AG's weak position with Banksters and another academic cover-up

Yves Smith-It seems more than a bit peculiar that, per American Banker, financial services industry participants have paid for three academics to issue a lengthy paper attacking a leaked draft settlement between state attorneys general and mortgage servicers. We have pointed out in multiple posts that the state AGs bargaining position is weak due to the lack of investigations. If the banks don’t like the terms, they can tell the AGs to see them in court.
But far more interesting is how embarrassingly bad this paper, “The Economics of the Proposed Mortgage Servicer Settlement,” by Charles Calomiris, Eric Higgins, and Joe Mason, is, yet how the economics discipline continues to tolerate special-interest-group- favoring PR masquerading as research.
In real academic disciplines, investigators and professors who serve big corporate funders have their output viewed with appropriate skepticism, and if they do so often enough, their reputation takes a permanent hit. Scientists who went into the employ of tobacco companies could anticipate they’d never leave that backwater. Even the great unwashed public knows that drug company funded research isn’t what it is cracked up to be.
But in the never-never realm of reality denial within the Beltway, as long as you can get a PhD or better to grace the latest offering from the Ministry of Truth, it gives useful cover to Congresscritters and other message amplifiers who will spout whatever big donor nonsense they are being asked to endorse this week.
The Academy Award winning documentary Inside Job depicted how the fish has rotted from the head in the economics academy, using former Harvard dean Larry Summers, former Fed vice chairman Frederic Mishkin and Columbia Business School dean Glenn Hubbard as object lessons.
Despite our publication of Academic Choice theory, which provides more formal support for the Inside Job observations, we’ve seen perilous little in the way of a change in attitudes from within the academy. So to make a wee additional contribution on this front, we are inaugurating the Frederic Mishkin Iceland Prize and making Calomiris, Higgins, and Mason its initial recipients based on their remarkable work as exemplified in this paper.
First and foremost is that this article goes well beyond the normal boundaries of shilldom, which is generally confined to cherry picking of data and artful framing. There are multiple, gross distortions, which call into question either the writers’ honesty or their knowledge of the basics in the mortgage servicing arena. But that level of inaccuracy is necessary to create the simulacrum their patrons desire, that of a parallel universe in which servicers are virtuous, borrowers are scheming, and the rule of law operates only for the benefit of corporate interests.
Another one of its distinctive contributions is the multiple layering of what mere mortals would call “stupid”. For instance, this paper cites earlier work on strategic default and mortgage mods that is analytically dubious. So it creates a steaming edifice of garbage but via its extensive citations, it hews to the form of normal academic output, making it look legitimate to those who don’t know the terrain.
Let’s look at the paper in some detail. It is so wrongheaded in so many places that a detailed shred would tax the patience of readers. So for the most part, I’ll stick to broader issues.
Attack on principal mods based on inaccurate and misleading reporting of history. The main reason for this paper being issued is most likely to be to demonize the notion of principal mods generally rather than the 50 state AG settlement proposal since any deal would be negotiated and completely voluntary (note that the paper’s depicting them as “government mandated” is one of its many distortions).
First, it charges that principal mods don’t work. Any honest appraisal can’t possibly conclude that, since in every local/regional market housing downturn prior to 1995, mortgage mods to borrowers with viable income was standard practice by banks. (so much more at link and sources and your brain will explode like mine!!! have fun and enjoy!)-Figg