Education in the United States
We have a thread devoted to academic freedom at universities, and we have a thread devoted to whether higher education should be subsidized. This thread is a landing spot for discussion of other issues related to education -- issues like school integration, pedagogy, the influence of politics on education (and vice versa), charter schools, public v. private schools, achievement gaps, and gerrymandering of school districts.
I'll start the discussion with two articles. The first deals with a major changes in the public school system in NYC.
NYC's public schools are highly segregated for such a diverse city. Last Friday, Bill DeBlasio announced the following:
Middle schools will see the most significant policy revisions. The city will eliminate all admissions screening for the schools for at least one year, the mayor said. About 200 middle schools — 40 percent of the total — use metrics like grades, attendance and test scores to determine which students should be admitted. Now those schools will use a random lottery to admit students.
In doing this, Mr. de Blasio is essentially piloting an experiment that, if deemed successful, could permanently end the city’s academically selective middle schools, which tend to be much whiter than the district overall.
DeBlasio also announced that:
New York will also eliminate a policy that allowed some high schools to give students who live nearby first dibs at spots — even though all seats are supposed to be available to all students, regardless of where they reside.
The system of citywide choice was implemented by former Mayor Michael R. Bloomberg in 2004 as part of an attempt to democratize high school admissions. But Mr. Bloomberg exempted some schools, and even entire districts, from the policy, and Mr. de Blasio did not end those carve outs.
The most conspicuous example is Manhattan’s District 2, one of the whitest and wealthiest of the city’s 32 local school districts. Students who live in that district, which includes the Upper East Side and the West Village, get priority for seats in some of the district’s high schools, which are among the highest-performing schools in the city.
No other district in the city has as many high schools — six — set aside for local, high-performing students.
Many of those high schools fill nearly all of their seats with students from District 2 neighborhoods before even considering qualified students from elsewhere. As a result, some schools, like Eleanor Roosevelt High School on the Upper East Side, are among the whitest high schools in all of New York City.
Here is the New York Times article that describes the changes:
https://www.nytimes.com/2020/12/18/nyreg...
Obvious questions for discussion include:
- How large a priority should cities place on ensuring that city schools are representative of the city as a whole?
- Are measures like the ones that DeBlasio is implementing likely to be effective in making schools more representative?
- Will these measures have unintended (or intended) consequences that extend far beyond changing the representativeness of city schools?
Oh jfc , the complex set of state guarantees to creditors in the financial system, implicit and explicit, which starts with the FDIC and Freddie and Fannie Mae but extends through implicit (yet often material) guarantee to a lot of other agents.
It is self evident that that block of state guarantees is what allows risk to build up so much, when the castle crumbles it's a huge disaster.
If all agents are absolutely certain they pay counterparty failure risk in full, risk doesn't build up that much.
I understand your thesis. What the post you replied to is saying that it's not one I've heard before, despite consuming a lot of material on this subject, nor self-evident (IMO).
I understand your thesis. What the post you replied to is saying that it's not one I've heard before, despite consuming a lot of material on this subject, nor self-evident (IMO).
No you only focus on the FDIC being mentioned as gross, while the thesis that Fannie and Freddie (legally mandated) actions had a role is basically uncontroversial (discussion is only about how much of a contribution we can attribute to them specifically in a complex multi factorial event).
My thesis simply adds the framework of "it's all guarantees because that's why people strongly believe in the implicit ones as well".
You can disregard FDIC if you dislike the idea that all state creditor guarantees are intimately connected to one another and stem from the same overarching ideology and policy framework, and just focus on the explicit regulatory failure.
Both in the "positive" (mandated guarantees for mortgage creditors) and in the negative (structuring capital requirements upon private entity deliberation roflmao, which allowed the abuse of AAA labeling by fraud/ignorance of statistics).
When you build a complex building of regulation and you guarantee the foundation, *people stop doing their own risk assessment and due diligence*, so any mistake by regulators automatically allows for insane risk build up till the explosion.
When you are told underwriting insurance for AAA will only require you the tiniest regulatory capital, you will end up finding ways to stick the AAA label on CCC stuff.
And the buyers will buy from you anyway because of the implicit guarantee.
