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My Quote of the Day yesterday was from JPMorgan CEO Jamie Dimon, who told Congress, “We didn’t do a stress test where housing prices fell.” My reaction: “Wow.” But Megan McArdle says I didn’t get the whole quote:

I’m shocked to find that Kevin is shocked.  That’s pretty much the standard explanation — at least, a partial one — for why lenders became willing to take on so much risk.  Massive house price depreciation had pretty much dropped out of their models, which mostly focused on prepayment risk.

This is not quite as crazy as it sounds. For one thing, Kevin has truncated the quote a little bit; the version I read has Dimon saying “We didn’t stress test housing prices going down by 40%.”

That’s different. It’s still not good, considering how high home prices had gotten, but it’s not outright idiocy. Apologies. But then Megan says this:

Even if they had put housing price implosion in their models, where would they have gotten the data to fine-tune their models?  It’s not enough to say, “We should model a broad national decline in house prices;” you need some values for how many people will default when house prices fall.  [Etc.]

….That’s not to excuse the bankers for not trying; some allowance for the risk of a broad price decline would have been better than none.  But I’m not sure that it would have done much to alter their lending habits.  Going on historical data, the risk of a huge price drop within the average lifetime of a mortgage (which is less than ten years), would normally have been very small….

I’m not so sure about this. Remember: Wall Street is the home of the quant jocks these days. If they could model the fantastically complex derivatives that they routinely wrapped around mortgage securities, they could certainly have modeled this if they’d wanted to. It wouldn’t even be that complicated compared to a lot of the stuff they do on an everyday basis. And as for the risk of a huge price drop being “very small,” surely even a crude model should have shown that risk becoming pretty sizable as prices starting heading into the stratosphere? There were certainly an awful lot of inputs that suggested it.

I don’t think Megan and I are actually disagreeing an awful lot here, but I still think this deserves some pushback. Bubbles aren’t always as obvious as they seem in hindsight, but this one got too big to ignore as early as 2003-04. Any bank with allegedly sophisticated risk modeling should have been factoring in the possibility of bigger and bigger downsides every month after that.

WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

That’s awesome. As is the fact that Julia, who spent a full year reporting this challenging story, promptly heard from a Senate committee that will use her work in their own investigation of Universal Health Services. There’s no doubt her revelations will continue to have a big impact in the months and years to come.

Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

Wow.

And it is only because Mother Jones is funded primarily by donations from readers that we can mount ambitious, yearlong—or more—investigations like these two stories that are making waves.

About that: It’s unfathomably hard in the news business right now, and we came up about $28,000 short during our recent fall fundraising campaign. We simply have to make that up soon to avoid falling further behind than can be made up for, or needing to somehow trim $1 million from our budget, like happened last year.

If you can, please support the reporting you get from Mother Jones—that exists to make a difference, not a profit—with a donation of any amount today. We need more donations than normal to come in from this specific blurb to help close our funding gap before it gets any bigger.

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WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

That’s awesome. As is the fact that Julia, who spent a full year reporting this challenging story, promptly heard from a Senate committee that will use her work in their own investigation of Universal Health Services. There’s no doubt her revelations will continue to have a big impact in the months and years to come.

Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

Wow.

And it is only because Mother Jones is funded primarily by donations from readers that we can mount ambitious, yearlong—or more—investigations like these two stories that are making waves.

About that: It’s unfathomably hard in the news business right now, and we came up about $28,000 short during our recent fall fundraising campaign. We simply have to make that up soon to avoid falling further behind than can be made up for, or needing to somehow trim $1 million from our budget, like happened last year.

If you can, please support the reporting you get from Mother Jones—that exists to make a difference, not a profit—with a donation of any amount today. We need more donations than normal to come in from this specific blurb to help close our funding gap before it gets any bigger.

payment methods

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