Agency Costs in the Mortgage Securitization Market

Many theories exist that purport to explain the Financial Crisis of 2008 and the subsequent recession, the aftereffects of which are still felt in 2012. While the story of the private mortgage security market is  part of the overall story  of the Crisis, no single facet of the Crisis taken in isolation can possibly explain the entire narrative. Nor is the story of private mortgage securities simply a story from the last decade, a footnote to the Crisis and its run-up. Mortgage securities have existed in the United States for over forty years, and mortgage securities created by private firms for thirty. And despite their potential to create havoc, mortgage-backed securities (MBS) are an essential component of housing finance, and are likely to remain so for the foreseeable future.


[This paper has a lot of equations, and the formatting constraints of this platform make posting it in its entirety not feasible. Please follow this link if you'd like to read the whole paper.]



The list below is a miniature bibliography. "Miniature" in the sense that I have no pretense to completeness. I will just post links below that are relevant as I find them. Feel free to suggest something in the comments.

Did Securitization Lead to Riskier Corporate Lending? João Santos

Did the Rise of CLOs Lead to Riskier Lending? Vitaly Bord and João A. C. Santos

Did Securitization Lead to Lax Screening? Evidence from Subprime Loans Benjamin J. Keys, Tanmoy Mukherjee, Amit Seru, and Vikrant Vig

Links of the Week - 10 May 2013

Another big one this week. -ed.


The Four Noble Truths of Full Employment
Jared Bernstein

This accounting tweak by Fannie Mae and Freddie Mac will mean $60 billion for the U.S. government
Neil Irwin

A Thorough Summary of the Ferguson Fiasco
via Brad DeLong

Fact Finders (2005)
Jonathan Chait

Down the Up Staircase
Jared Bernstein

The Preferences of the Wealthy and Their Role in Our Politics

more from Larry Bartels: 

Democracy and the Policy Preferences of Wealthy Americans (2013) 

Economics Still Matters to Poorer Voters (2008) 

Economic Inequality and Political Representation (2005)

and yet more: Do Politicians Serve the One Percent? Evidence in OECD Countries 

P. Torija (2013)

 Let's get real about the stock market
Antonio Fatás

Heritage study co-author opposed letting in immigrants with low IQs
Dylan Matthews

The Health Care “Market” is So Not a Market
Jared Bernstein

The Political Imbalance Facing Unions in America
Jared Bernstein

Boehner Accidentally Explains Why His Deficit Position Is Phony
Josh Barro

Are Stocks Cheap? A Review of the Evidence
Fernando Duarte and Carlo Rosa

Image of the Day - Tax Burden

Image of the Day: The relative burden on sales and income taxes, by income class.

Remember this when hucksters try to tell you that we'd be better off lowering income tax and raising sales tax. Find your place on this chart and decide if you'd be better off paying more in sales tax and less in income tax.





via

Quote of the Day - Coates

"One of the problems with the idea that America needs a 'Conversation On Race' is that it presumes that 'America' has something intelligent to say about race. All you need do is look at how American history is taught in this country to realize that that is basically impossible."

-Ta-Nehisi Coates

Down the Up Staircase

This is where I was yesterday.

"NC has long been committed to solid education from early childhood interventions through their jewel-in-the-crown system of higher ed, along with maintaining some beautiful natural resources.  The idea that they’ll seduce businesses to come to the state by shifting taxes from income to sales, while continuing a trend toward disinvestment in public goods like higher ed, natural resources, and infrastructure is exactly backwards."

Matching Dilemma

Via The Onion: No One In Limo Going To Prom With The One They Wanted

Perhaps these guys could've done it better.

Links of the Week - 3 May 2013

The Ignoramus Strategy
Paul Krugman

Lee Atwater’s Infamous 1981 Interview on the Southern Strategy
Rick Perlstein

Banks Have Become “Too Big To Fail” Again. Uh-Oh.
Simon Johnson

Tax Day!
Jared Bernstein

How to Save American Finance from Itself
Robert Solow

The incomparable economist
Paul Krugman

Samuelson Memorial
Paul Krugman

Hedging America
Robert Solow

Brad DeLong on "What is Macro?"