You know what rating agencies did right? They rated stuff at AAA because default risk of individual mortgage holders inside a MBS was deemed independent from one another lol, as if house price index risk putting people underwater thus making it profitable for them to walk away wasn't a correlated risk, or a recession that increases unemployment in an area wasn't as well
No you only focus on the FDIC being mentioned as gross, while the thesis that Fannie and Freddie (legally mandated) actions had a role is basically uncontroversial (discussion is only about how much of a contribution we can attribute to them specifically in a complex multi factorial event).
My thesis simply adds the framework of "it's all guarantees because that's why people strongly believe in the implicit ones as well".
You can disregard FDIC if you dislike the idea that all state creditor guara
I don't need a lengthy lesson on the 2008 financial crisis. Try to stick to the point at hand, which is the role of the FDIC. Your point is that "all guarantees are intimately connected" which is your opinion, and IMO far from self-evident. You seem to think it's self-evident, from your condescending remark "imagine thinking the FDIC had nothing to do with the financial crisis". But we've now arrived at you saying we can disregard the FDIC from your analysis, the rest of which is just recounting stuff that has been beaten to death 1000 times over, so we can move on.
Ebbs and flows in the market are different than bubbles. It is extremely likely we would have less bubbles with less regulation.
Agreed, that was the law passed under clinton that forced banks to give loans to people who didn't otherwise qualify for a loan. It was the ultimate ticking time bomb that he knew another president would have to deal with while he got praise for helping poor people.
As usual lies by baham and completely debunked by facts ….
The Community Reinvestment Act encourages bank lending to low- and moderate-income neighborhoods. Enacted in 1977, it sought to eliminate bank “redlining” of poor neighborhoods
In May 1995, President Clinton directed bank regulators to make the CRA reviews more focused on results, less burdensome to the banks, and more consistent. The CRA regulators use a variety of indicators, including interviews with local businesses. But they do not require banks to hit a dollar or percentage goal of loans. In other words, the Reinvestment Act doesn’t restrict banks’ ability to decide who is credit-worthy. It doesn't prohibit them from allocating their resources in the most profitable way.
Its research showed that 60 percent of subprime loans went to higher-income borrowers outside of the CRA areas. Furthermore, 20 percent of the subprime loans that did go to ghetto areas were originated by lenders that weren't trying to conform to the CRA. In other words, only 6 percent of subprime loans were made by CRA-covered lenders to borrowers and neighborhoods targeted by the CRA. Further, the Fed found that mortgage delinquency was everywhere, not just in low-income areas.
Which number is bigger baham ? 60% or 6% ?
An MIT study found that banks increased their risky lending by about 5 percent in the quarters leading up to the CRA inspections. These loans defaulted 15 percent more frequently. This was more likely to happen in the “greenlined” areas. They were committed more by large banks. Most important, the study found that the effects were strongest during the time when private securitization was booming.
What Made Securitization Possible
Both studies indicate that securitization made higher subprime lending possible. What made securitization possible?
First, the 1999 repeal of Glass-Steagall by the Gramm-Leach-Bliley Act. This allowed banks to use deposits to invest in derivatives. Banking lobbyists said they couldn’t compete with foreign firms, and that they would only go into low-risk securities, reducing the risk for their customers.
Second, the 2000 Commodity Futures Modernization Act allowed the unregulated trading of derivatives and other credit default swaps. This federal legislation overruled the state laws that had formerly prohibited this as gambling.
Banks really needed this new product, thanks to the 2001 recession, which spanned March to November 2001. In December, Federal Reserve Chairman Alan Greenspan lowered fed funds rate to 1.75 percent. He lowered it again in November 2001 to 1.24 percent to fight the recession. This lowered interest rates on adjustable-rate mortgages. The payments were cheaper because their interest rates were based on short-term Treasury bill yields, which are based on the Fed funds rate. Many homeowners who couldn't afford conventional mortgages were delighted to be approved for these interest-only loans. Many didn’t realize their payments would skyrocket when the interest reset in three to five years or when the fed funds rate rose.
The creation of mortgage-backed securities and the secondary market was what got us out of the 2001 recession.
