@twenty @goat was laughing listening to Aman Verjee on Coleman Hughes this morning diagnose the '08 financial crisis in exactly the same way I did. It was eerie, like he is a poster on the Cooler and was reading my posts. Starts around 20 minutes and goes on for 25 minutes or so if you're interested.
Probably no more damaging piece of work to Americans understanding of the housing crash than The Big Short. Aman is the former CFO of Paypal and Ebay, or as Twenty would refer to him "definitely not a financial expert".
@carramrod Subprime lending was overwhelmingly a private Wall Street creation, not a GSE one.
Trump in 2012: "Why isn't Obama protecting us from ridiculous gas prices?"
Trump in 2012: "Gas prices are at crazy levels - - fire Obama!"
Average price of unleaded in 2012: $3.62/gallon
Average price of unleaded on June 1, 2026: "4.32/gallon
Big Ryan in June 2026: "What kind of unimaginable idiot, in the midst of an affordability crisis, would impose sweeping, illegal tariffs and start a war in the Middle East, both of which were virtually certain to drive up prices and inflation?"
Iran war cost: Average U.S. household paying $450 more on gas and energy
Claude's take:@carramrod Subprime lending was overwhelmingly a private Wall Street creation, not a GSE one.
To your point about quotas: those HUD goals set in the '90s and 2000s were for lower-to-moderate-income borrowers, but they still required *conforming* loans (strict debt-to-income limits, documented income, and down payments). Fannie and Freddie easily met those goals for years through their standard, safe lending pipeline. They didn't need toxic subprime loans to hit them.The actual "liar loans" (no-doc, no-asset) and exploding adjustable-rate mortgages (ARMs) that tanked the system were non-conforming by definition. Fannie and Freddie legally couldn't touch them during the peak bubble years (2004–2006). Because of this, the GSEs lost massive market share, dropping from roughly 70% of mortgage originations down to just 40% by 2006 as private Wall Street firms took over.Private Wall Street investment banks (Lehman, Bear Stearns, Merrill Lynch) bypassed the GSEs entirely. They bought those toxic loans directly from originators like Countrywide, bundled them into Private-Label Securities (PLS), and sold them to global investors. Mortgage originators didn't need Fannie and Freddie's assurance to write those bad loans; Wall Street was standing there with an open checkbook, asking for every origination they could get their hands on.Fannie and Freddie only jumped into the subprime pool late in the game (around 2006). Why? Because they weren't just government entities—they were profit-driven, publicly traded corporations with private shareholders to please. Executives panicked over their shrinking market share and dwindling profits, so they started buying up the AAA-rated tranches of Wall Street's toxic private subprime pools to boost their own bottom line. They were profit-hungry followers trying to catch up to Wall Street, not the leaders of the trend. GSE market share had shrunk to less than 40% of the mortgage market by 2004/5/6.Were you in like middle school during the GFC? I was working in the mortgage market daily in the mid 2000s. The amount of 0 down lending going on in 2004/5 was incredible. Those loans were not being GSE securitized.Bigger reality is that subprime did not cause a the global crisis. It was the match for a system already soaked in gasoline. Subprime was not nearly big enough of a market to bring down the system. For that you needed to look at leverage ratios being held by Wall St banks, and the CDO/CDS market.Lehman was at 30x+ leverage ratios and funded their entire business through the overnight repo market. A 3% drop in value of their underlying mortgage bonds completely wiped out their capital position making them functionally insolvent. They couldn't roll their paper and they were done. Prior to 2004, investment banks were required by the SEC to max out at a 12-1 leverage ratio. The SEC in 2004 allowed them to use their own internal risk models to determine their capital requirements. Many of the IBs leveraged up after this regulatory change.CDS market went from $6T to $60T notional from 2004 to 2007. A 10x increase in 3 years on what were insurance paper on the same underlying mortgage paper. This blew up AIG and would have blown up everyone else. Because the market was completely unregulated and traded Over-The-Counter (OTC) rather than on a public exchange, no one knew who owed what to whom. When Lehman Brothers went bankrupt, they were a counterparty to millions of these contracts. The entire global financial system froze because banks were terrified that their peers were holding trillions in worthless Lehman bets.That interview was fine but it was really just surface level thinking by someone trying to sell a book. Also hard to take someone seriously dressed like that.
