy and American families at risk.”

Mike Perry’s Response: As discussed above, Mr. Angelides FCIC report was effectively “dead-on-arrival” as a credible, bipartisan document of the true, root-causes of the financial crisis. Instead, it became a Democratic party propaganda piece that was designed to “cement” the false, liberal narrative “that greedy and reckless bankers and poor regulations and/or hapless regulators” caused the crisis. I hope you can see from my rebuttal above (and my entire blog) that it is liberals like Mr. Angelides and Mr. Min that have been distorting the facts and the truth about the financial crisis. And, how does any of this reconcile with Democratic party Presidential front-runner, Hillary Clinton, making paid speeches to Goldman Sachs and other Wall Street bankers? Ethically, she should never have met with these firms and took their money, if she believed what Mr. Angelides and Mr. Min are selling. And if you are cynical and don’t believe she is ethical, then you would have to believe she is not so stupid as to risk her Presidential candidacy, for a few paid speeches? (By the way, Mr. Min’s bio shows that he worked for Sen. Schumer during the financial crisis and it was Sen. Schumer’s inappropriate public statements that caused IndyMac Bank to be seized by the FDIC on July 11, 2008….resulting in big gains to liberal New York short sellers, some who I believe were friends and political donors to Sen. Schumer.)

Other related historical blog postings that refute Mr. Angelides’ and Mr. Min’s claims about the financial crisis:

April 16, 2015 – Statement 698: “The FHFA’s latest decision to lower fees for some (riskier) borrowers is “just starting to look like part of a larger trend, that’s my real concern. What’s next?” said Mark Calabria, director of financial regulation studies at the libertarian Cato Institute. “There was not some single moment or event that got us into the last mess, but the accumulation of lots of errors.””, The Wall Street Journal, April 16, 2015

April 16, 2015 – Statement 696: “In a famous speech to the American Economic Association in January 2010, then Federal Reserve Chairman Ben Bernanke postulated that the Fed had no significant impact on the housing bubble or on the increase in financial leverage and that monetary policy was too blunt a tool to be used to smooth asset cycles. After emphasizing for years that low rates have the ability to boost asset prices, under what criteria can the Fed insist that it had no influence on the boom preceding the financial crisis?…

April 14, 2015 – Statement 691: “I believe you are right that government-mandated housing policies (forced upon Fan and Fred by HUD), caused a massive, industry-wide loosening of mortgage lending underwriting standards and this helped sustain the bubble, but I believe as you note (and agree) more importantly they were the cause of the massive defaults once housing prices started to fall…

April 13, 2015 – Statement 687: “I can tell you for a fact, pre-crisis, the folks at IndyMac (me included) thought we were doing both good for U.S. homeowners/borrowers, good for the economy (by supporting the government’s housing goals) and good for ourselves. It’s tough to decide what the right types and amount of home mortgages to make. Post-crisis, with the benefit of hindsight, the banking, mortgage, and consumer regulators took years and in the end they didn’t really decide…

April 10, 2015 – Statement 683: “Fannie and Freddie did not fully disclose their exposure to NTM (nontraditional mortgages) until after they had been taken over by a government conservator in 2008. Before the crisis, analysts, regulators, academic commentators, rating agencies and the Federal Reserve (did not understand) the scope of the NTM problem, believing it was much smaller, and that the number of traditional prime mortgages outstanding was much larger, than in fact they were…

April 10, 2015 – Statement 681: “On June 24, 2004, seventy-six House Democrats, led by Nancy Pelosi (D-Calif.) and Barney Frank (D-Mass.), delivered the necessary support through a letter to President Bush, showing how much their support was linked to the affordable-housing goals. “We write as members of the House of Representatives who continually press the GSEs to do more in affordable housing,” the letter began…

April 10, 2015 – Statement 680: “Under direction of its chair, James Johnson, Fannie Mae had seen the political value of lending to low-income borrowers. In 1991, even before the enactment of the GSE Act, Fannie had made a $10 billion pledge of support for low-income housing, adapting a vehicle for reduced underwriting standards…

April 10, 2015 – Statement 679: “In June 2008, just before the crisis fully gripped the nation, there would be a moment of recognition that HUD’s policies were at fault, when the fact that many families would lose their homes was connected to the affordable-housing goals…

April 10, 2015 – Statement 678: “Before the adoption of the Federal Housing Enterprises Financial Safety and Soundness Act (the GSE Act) in 1992 and the imposition of the affordable-housing goals, the GSEs followed conservative underwriting practices. Mortgage defaults were usually well under 1 percent, and the homeownership rate in the United States hovered around 64 percent, where it had been for almost thirty years…

April 8, 2015 – Statement 676: “It is telling that Congress adopted the (Dodd-Frank) act in July 2010, six months BEFORE the FCIC’s report was issued, a clear demonstration that the Democratic Congress knew well in advance exactly what this well-controlled commission would say.”, Peter J. Wallison, “Hidden in Plain Sight, Chapter 3: The Financial Crisis Inquiry Commission and Other Explanations for the Crisis”

February 26, 2015 – Statement 627: “In my opinion, a financial crisis is not only a likely consequence of implicit (government) subsidies for risky lending but a necessary one because that is when implicit guarantees ultimately become real-life bailouts and trigger the taxpayer payments necessary to fund Washington’s longstanding lending goals…

April 8, 2015 – Statement 675: “I really appreciate the idea that you would consider other views. (I don’t see a lot of liberal/progressives who will even read anything that doesn’t comport with their “worldview”. In other words, they are anti the scientific method.)…

January 29, 2015 – Statement 585: “But Watt (Melvin L. Watt, director of the Federal Housing Finance Agency), a former longtime House Democrat, said the agency had taken steps to make sure that a loan with a 3% down payment “is just as safe” as a loan with a 10% down payment.”, The Los Angeles Times

January 29, 2015 – Statement 584: “In these pages I argue that, but for the housing policies of the U.S. Government during the Clinton and George W. Bush administrations, there would not have been a financial crisis in 2008. Moreover, because of the government’s extraordinary role in bringing on the crisis, it is invalid to treat it as an inherent part of a capitalist or free market system, or to use it as a pretext for greater government control of the financial system…