It also created an asset bubble in real estate in 2005. The demand for mortgages drove up demand for housing, which homebuilders tried to meet. With such cheap loans, many people bought homes, not to live in them or even rent them, but just as investments to sell as prices kept rising.
https://www.thebalancemoney.com/communit...
Baham -> crash and burn again .
As u can see , banks were never forced to make unprofitable loan .
It existed since 1977 and no trouble for like 20 years ….
During the 2008 crisis , CRA were in the lowest default rates (only 6%!)
Clearly again , deregulation helped create speculation in the banking sector with subprime loans /securitization that help created a bubble .
Lowering interest rates due to recession concern skyrocket the demands with easier qualification of cheap mortgages….
Your entire narrative , like Rocco said is entirely false and supported by political partisanship.
U don’t care about fact and truth , u just care about how u wish the world would be run …..
The funny thing baham , u complain about deregulation , Clinton did deregulations like u wished and then u still blame
Clinton for it and not the deregulations lol….
Really pathetic .
I don't need a lengthy lesson on the 2008 financial crisis. Try to stick to the point at hand, which is the role of the FDIC. Your point is that "all guarantees are intimately connected" which is your opinion, and IMO far from self-evident. You seem to think it's self-evident, from your condescending remark "imagine thinking the FDIC had nothing to do with the financial crisis". But we've now arrived at you saying we can disregard the FDIC from your analysis, the rest of which is just recounting
The point at hand was never the FDIC alone, rather the FDIC as the *symbol* of state guarantees to creditors, implicit and explicit.
And they are connected just check what happened with SVB.
The overarching point was that it was only because of the regulatory state in all it's elements, that the crisis had that size. It wasn't a real estate crisis even if that was the trigger, it was the proof, beyond reasonable doubt, that the regulatory state does much more damage than good, that it is the reason society was on the brink of collapse in 2008, not capitalism or greed or anything else. The regulatory state.
Cycles happen, people become rich rapidly, some become broke even quicker, but society can't collapse if the state doesn't use it's monopoly of violence to create problems that can't exist at that size without central coordination.
And it was self evident, except it appears for people who want to start from the platonic ideal that regulations are inherently good morally and pragmatically and move from there even when confronted to actual existential risk created by regulations itself
This is a gross oversimplification as well. The reality is that the government, mortgage lenders, investment banks, RMBS purchasers, CRAs, and home buyers all have some share of the blame for the 2007-2008 financial crisis.
Anyone who claims that responsibility lies overwhelmingly with just one of the entities or groups that I listed above is pushing a political agenda.
+1 by a mile !
From baham ? What a surprise ….
I suspect baham must be paid or have some connection in some political form somehow .
U just can’t be that wrong all the time and not getting anything from it ….
The point at hand was never the FDIC alone, rather the FDIC as the *symbol* of state guarantees to creditors, implicit and explicit.
And they are connected just check what happened with SVB.
The overarching point was that it was only because of the regulatory state in all it's elements, that the crisis had that size. It wasn't a real estate crisis even if that was the trigger, it was the proof, beyond reasonable doubt, that the regulatory state does much more damage than good, that it is the reaso
This whole analysis is your opinion, but you present it as incontrovertible fact. Personally, I take no view on whether this analysis is correct, partially correct, or incorrect, and I don't even know that there is even an empirical method of making such a determination. What I will say is that if its accuracy mattered to me, I would certainly be doing more research and not taking the word of a political zealot with a clear axe to grind at face value, and no amount of repetition and re-wording would persuade me otherwise.
This whole analysis is your opinion, but you present it as incontrovertible fact. Personally, I take no view on whether this analysis is correct, partially correct, or incorrect, and I don't even know that there is even an empirical method of making such a determination. What I will say is that if its accuracy mattered to me, I would certainly be doing more research and not taking the word of a political zealot with a clear axe to grind at face value, and no amount of repetition and re-wording
I present as self evident that risk builds up more with regulations as they were and are.
I could accept counters that there are other positives big enough to justify those regulations anyway, but it's self evident that you don't get to "too big to fail" as systemic risk for the whole of society without regulations and state guarantees as massive as what we have.
