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Underbelly: The Blogger has Questions: They say the Devil has nine questions. Barry Ritholtz has ten; he poses them to the four guys [Peter Wallison, Keith Hennessey, Bill Thomas and Douglas Holtz-Eakin] who didn't finish their term paper:

  1. From 2001 to 2003, Alan Greenspan took rates down to levels not seen in almost half a century, then kept them there for an unprecedentedly long period. What was the impact of ultra low interest rates on Housing, credit, the bond markets, and derivatives?

  2. How significant were the Ratings Agencies (S&P, Moodys and Fitch) to the collapse? What did their AAA ratings on junk derivatives affect? What about their being paid directly by underwriters for these ratings?

  3. The Commodities Futures Modernization Act of 2000 removed all Derivatives from all oversight, including reserve requirements, exchange listings, and disclosures. What effect did the CFMA have on firms such as AIG, Bear, Lehman, Citi, Bank of America?

  4. Prior to 2004, Investment Houses were limited to 12-to-1 leverage by the SEC’s net capitalization rule. In 2004, the 5 largest investment banks asked for, and received, a full exemption from leverage restrictions (known as the Bear Stearns exemption) These five firms all jacked up their leverage. What impact did this increased leverage have on the crisis?

  5. For seven decades, Glass Steagall separated FDIC insured depository banks from riskier investment houses. Prior to the repeal of Glass Steagall in 1998, the market had regular crashes that did not spill over into the real economy: 1966, 1970, 1974, and most telling of all, 1987. What impact did the repeal of Glass Steagall have on the banking system during the 2008-09 crash?

  6. NonBank Lenders: Most of the sub-prime mortgages were made by unregulated non-bank lenders. They had a ”Lend to securitize” business model, and they sold enormous amounts of subprime loans to Wall Street for this purpose. Primarily located in California, they were also unregulated by both the Federal Reserve and the California State legislator. What was the impact of these firms?

  7. These firms abdicated traditional  lending standards. They pushed option arms, interest only loans, and negative amortization mortgages, all of which defaulted in huge numbers. Was non-bank sub prime lending a major factor in the crisis?

  8. The entire world had a simultaneous global housing boom and bust. US legislation such as the CRA or Fannie & Freddie only covered US housing and lenders.  How did this cause a worldwide boom and bust — even bigger than that in the US ?

  9. Prior to the 2004, many States had Anti-Predatory Lending (APL) laws on their books (and lower defaults and foreclosure rates). In 2004, the Office of the Comptroller of the Currency (OCC) Federally Preempted state laws regulating mortgage credit and national banks. What was the impact of this OCC Federal Preemption ?

  10. Corporate Structure: None of the Wall Street partnerships got into trouble, only the publicly traded iBanks. Partnerships have full personal liability for their losses. What was the impact of this lack of personal liability of senior management on Wall Street risk management?

Comment:  Some of these come close to being purely rhetorical in the sense that (I suspect) Barry feels he knows the answer, and that the answer is damning to the culprits.  For every one of them, I suspect somebody over at the American Enterprise Institute will be ready with a memo showing that it was a total non-issue and oh look!  There's Barney Frank!  Even given AEIs risible record of "research," still a number of these do represent real issues on which I'd love to have a better sense of who is right.  Example: repeal of Glass Steagall is part of the standard mantra.  Yet wouldn't I be right that the worst afflicted banks (Bear Stearns, Lehman) are the ones least diversified, the ones that took least advantage of Glass Steagall repeal?  Can we document that Federal preemption really changed anything?

I know, that's not really his point--his point being to try to shame four guys who seem to have no sense of shame, and who pass on, as an "investigation report," a set of AEI talking points that they could have drafted before the commission was ever appointed.