Wednesday, April 06, 2011

Real Estate Deregulation: No Accident

The Subprime Virus is the kind of book you might read for Lent, not so much for enjoyment.  It's good for you: it flushes out some toxims and recombines some DNA.  But it's professor-boring: a steady slog down the long trail of recent financial memory with little by way of provocative analytical insight and nary an F-bomb in the whole meander.
So, why read it at all?  The answer is that it--okay, it's a slog, but actually a pretty good slog: maybe more of an aide-memoir if you will, effective at walking you through the particulars of the housing crisis qua housing crisis.  Housing, that is, as seen from the dark and bloody frontier between regulators and regulated as they lob stink bombs at each other over issues of control.  A companion piece, then, to Alyssa Katz' superb Our Lot, still umatched as an account of housing-on-the-ground, or Michael Hudson's uneven but insightful The Monster on predatory lending from the inside.   In a different sense, it's a bit like the Financial Crisis Inquiry Report--a just-the-facts bowl of nutrition with lots of roughage.

But I guess I can think of at least one takeaway soundbite.  Specifically, The Subprime Virus makes it clear that lunatic or dodgy regulation over real estate lending is not something that just happened: it was the result of a protracted and sometimes better campaign pitting (often exhausted and always outgunnned) regulators against the anarchic merry pranksters in the private sector.  And say what you like about regulation (I often say I don't like it): a narrative like the one in this book--like the three books together, actually--makes it clear that there simply are not sufficient market incentives to keep things on an even keel in this realm.  The very definition of housing is professional versus amateur and the very definition of banking is Other People's Money.  These are the very essence of victimization no amount of chatter about reputational interests blah blah will ever make people behave well enough on their own.

I've described the book as bland and colorless.  Actually, there is one remarkable human story here: that would be Darrel Dochow, who appears to have been asleep at the switch point man in charge of regulation at the collapse of IndyMac Bank. Turns out that Dochow was also on  scene 20 years ago when Federal regulators took a dive before Lincoln Savings and Loan, the most conspicuous and egregious of the S&L failures.  He seems to belong to a niche in history also occupied by Confederate General George E. Pickett, commander of Confederate forces on the disastrous third day of the Battle of Gettysburg, and also a devastating no-show two years later at the Battle of Five Forks.  

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