And we do have example from the unregulated corners of finance, both in the present and in the past.
FTX blows up and the crypto world lives on, with winners and losers but it lives, just as an example.
Plenty of booms and bust with no regulation in 19th century history, across the west, yet it was the century with the highest GDP growth.
You need the regulatory state to get a great depression or the GFC
You know what rating agencies did right? They rated stuff at AAA because default risk of individual mortgage holders inside a MBS was deemed independent from one another lol, as if house price index risk putting people underwater thus making it profitable for them to walk away wasn't a correlated risk, or a recession that increases unemployment in an area wasn't as well
This is completely and utterly false. The CRA models were flawed but they did not assume each individual mortgage was an uncorrelated risk.
But we've now arrived at you saying we can disregard the FDIC from your analysis, the rest of which is just recounting stuff that has been beaten to death 1000 times over, so we can move on.
You run into this sort of thing a fair bit on 2+2. Someone gives a bad example or says something ridiculous. People criticize the bad example or the ridiculous statement. Then the person gets defensive, insists they were right about the big picture, and acts like you a being a dick for harping on the bad example or the ridiculous statement.
This is completely and utterly false. The CRA models were flawed but they did not assume each individual mortgage was an uncorrelated risk.
Lol yeah. If MBS were based on just assuming uncorrelated risk investment bankers would be making 80k because anybody can do that. And I have very little respect for investment bankers.
Lol yeah. If MBS were based on just assuming uncorrelated risk investment bankers would be making 80k because anybody can do that. And I have very little respect for investment bankers.
Isn't it the actuaries/quants making those determinations? I thought the investment bankers were just glorified salespeople (maybe it's just because I immediately think M&A when I think "investment bankers"). Do some of them actually math?
I've worked extensively in specialty lines insurance and wouldn't trust the underwriters to solve a linear equation in one variable, the actuaries build all the rating models and the underwriters just plug in the numbers and take the brokers out for lunch.
Lol yeah. If MBS were based on just assuming uncorrelated risk investment bankers would be making 80k because anybody can do that. And I have very little respect for investment bankers.
it's not investment bankers that rated those products, rather credit agencies which at a point it was rumored had no one left capable at the job because they had all been hired by the people structuring the products
Isn't it the actuaries/quants making those determinations? I thought the investment bankers were just glorified salespeople (maybe it's just because I immediately think M&A when I think "investment bankers"). Do some of them actually math?
I've worked extensively in specialty lines insurance and wouldn't trust the underwriters to solve a linear equation in one variable, the actuaries build all the rating models and the underwriters just plug in the numbers and take the brokers out for lunch.
the rating is given by the hired credit agency for that role, not by the people structuring the product
Isn't it the actuaries making those determinations? I thought the investment bakers were just glorified salespeople. Do they actually math?
It depends on what you mean by "investment banker." There most certainly were employees at investment banks who participated in structuring securitizations of residential mortgages. I wouldn't describe those people as actuaries. I would describe them as people who had an advanced understanding of how CRAs viewed mortgage risk.
Generally speaking, issuers and underwriters of MBS in the mid-2000s were not in the business of assessing the "true" risk of the MBS they were selling. They only cared about creating a pool of mortgages that would allow them to sell securities at the top of the securitization stack that carried a AAA rating. To that end, they acquired over time a good understanding of how things like geographic diversity, barbelling, seasoning, etc., factored into rating agency models.
This is completely and utterly false. The CRA models were flawed but they did not assume each individual mortgage was an uncorrelated risk.
they assumed a ridiculously low correlation
https://www.sciencedirect.com/science/ar...
(26% was the underestimated risk at the time of writing, after the GFC, it was a lot higher in the build up of the GFC)
For outside investors, yes, but I would think that the people structuring the products also have their own methodology of rating them for their own calculations, right?
There were people at investment banks who traded mortgage risk. Those people most certainly were in the business of assessing the actual risk, regardless of how securities were rated.
Most people think of investment banks as tight-knit institutions with a common institutional purpose and a shared understanding of risk. In fact, it would be more accurate to think of an investment bank as a relatively loose collections of groups, each with their own P&Ls and each with their own agendas (which may or may not be in tension with the agendas of other groups in the bank).
