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Friday, May 20, 2011

From Peter Wallison...

In a May 3 note to clients, Michael Cembalest, the Chief Investment Officer of JPMorgan Chase, revised his 2009 account of what caused the financial crisis. Under the general heading of “Retractions,” he wrote:

“US Agencies played a larger role in the housing crisis than we first reported. In January 2009, I wrote that the housing crisis was mostly a consequence of the private sector… However, over the last 2 years, analysts have dissected the housing crisis in greater detail. What emerges from new research is something quite different: government agencies now look to have guaranteed, originated or underwritten 60% of all “non-traditional” mortgages, which totaled $4.6 trillion in June 2008. What’s more, this research asserts that housing policies instituted in the early 1990s were explicitly designed to require US Agencies to mak much riskier loans, with the ultimate goal of pushing private sector banks to adopt the same standards.”

Cembalest’s account (see pages 3 and 4 of the attached paper) cites the forensic study by Ed Pinto of AEI and my dissent from the majority report of the Financial Crisis Inquiry Commission.

He concludes: “As regulators and politicians consider a wide range of actions designed to stabilize the global financial system, some reflection on the role that policy itself played in the collapse would seem like a critical part of the process. It’s not clear that it is.”

Read the full report here.

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