FCIC Commissioner Peter Wallison touts the discredited research of Ed Pinto. So do professors at Berkeley and NYU, who apparently receive indirect funding from the Koch Brothers.
To justify his unauthorized leaks, FCIC Commissioner Peter Wallison claimed that his colleague at the American Enterprise Institute, Edward Pinto, deserved an opportunity to respond. "I get this memo criticizing Pinto's data -- what was I supposed to do?" he told Huffington Post. "Pinto should be the one to respond to criticism of his data."
Pinto got the opportunity, but he offered no response. He delivered three additional memos, here, here, and here. But he never responded to core criticism in the FCIC staff memo, which identified the fatal flaw in Pinto’s misguided labeling scheme. He labeled 27 million mortgages, almost half the U.S. total, as “subprime,” Alt-A,” or otherwise “high risk.”
Deceptively Labeling 27 Million Mortgages
Anyone familiar with the mortgage markets would immediately recognize why Pinto’s thesis was nonsense. Consider this analogy: Suppose someone told you that there were 27 million Jews living in the state of Texas. You would know right away that this guy has no idea what he was talking about. Even if you didn’t have the data at your fingertips, you would know that Jews are a small minority relative to the overall population. And though different people use different criteria for identifying who is Jewish and who is not, the total number, using anyone else’s definition, would never come close to 27 million. Now, if this guy persisted in his claim, you could test the veracity of his number by counting the number of people in Texas who went to synagogue on Yom Kippur. Since the total number of attendees would be a small fraction of 27 million, it would be obvious that the 27 million total made no sense. (To preempt any misunderstanding: I’m only making a point about numbers and proportionality, not about anyone’s religion or ethnicity.)
Anyone familiar with the mortgage markets knows that subprime and Alt-A mortgages, under everyone else’s definitions, represent a small minority of the 55 million residential mortgages outstanding. Nobody else calculates anything close to a 27 million total. And the FCIC tested Pinto’s calculation by comparing mortgages according to delinquency rates. Only a small fraction of Pinto’s 27 million exhibited extremely high levels of delinquencies. Lo and behold, the high levels of delinquency were concentrated among the mortgages defined as subprime and Alt-A by everyone else. Pinto's add-ons had low delinquency rates. As George H. W. Bush said, “Labels are for cans.” It’s performance that counts.
The Inability To Respond To Valid Criticism
Pinto had no response to FCIC memo. He simply regurgitated much of what he had said before. Wallison, who has been touting Pinto’s bogus calculations for several years, is similarly unable to respond to this criticism. Two days before the FCIC report was released, on January 25, 2011, he was put on the spot at an AEI panel discussion. One of the experts on the dais, David Min of the Center for American Progress, offered a slide presentation that identified the obvious flaws in Pinto's analysis. Wallison assured the audience that he would be addressing all of the issues raised by Min in his FCIC dissent. Except there was no response. Nor did Wallison respond to the same issues raised in Min's article, “Faulty Conclusions Based on Shoddy Foundations," published two weeks later. Instead of addressing the substance of Min's argument, Wallison described the article as “fallacious,” “fraudulent,”and “deceptive” and “political screed.” Wallison, like Pinto, favors deceptive labeling as a substitute for real analysis. Min's measured response is here.
The Koch Brothers Mercatus Connection
People make audacious claims when they can rely on the ignorance of others. If someone knew nothing about the ethnic makeup of the United States, he might be fooled into believing that there are 27 million Jews in Texas. Similarly, if someone were unfamiliar with the mortgage business, he could be excused for accepting Pinto’s analysis at face value. But people who profess to be familiar with the topic have no such excuse. Professors at Berkeley and NYU have no such excuse for parroting Pinto's misleading claims. Everyone who follows the mortgage data released by the Federal Housing Finance Agency, or the Mortgage Bankers Association, or Loan Processing Services knows that the loan performance experienced by Fannie and Freddie is exponentially superior to that of the rest of the mortgage market. Anyone who says otherwise is lying.
Berkeley Professor Dwight Jaffee is less than honest when he parrots Pinto's dubious research in his proposal for privatizing the GSEs. NYU Professor Lawrence J. White is less than honest when parrots Pinto's research in his book on the GSEs, Guaranteed to Fail. Jaffee, White and Wallison are all colleagues at the Mercatus Center, a right wing think tank founded and funded by the Koch Brothers.
Guaranteed To Fail was written not by one, not by two, not by three, but four NYU professors, who collectively tout Pinto's deceptive labeling, but have nothing to say about the loan performance of the GSEs relative to that of the rest of the mortgage market. Like Wallison, they simply disregard the salient facts that debunk their right wing narrative. Like Wallison, they rely on the ignorance of their readers.
Fri Jul 15, 2011 at 8:34 PM PT:Harvard Pushes Pinto's "Research" As Well: Pity the poor students at Harvard who waste their tuition money on classes taught by Greg Mankiw, who touted Pinto's bogus research in his blog last Tuesday. Mankiw is a colleague of Wallison and Pinto and at The American Enterprise Institute.