This is a strong, largely accurate account of the crisis with some important nuances worth examining carefully. Let me work through it systematically.
What's Well-Supported and Accurate
The private-label securities dominance claim is correct. The GSE market share collapse from roughly 70% to around 40% during 2004–2006 is well-documented. The FCIC (Financial Crisis Inquiry Commission) report, academic work by Pinto, Wallison, and the counter-analyses by Krugman and others all agree on the basic market-share numbers, even while disagreeing about causation.
The "legally couldn't touch them" claim is substantially correct, with a caveat. Fannie and Freddie's charters restricted them to conforming loans — loans meeting specific size and underwriting standards. The "liar loans" and toxic ARMs that dominated the 2004–2006 origination boom were non-conforming by definition and couldn't go into standard GSE pools. This part of the argument is accurate.
The HUD affordable housing goals point is largely fair. The conforming loan standards required for GSE purchase did impose meaningful underwriting discipline. The claim that GSEs could and did meet their affordable housing goals through standard pipeline lending — without needing to touch the worst toxic products — is correct as a general matter, and is supported by the FCIC majority report.
The late-entry follower dynamic is accurate. The GSEs' shift toward purchasing AAA tranches of private-label subprime securities around 2005–2006 is well-documented and was driven by the pressure on their executive teams from shrinking market share. The FCIC found this explicitly. They were chasing yield and market position, not pioneering the model.
The leverage and CDO/CDS analysis is the strongest part of the account. This is where the argument is most rigorous and least contested:
- The SEC's 2004 net capital rule change — the Consolidated Supervised Entities program — did allow the large broker-dealers to substitute internal VaR models for fixed leverage caps. Lehman, Bear, Merrill, Goldman, and Morgan Stanley all leveraged up significantly afterward. Lehman's 30x+ figure at the time of its collapse is accurate.
- The CDS market growth from roughly $6 trillion to over $60 trillion notional between 2004 and 2007 is accurate per ISDA data and the FCIC report.
- The AIG point is well-supported. AIG Financial Products had written enormous CDS protection on CDO tranches, effectively becoming an unregulated insurer of last resort for the entire system with no capital reserves behind those positions.
- The Lehman counterparty contagion point — the freeze in interbank lending driven by uncertainty about who held Lehman exposure — is accurate and well-documented.
The "match in a gasoline-soaked room" framing is analytically sound. The subprime loan pool, standing alone, was not large enough to bring down the global financial system. The transmission mechanism required the leverage amplification and the opacity of the OTC derivatives market. This is the conclusion of serious post-crisis academic literature, including work by Gary Gorton on the repo market run.
Where the Account Oversimplifies or Requires Qualification
The GSE innocence narrative is overstated, though not inverted. The account says Fannie and Freddie "legally couldn't touch" the toxic loans, which is true of the worst non-conforming originations. But it glosses over several important facts:
- Fannie and Freddie were significant purchasers of Alt-A loans — a category that sat between prime and subprime, included substantial no-doc and low-doc originations, and caused enormous losses. By 2008, Fannie held over $300 billion in Alt-A exposure. Alt-A was often barely distinguishable from subprime in terms of actual credit quality.
- The GSEs did purchase subprime whole loans and subprime MBS in meaningful quantities, particularly after 2004. Their regulator OFHEO (later FHFA) documented this extensively. The FCIC report found they purchased about $1 trillion in subprime and Alt-A securities between 2005 and 2007.
- Peter Wallison's dissent to the FCIC majority report argued aggressively — using detailed loan-level data — that the GSEs' affordable housing mandates did drive meaningful credit loosening well before 2004, through their purchases of loans with lower down payment requirements and weaker underwriting. This analysis is contested, but it's not frivolous. Edward Pinto's research at AEI made the same case with similar data. The debate about whether those affordable housing goals indirectly seeded the market norms that private lenders then took to extremes remains genuinely open among serious economists.
