I read Calculated Risk only to read Tanta. That woman could write. The mortgage is, from one side of things, the most boring of texts. It is mindnumbing numbers, and as it scrapes away your skin, it sings you songs of amortization that put your frontal lobe to sleep. On the other side of things, though, it is as shot through with the agony and the ecstasy as any romance novel. Or, as in the past decade, as any O Henry story – all of them were tending to that O Henry end. It is not the great literature a nation should wallow in, but under the Great Fly, it so became.
It had a poet though, and her name was Tanta.
CR and the Times both quote her Let slip the dogs of hell post in 2006. That post might have been the most powerful thing ever unleashed by the Blogosphere into the real world. It kills. Tanta’s patiently unfolds the acid logic of the Street until one sees it for what it is: a monster trying to profit from aborting itself. She analyzed an unspeakable Citi “analysis” of the mortgage market to show that it was complete gobbledygook – and worse, that it honestly described Citi’s strategy. Along with the other banks (many of them now defunct). If Robert Rubin were ever to face trial for criminal negligence for his role in Citi’s meltdown, the prosecutor could just contrast this post and Rubin’s infamous interview, last week, with WSJ. This is Tanta taking on Citi’s notion that the mortgage market was going to “rationalize” – that is, the big dogs, as she puts it, were going to eat the small dogs:
“I bring all this up not just to stick it to Citicorp, but because we’ve all been asking the question lately of who will be the bagholder when the exotic/subprime mortgage problem finds a home. We have noted in our discussions that credit risk can move in two directions: the wholesaler takes it off the originator and the bond investor takes it off the wholesaler/issuer with the helpful assistance of protection sellers in the hedge fund credit-swap market, but when the “DETOUR” signs pop up, the bond investor can work really hard on forcing it back to the wholesaler/issuer, who can try to put it back to the originator, who gets to try to recover something in a foreclosure sale. If the originator has any financial strength left to buy loans back with, that is; see the sad stories of Ownit, Option One, Fremont, New Century, etc. The “disintermediation” of the mortgage origination side keeps the Big Dogs “flexible,” meaning able to withstand cyclical downturns in the business, but the burning desire on the Street for “vertical integration” seems to mean an endless appetite for erasing that flexibility by buying up the originators of junk, so that they will have paid what one assumes is real money for the privilege of buying back their own loans right at the time they get the “flexibility” of not buying any more of them from the “intermediaries.” If you thought the only thing that would stop the circle jerk of risk was putting some credit and pricing discipline into the game, I guess you’re just a weenie like me. Anyone who can make sense of this is free to set me straight. And if the answer has “sorting socks” in it, don’t bother. I’ve tried that.”
Jesus that is beautiful.
ps - Calculated Risk has now put up a compendium of Tanta's posts. They are here. If you are at all interested in what happened during the zona, you should bookmark that link.