JunkScience often exposes Government agency Junk Science and bad policy making.
For purist readers of JunkScience who would object that this is not about science, let’s just call this post about junk banking and economics, criminal fraud perpetrated by government officials and their accessories. Economics is a social science, and banking and finance are part of economics–right?
In the big picture sometimes there is other government misconduct that is much greater than researcher misconduct on scientific and policy matters, like violating basic financial rules and accounting or fiduciary guidelines.
Richard Epstein is an academic lawyer with a gigantic portfolio, and well-known as the libertarian go to guy on how law and government should behave.
Here he talks of the shenanigans that relate to the bail out of Freddie and Fannie.
I will never forget reading the many Peter Wallison and other WSJ editorialists warnings in the late 90s, early 2000s about the mortgage catastrophe brewing at the Freddie and Fannie Shops.
http://www.aei.org/article/economics/financial-services/housing-finance/fannie-freddie-caused-the-financial-crisis/
Democrats were rotating in and out as Board and executive players at Freddie and Fannie, and making big bucks, people like Franklin Raines and Jamie Gorelick, some who didn’t have much expertise.
These hybrid gov guaranteed, private “lending” institutions are an excellent example of the problem of the moral hazard, which means–lack of accountability in matters of consequence that results in irresponsible conduct. Taxpayers were on the hook for Fannie and Freddie mistakes and misconduct. Fiduciary duty was out the window.
The other problem with hybrid entities is they are a place for political payback and corruption, since they can influence the lending markets and, in the case of Fannie and Freddie, they even gave political contributions.
The Fannie and Freddie home offices also became a political stopping point for big payback jobs, people could suddenly jump their income into the stratosphere and go from hack to millionaire in a year.
Milloy has an LLM in securities and knows this area better than I, of course. Epstein is just plain smart and takes us to school on the scandal that keeps on giving.
http://www.hoover.org/publications/defining-ideas/article/169781
As I understand it, all of the fundamentals that were in place in the late 90’s that lead to the collapse in 2008 are still in place today. All those billions in bailout funds were funneled back into the market (and still are today) artificially keeping the market growing. All those “toxic assets” are still in play and we are still playing in the derivatives market – we have learned nothing.