Buses are another matter

From Matt Turner:

First, two commonly suggested responses to traffic congestion—expansions of the road and public transit network—do not appear to have their desired effect:  road and public transit expansions should not be expected to reduce congestion.  Second, traffic levels do not help to predict which cities build roads. Therefore, new roads allocated to metropolitan areas on the basis of current rules are probably not built where they are most needed, which suggests that more careful reviews of highway expansion projects be required. Third, reductions in travel time caused by an average highway expansion are not sufficient to justify the expense of such an expansion. Whether or not other benefits of these expansions may justify their expense remains unresolved. In any case, expansions of the bus network are more likely to pass a cost–benefit test than expansions of the highway network

No wonder he can't understand benefit cost analysis.

In his advocacy for California High Speed Rail, Will Doig can't even get the population of California right.    He says during the century, the population will more than double from 25 million to 60 million.  Well, at the beginning of this century, the census population was around 34 million.

Of course, you can find this out in thousands of places.  He might start here--at the Census web site.  But of course, it is a lot easier just to make stuff up, which is something that rail advocates enjoy doing.  They are about as reliable as the intelligent design people--just cuddlier and not as dangerous.

Choice words from William Black (h/t Rik Osmer)

He writes:

If one had to pick one person in the private sector most responsible for causing the global financial crisis it would be Wallison.  As I explained, he is the person, who with the aid of industry funding, who has pushed the longest and the hardest for the three “de’s.”  It was the three “de’s” combined with modern executive and professional compensation that created the intensely criminogenic environments that have caused our recurrent, intensifying crises.  He complained during the build-up to the crisis that Fannie and Freddie weren’t purchasing more affordable housing loans.  He now claims that it was Fannie and Freddie’s purchase of affordable housing loans that caused the crisis.  He ignores the massive accounting control fraud epidemics and resulting crises that his policies generate.  Upon reading that Fannie and Freddie’s controlling officers purchased the loans as part of a fraud, he asserts that the suit (which refutes his claims) proves his claims.

The piece is long, but worth reading in its entirety. 

Stegman as Geithner's Advisor on Housing

The news that Michael Stegman will be taking a leave from MacArthur to advise Tim Geithner on housing is very good.  It is important for three reasons: (1) Mike has been a leading sensible voice on housing issues for at least 30 years; (2) Treasury has recognized the importance of having an in-house housing person at a senior level; (3) Mike will remind Geithner than users of housing are at least as important as those who lend for housing.

Jeremy Stein for Fed Governor (reprise)

Personally, I am a big fan of Stein's work. The shortest way to explain why is to list the titles of his five most cited papers:

• Herd Behavior and Investment
• A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
• Rick Management: Coordinating Investment and Financing Policies
• Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies
• Internal Capital Markets and the Competition for Corporate Resources.

Stein has spent his career trying to figure out how capital markets really work instead of pledging fealty to models that don't work very well.  I can't think of a better intellectual qualification for a Federal Reserve Board member.

Joe Nocera nails it

He writes:

...Peter Wallison, a resident scholar at the American Enterprise Institute, and a former member of the Financial Crisis Inquiry Commission, almost single-handedly created the myth that Fannie Mae and Freddie Mac caused the financial crisis. His partner in crime is another A.E.I. scholar, Edward Pinto, who a very long time ago was Fannie’s chief credit officer. Pinto claims that as of June 2008, 27 million “risky” mortgages had been issued — “and a lion’s share was on Fannie and Freddie’s books,” as Wallison wrote recently. Never mind that his definition of “risky” is so all-encompassing that it includes mortgages with extremely low default rates as well as those with default rates nearing 30 percent. These latter mortgages were the ones created by the unholy alliance between subprime lenders and Wall Street. Pinto’s numbers are the Big Lie’s primary data point.

Two things: First, Pinto and Wallison's definition of "subprime" is any loan that goes to a neighborhood they wouldn't live in or  to a person they wouldn't have lunch with.  According to the American Housing Survey, there were around 52 million mortgages outstanding in the US in 2009.  This means that according to Wallison and Pinto,  the median borrower is a subprime borrower.  I guess this means they think that that half of homeowners with mortgages should be renting in Potterville.

Second, Nocera should in his piece put quotes around the word "scholar."

Simon Johnson underlines a problem..that could point to a solution.

He writes:

Santa Claus came early this year for four former executives of Washington Mutual, which failed in 2008. The executives reached a settlement with the FDIC, which sued them for taking huge financial risks while “knowing that the real estate market was in a ‘bubble.’ ” The FDIC had sought to recover $900 million, but the executives have just settled for $64 million, almost all of which will be paid by their insurers; their out-of-pockets costs are estimated at just $400,000.
To be sure, the executives lost their jobs and now must drop claims for additional compensation. But, according to the FDIC, the four still earned more than $95 million from January 2005 through September 2008. This is what happens when financial executives are compensated for “return on equity” unadjusted for risk. The executives get the upside when things go well; when the downside risks materialize, they lose nothing (or close to it).

Just thinking aloud here, but if bank executives were compensated based on return on assets (i.e., the returns to both debt and equity), rather than return on equity, a lot of the misaligned incentives in their pay packages would go away.  Among other things, it would discourage races to the bottom.