The conforming loan / HUD goal discussion slightly conflates two things. The HUD affordable housing goals did not require conforming loans in the traditional strict sense across all categories — there were specific "special affordable" subgoals that created pressure to reach borrowers with weaker profiles. Whether that pressure materially shaped underwriting outcomes at the GSEs or in the broader market is contested, but the account is a bit too clean in dismissing it entirely.
The private Wall Street causation story, while largely right, can itself be oversimplified. The private-label securitization machine worked because:
- Rating agencies (Moody's, S&P, Fitch) gave AAA ratings to products that warranted no such thing — a failure the account doesn't address.
- Institutional investors globally (pension funds, German Landesbanks, money market funds) created the demand that sucked these securities into existence. Wall Street was intermediating a genuine global demand for yield, not unilaterally manufacturing risk and shoving it on unwilling buyers.
- The Federal Reserve's extended low-rate environment after 2001 created the yield-chasing incentive structure. Omitting this is a minor gap.
The 2004 SEC leverage rule is accurate but sometimes overstated in popular accounts. The change did allow higher leverage, but the largest banks were already operating near or above the 12:1 limit through various off-balance-sheet structures (SIVs, conduits) before 2004. The rule change was significant, but it didn't create leverage ex nihilo — it partially legitimized practices already underway and removed a check on further escalation.
Overall Assessment
The core thesis — that subprime was primarily a private Wall Street creation, that the GSEs were followers not leaders in the toxic lending boom, and that the systemic crisis required leverage amplification and derivatives opacity to become a global catastrophe — is well-supported, substantially accurate, and reflects the FCIC majority's findings and the weight of serious post-crisis scholarship.
The account is strongest on the mechanics of the crisis transmission (leverage, CDS, repo market). It is weakest in treating GSE culpability as essentially zero, which is where the most legitimate counter-arguments live. The GSEs weren't the architects of the crisis, but they weren't blameless bystanders either — they were profit-driven actors who made their own bad bets late in the cycle, and their Alt-A exposure was substantial enough to matter.
The experiential observation — that the 0-down lending in 2004–2005 was not being GSE-securitized — is accurate and important. That's exactly the kind of ground-level confirmation that the market-share data reflects from the top down.
@bradstevens let's return to @carramrod original thesis. That Bill Clinton was the biggest protagonist in the GFC. That's a laugh out loud level of stupidity that is shameful to come out of a so called Kelley graduate. Obviously standards have dropped at lU, which concurs with your long held standing
@bradstevens let's return to @carramrod original thesis. That Bill Clinton was the biggest protagonist in the GFC. That's a laugh out loud level of stupidity that is shameful to come out of a so called Kelley graduate. Obviously standards have dropped at lU, which concurs with your long held standing
Let’s return to Claude smacking down your bad faith bullshit re: GSE’s. And how about you offer an apology for posting like a clown?
Clinton was more responsible than any other single person, as enacted the most policy that led to a reduction in lending standards.
2 am on a Monday? If Kelley’s standards have changed maybe it was to move away from angry alcoholics. Get help, has been.
@carramrod Typical reply from an antisocial Napoleon complex..
Don't call me out in a post if you can't handle a response. Which is clear you can't, because you are still a child. Seems pretty clear Claude agreed with everything I wrote. Enjoy your next layoff.
No one has ever seen anything like these job numbers before.
https://twitter.com/i/status/2062905817427243312
Id love to mediate a detente between the two of you.@bradstevens let's return to @carramrod original thesis. That Bill Clinton was the biggest protagonist in the GFC. That's a laugh out loud level of stupidity that is shameful to come out of a so called Kelley graduate. Obviously standards have dropped at lU, which concurs with your long held standing
I’m booked up through July. Let’s get something on the calendar for August. 😜
