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 makhttp://www.blogger.com/img/blank.gife 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.