There were people at investment banks who traded mortgage risk. Those people most certainly were in the business of assessing the actual risk, regardless of how securities were rated.
Most people think of investment banks as tight-knit institutions with a common institutional purpose and a shared understanding of risk. In fact, it would be more accurate to think of an investment bank as a relatively loose collections of groups, each with their own P&Ls and each with their own agendas (which m
Aren't they basically in the business of gambling against one another in what is essentially a zero sum game? I'd tend to look at them more as high stakes poker regs who push chips to one another until a fish sits.
That's what's always puzzled me actually when you hear of rogue traders losing billions. Presumably there were counterparties on the other side of those trades that made those billions (or at the very least avoided losing them), but you never really see that mentioned. It's always sold by the media as though the money just went "poof" and ceased to exist.
It depends on what you mean by "investment banker." There most certainly were employees at investment banks who participated in structuring securitizations of residential mortgages. I wouldn't describe those people as actuaries. I would describe them as people who had an advanced understanding of how CRAs viewed mortgage risk.
Generally speaking, issuers and underwriters of MBS in the mid-2000s were not in the business of assessing the "true" risk of the MBS they were selling. They only cared
yes they looked at the statistical flaws in CRA models, hired away the few people who had the skill to plug the holes before it was too late, and managed to hide correlated risks in that way (all technically legal).
back to my point (which I know you disagree with) the insanity is giving legal validity for regulatory capital purposes to the determinations of a private body.
and the insanity still keeps going: central banks recently decided the eligible pool of securities for quantitatibe easing on the basis of private agencies determination.
Italy was on the brink of financial catastrophe (possible exclusion from BCE QE) because the 3 main agencies all had us at too low of a rating.
We got saved because a relatively obscure Canadian rating agency (DBRS) still had us at investment grade.
Isn't it the actuaries/quants making those determinations? I thought the investment bankers were just glorified salespeople (maybe it's just because I immediately think M&A when I think "investment bankers"). Do some of them actually math?
I've worked extensively in specialty lines insurance and wouldn't trust the underwriters to solve a linear equation in one variable, the actuaries build all the rating models and the underwriters just plug in the numbers and take the brokers out for lunch.
I’m not speaking from first hand experience….ive never worked at Goldman or one of the mega banks that hires armies of BS holders and works them 80 hours a week for 500k. They obviously aren’t developing the models from scratch but they are using them to derivative assets and it’s not quite as easy as pretnding like there is no correlation between individual holdings.
they assumed a ridiculously low correlation
https://www.sciencedirect.com/science/ar...
(26% was the underestimated risk at the time of writing, after the GFC, it was a lot higher in the build up of the GFC)
I think that a lot of people would push back on the notion of using default correlation rates for corporate loans as a strong indicator of default correlation rates for residential mortgage loans.
In any case, your original statement was completely wrong.
Aren't they basically in the business of gambling against one another in what is essentially a zero sum game? I'd tend to look at them more as high stakes poker regs who push chips to one another until a fish sits.
That's what's always puzzled me actually when you hear of rogue traders losing billions. Presumably there were counterparties on the other side of those trades that made those billions (or at the very least avoided losing them), but you never really see that mentioned. It's always sold
the counterparties were all the financial institutions and private individuals who bought those products (to invest ie to keep and get yield from them mostly) and the insurance companies and trading arms of some banks who insured those products.
various banks who bought the products from the originators/structurers and then sold them to retail investors ended up paying huge fines (GS 5 billions, Citigroup and DB 7 billions each and so on)
the counterparties were all the financial institutions and private individuals who bought those products (to invest ie to keep and get yield from them mostly) and the insurance companies and trading arms of some banks who insured those products.
various banks who bought the products from the originators/structurers and then sold them to retail investors ended up paying huge fines (GS 5 billions, Citigroup and DB 7 billions each and so on)
I'm talking about rogue trader scandals, not GFC now. For example, Jerome Kerviel is said to have lost 4.9 billion EUR. But it had to go somewhere, right? If I lose £100 at a poker table, the other players and the house made £100. Those trades had counterparties who benefitted 4.9 billion EUR, right?
