Speaker 1: Hello, and welcome to the December twenty one edition of
Speaker 1: Odd Lots. I'm Joe Wisn'tal, Managing editor at Bloomberg Markets,
Speaker 1: and I'm Tracy Alloway, Executive editor Bloomberg Markets. So last
Speaker 1: week was pretty momentous with the Federal Reserve raising interest
Speaker 1: rates getting off zero exactly seven years to the day
Speaker 1: that the Fed um cut its rates to zero. I
Speaker 1: feel like it's a real bookend to a certain chapter
Speaker 1: of the financial crisis. Yeah, I think you're definitely right.
Speaker 1: It's a new era for both of us because I
Speaker 1: think we both kind of started our careers right when
Speaker 1: the financial crisis was picking up and interest rates were
Speaker 1: at rock bottom. So neither you nor I have ever
Speaker 1: covered financial markets above the zero bound, and so we
Speaker 1: have no idea what we're going to cover anymore. We
Speaker 1: were just talking about this issue. What do we talk
Speaker 1: about now, because everything that we've been writing about and
Speaker 1: talking about for years has to some extent been tied
Speaker 1: into the financial crisis, the housing crash and it's aftermath,
Speaker 1: whether it's the FED, the slow economy, the Eurozone crisis,
Speaker 1: everything has basically been about this one thing, absolutely correct.
Speaker 1: We've been dealing with the fallout of all those issues
Speaker 1: for years and years and years, and it's time to
Speaker 1: enter a new chapter. But before we enter that new chapter,
Speaker 1: we're going to bookend the old one, right Right, It's
Speaker 1: just sort of a perfect time for a little nostalgia
Speaker 1: trip because right now the Big Short is in theater,
Speaker 1: the film based on the book about one of the
Speaker 1: hedge fund managers that made a fortune betting that the
Speaker 1: entire system of housing finance was going to collapse long
Speaker 1: before most people saw it. That's right. So Michael Lewis
Speaker 1: wrote that amazing book that basically set out exactly what
Speaker 1: happened in the subprime crisis and the guys who saw
Speaker 1: it coming. And the group of those guys were all
Speaker 1: usually hedge fund managers, analysts, uh, you know, guys like
Speaker 1: Steve Eisman, hedge fund manager, Michael Burry also a hedge
Speaker 1: fund manager. And so I think the reality is when
Speaker 1: people think about who saw the crisis coming, they usually
Speaker 1: think about smart money guys like that. But there were
Speaker 1: some other people who were really smart about this issue,
Speaker 1: That's exactly right. Like, there were some of these hedge
Speaker 1: fund managers that absolutely made a fortune, and there were
Speaker 1: some of these general doomsayers that were always warning about something.
Speaker 1: But one of the you know, speaking of journalism and
Speaker 1: speaking of our careers, both of us in the early
Speaker 1: years of our careers, we're reading the blog Calculated Risk,
Speaker 1: and it was one of the first financial blogs. I
Speaker 1: started off blogging, and it was one of the first
Speaker 1: sites that sort of really chronicled the economic data in
Speaker 1: a very detailed way, and early on was warning, hey,
Speaker 1: something isn't exactly right here with the way housing works
Speaker 1: in the US these days, right, so that is exactly right.
Speaker 1: I remember being a baby financial blogger reading Calculated Risk,
Speaker 1: which was then and still is an incredibly influential blog
Speaker 1: when it comes to the housing market. They were amazing
Speaker 1: on the housing crash. It's been great on the recovery
Speaker 1: ever since. Yeah, I think that's a key point to
Speaker 1: about how good Calculated Risk has been on the recovery,
Speaker 1: because a lot of people could say, oh, I saw
Speaker 1: it coming, this is the guy who called the crash.
Speaker 1: But a lot of those people their track records since
Speaker 1: the crisis, they haven't really done anything that extraordinary. Calculated
Speaker 1: Risk has really chronicled the recovery too, in a very
Speaker 1: clear way. And while the main author of Calculated Risk.
Speaker 1: This guy, Bill McBride will be joining us today. In
Speaker 1: the early days, he had a code blogger, a woman
Speaker 1: named Doris Dungee, a mortgage industry professional. She went under
Speaker 1: the norm de blog Tanta, and everybody was obsessed with
Speaker 1: her writings because she could write about the mortgage industry
Speaker 1: from the perspective and insider better than anyway. She was amazing.
