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Tuesday, April 16, 2013

What, Exactly, Are the Qualifications to Head Up FHFA?

The Wall Street Journal has been following a story that Mark Zandi, an economist at "economy.com, which is owned by Moody's, is going to be appointed to replace Edward DeMarco as head of the FHFA, the current regulator of Fannie Mae & Freddie Mac.  I have been a big fan of DeMarco for maintaining strict discipline over F & F since his appointment to protect taxpayers against losses; DeMarco is, I believe, the first and only regulator of F & F to have done so in their sordid history. 

Zandi has been a very active figure in recent years, always willing to testify on Capitol Hill in favor of stimulus and other legislation sponsored by the Democratic Party, and also very available to journalists and admirably willing to be quoted on the record.  Firedoglake calls him a "court jester economist for power". 

There's a false narrative that has been spun around him by Democrats that, despite being a registered Democrat, he "served as an advisor to the McCain Presidential campaign in 2008" which is supposed to make him look open-minded or bipartisan or something. For example, here you see Jared Bernstein writing in 2010 on the White House website itself, characterizing Zandi as one of McCain's "top advisors".

But those who have looked into it have found that it's not quite so. You can find the CBS chief White House correspondent debunking the myth here: it quotes Zandi as saying he is a Democrat and his role was "quite modest"; John Taylor writes on his blog that "McCain Campaign Adviser Doug Holtz-Eakin did ask Zandi and many other economists for their forecasts during the 2008 campaign, but Zandi did not advise McCain on policy."

But in any case, as a result of his willingness to testify and be quoted, there is a substantial record built up regarding his views, with which I have been tremendously unimpressed.  

In particular, in relation to housing, Zandi has called a housing bottom every year since the housing market rolled over in 2007:

Here is just a sampling of his bad forecasts (all of these quotes come from this link at The Big Picture, unless otherwise indicated; sorry I could not get rid of the underlining when pasting them into this post):

Marketwatch - March 26, 2007
"Zandi sees a bottom for sales in spring ..."

AP – May 27, 2008
“I think we are at the beginning of the end of the housing downturn ....

CNN Money – Sept 18, 2008
“The bottom of the housing market is coming into view....”

Bloomberg February 2009: “Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight,” chief economist Mark Zandi said in a statement today.

CNN – April 25, 2009
“I spoke with Mark Zandi this week ... Zandi says we are at the bottom in the housing market,

New York Times – Feb 19, 2010
Mr. Zandi of Economy.com said he expected the nation’s housing prices to fall another 8 percent during 2010 and bottom out by the end of the year

And here is his presentation "Housing Hits Bottom in 2011."

Well, he finally got it right in 2012, after being wrong for 2007, 2008, 2009, 2010 & 2011, five straight years.

And this wasn't just empty talk. According to one of the reports, Zandi went out in 2007 and bought a house in Vero Beach. He put his money where his mouth was.  You do wonder if that influenced his bullish forecasts.

Zandi's inability to predict the future accurately wasn't just limited to housing. In July 2007: I think it is fair to say the economy isn't going to weaken any further." |In September 2007, he was "fundamentally optimistic we won't see any job loss". He said on September 20, 2008 that there would be "a very, very sharp recovery."

The WSJ articles on his prospective appointment never mention any of these blunders.  They're pretty easy to find - the Big Picture compendium of them was the top link when I did a Google search on his housing forecasts.  I suspect that he bought himself a lot of goodwill with journalists by giving them quotes for their stories so readily over the years, and he can count on them not to show him up now. 

But I don't get it  -- what exactly are the qualifications to become the regulator of Fannie & Freddie? It doesn't appear to require any ability to read the housing market.  As far as I can tell, the driving factor seems to me the same one that led him to be called to testify so often on Capitol Hill.  He can be trusted to say what the party in power wants to hear.