Brad DeLong:

This year I am on sabbatical--which means I do not teach. And I do miss it. Thus, from my perspective at least, this next hour is going to be an hour of pure fun.

I hope it will be an hour of pure fun for you all as well.

As Bob Strom said, right now in this MBA class you are transitioning from studying micro to studying macroeconomics. You are moving away from studying that part of economics where you talk about how the market system works well: how supply balances demand to make the maximum possible amount and value of win-win deals, and how people respond to the incentives they’re given to change their behavior. To the extent that things go wrong in microeconomics--to the extent that when you step back and look at the situation you say "Geewillickers! I really wish this had not happened!"--it is because you wish that you or the market system had not given people the incentives that it in fact did.

Practically everything that goes wrong in micro goes wrong because somewhere in the system some people have what we regard as the "wrong" incentives, and have responded to them. In such a situation you frantically scramble to fix it and correct it. And you do so by finding ways to change public policies so that people in fact have the right incentives.

Micro is somewhere between half and three-quarters of economics.

The other quarter or so of economics is macroeconomics.

Macro is different. Macro deals with the fact that sometimes the economy seems to have some sort of a grand mal epileptic seizure. It freezes up. Something goes mysteriously wrong--and wrong not with an individual firm, or an individual industry, or an individual sector of the labor market, but wrong with pretty much the whole thing. This happened to the US economy in 2008 and 2009.


link

Quote of the Day - Ownership Culture

"No one washes a rented car."

-Origin unclear, variously attributed to Larry Summers, Tom Friedman, Jack Kemp, and an unnamed aircraft maintenance crew chief in a book by Thomas Peters and Nancy Austin...

more

still more

Man washing a Zipcar: NCSU, 10 April 2013

Links of the Week - 26 April 2013

A slow week for curated news:


Why gold and bitcoin make lousy money
David Andolfatto

Inside the offbeat economics department that debunked Reinhart-Rogoff
Dylan Matthews

'Unemployment and the Free Market'
Chris Dillow, via Mark Thoma

Quote of the Day - Michael Lewis on Capital

"I also found myself thinking: the English may finally have decided they have had enough of their experiment with the American financial way of life. If what happened in the Western world financial system had happened at another time in history, there would have been an obvious political response: a revolt against the Roger Younts of the world and, more generally, the grotesque inequities spawned by the putatively free financial marketplace. If the memory of British socialism wasn’t so fresh—if people didn’t still recall just how dreary London felt in 1980—they’d be pulling down the big banks, and redistributing the wealth of the bankers, and it would be hard to find a good argument to stop them from doing it. The absence of the satisfying political response to the financial crisis is due, at least in part, to the absence of an ideological vessel to put it in. No one wants to go forward in the same direction we’ve been heading, but no one wants to turn back either. We’re all trapped, left with, at best, the hope that our elites might experience some kind of moral transformation."

-Michael Lewis, on Capital, by John Lanchester


link

Links of the Week - 19 April 2013

Kind of a big week for links, but then it was kind of a big week for news. There was such a big pile of links this week that I put them into categories. This may become a trend, but no promises yet.

Gold:

The Gold Bubble Is Bursting: Who’s To Blame? - David Glasner 

12 Rules of Goldbuggery - Barry Ritholtz

Bitcoin:

Bitcoin is ludicrous, but it tells us something important about the nature of money - Neil Irwin 

Adam Smith Hates Bitcoin - Paul Krugman

Thatcher Roundup:

David Corn 

Wonkblog 

Paul Routledge

General Macro:

Milton Friedman, Currency Debaser - Paul Krugman

Empirical Methods and Progress in Macroeconomics - Mark Thoma

Getting Back to Full Employment - Jared Bernstein 

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion - The Onion

Marathon:

‘If you are losing faith in human nature, go out and watch a marathon’ - Ezra Klein

Please, Listen to Ruslan - William Saletan (video)

The Rest:

Why doing your taxes is much harder than it ought to be - Neil Irwin 

The Limits of Good Faith - Ta-Nehisi Coates 

What are some of the most ridiculous startup ideas that eventually became successful? - Michael Wolfe

Why I Don't Love Frederic Bastiat - Matthew Yglesias

How a student took on eminent economists on debt issue - and won - Edward Krudy