My GMU Econ colleague Garett Jones reviews Mark Zandi’s new book, Paying the Price. Here are important paragraphs from Garett’s superb review:
There are plenty of areas where Zandi tells only part of the story; it’s his book and he’s welcome to his angle. But his dismissal of Fannie’s and Freddie’s role in the housing bubble cries out for exposure. His discussion of the government-sponsored enterprises features a graph showing that the “nongovernment” share of subprime “mortgage originations” rose during the bubble years. From this he concludes that the private sector, not Fannie and Freddie, deserves the blame for the subprime bubble.
But by law, Fannie and Freddie are banned from originating mortgages. Instead, they buy mortgages originated by private lenders. How can a professional economist covering the economic scene not know this? And it’s not just that Zandi is speaking informally in a popular book. In a report he co-wrote last year, “The Future of the Mortgage Finance System,” one chart dutifully reports Fannie and Freddie’s “% of total mortgage originations.”
What do these graphs refer to? It’s impossible to tell. One could with equal logic post a chart called, “The U.S. Treasury’s Initial Public Offerings of Stock” to prove that the Treasury did not buy shares of General Motors (it did). Given Zandi’s repeated assurances that Fannie and Freddie weren’t to blame for the housing bubble, he should convey their relationship to the subprime mortgage market accurately. He performs this task with blatant inaccuracy.
The fact that the mortgage giants originated zero mortgages leads to evidence Zandi ignores. The two firms bought boatloads of low-quality mortgages from the private sector. A spate of federal lawsuits against a few major lenders indicate that private lenders did their best to dump weak mortgages onto Frannie and Freddie. But often enough, the two firms were willing buyers of non-traditional mortgages, trying to meet ever-more demanding affordable-housing goals put on them by the Department of Housing and Urban Development.
Zandi’s assertion that Fannie and Freddie were “minor players in the crazed lending of the 2000s” is wrong, and the method he adopts as proof seriously mars Paying the Price.
The second review is by my new best friend, Gene Epstein. (You must go to page four at this link to find Gene’s review.) Gene smiles favorably upon Hypocrites & Half-Wits and recommends it as a “perfect stocking-stuffer.” [ He's absolutely right! And it's available both in a hardcover version and a Kindle version.] My over-powering vanity – combined with my hope to sell as many copies of my book as possible – drives me to reproduce here Gene’s opening lines:
Is it possible to write an insightful book on economics and be funny in the process? George Mason University economics professor Donald Boudreaux, keeper of the blog CafeHayek.com, proves it’s quite possible. As author of this delightful collection of letters to editors that take aim at the hypocrisy and half-wittedness rife in media pronouncements on the dismal science, Boudreaux follows in the footsteps of Frederic Bastiat, the great 19th-century French economist who also used humor and satire to puncture commonly held myths.
(Sincerely: Thank you so much, Gene.)