Speaker 1: She knew the ins and outs like no else. Sadly,
Speaker 1: uh Doris Dungee died in November two thousand eight. No
Speaker 1: one knew who she was except under her pen name
Speaker 1: until then. But today we're going to talk to Bill McBride,
Speaker 1: who's still writing Calculated Risk, about those early years and
Speaker 1: about Tanta's legacy and why people loved her writing so much.
Speaker 1: Right So, I think for those of you listening, if
Speaker 1: you get one thing out of this, it should be
Speaker 1: when you go to see the big short in movie
Speaker 1: theaters and you're watching Christian Bale and whoever else on
Speaker 1: the screen shorting the subprime market, and they're the smart
Speaker 1: guys that saw it all coming. Remember that there were
Speaker 1: some really really intelligent bloggers who were out there saying
Speaker 1: the exact same thing at the exact same time. We
Speaker 1: are joined now by the Calculated Risk founder Bill McBride. Bill,
Speaker 1: thank you for joining us. Cool. Thank you so Bill.
Speaker 1: I've been reading Calculated Risk for years, watching you chronicle
Speaker 1: the housing collapsed, the economic crisis, and then the subsequent recovery.
Speaker 1: How did you start Calculated Risk and why? Well, you know,
Speaker 1: I started. I've always been interested in housing, and probably
Speaker 1: in late two thousand three, two thousand four, I started
Speaker 1: really noticing. I mean, obviously house prices were really taking off,
Speaker 1: but I I was talking to somebody at the gym,
Speaker 1: a young woman who was working in an accounting department.
Speaker 1: She told me she just bought a condo for four
Speaker 1: hundred thousand. She made forty thousand a year and put
Speaker 1: no money down, And I said, how did that work?
Speaker 1: So that got me really interested, and then I was
Speaker 1: busy in two thousand four, but the ner two thousand four,
Speaker 1: in January two five, I started really digging into it,
Speaker 1: and that's when I started the blog. Did you actually
Speaker 1: have a mortgage background? I did not have a mortgage background.
Speaker 1: I have an economics background, not a mortas background. And
Speaker 1: that that actually I'm sure we're going to talk about
Speaker 1: Tanta but tanta Is was an absolute mortgage banker expert. Yeah,
Speaker 1: tell us about her. How did you find her? She
Speaker 1: was a mortgage professional and then she ended up being
Speaker 1: one of the great bloggers, financial writers, whistleblowers in covering finance.
Speaker 1: How did that happen? How did how did how did
Speaker 1: you meet up? And how did she become such a
Speaker 1: great writer? Well, this is what happens. You know. I
Speaker 1: started writing about really the economics of housing. You know,
Speaker 1: I saw speculation, I saw uh, you know, the price appreciation.
Speaker 1: There's a blogger, uh down to San Diego economics professor
Speaker 1: Jim Hamilton who writes ecarm Browsers, and he one day
Speaker 1: he said to me, he goes, you know, Bill, you're
Speaker 1: making a really plausible argument that there's a big bubble.
Speaker 1: But why would make people make these loans that they're
Speaker 1: not going to get repaid on? And so I started
Speaker 1: the really digging into the mortgageesitor where that's a great question,
Speaker 1: you know, that was the question. And one of the
Speaker 1: uh readers of my blog was taught to real name
Speaker 1: Doris Dungey, and she started whenever I would talk about
Speaker 1: mortgages on my blog, if I got any little detail wrong.
Speaker 1: She would send me a little comment and go, well,
Speaker 1: actually it works if your close, but it works kind
Speaker 1: of like this, And so I kept wanting her to
Speaker 1: come and you know, right, maybe write something for the blog.
Speaker 1: And then she disappeared and at the end of two
Speaker 1: thousand five. Reappeared in the middle of two thousand six,
Speaker 1: and sadly she she sent me a little note um
Speaker 1: that she had been diagnosed with stage four overarian cancer.
Speaker 1: So she didn't know if she was going to be around,
Speaker 1: and she had left her job and so she had
Speaker 1: as she recovered. When we discussed it, she decided, uh,
Speaker 1: and I think she started in December two thousand and six.
Speaker 1: She came and started writing for the blog, and her
Speaker 1: entire focus was on the mortgage industry, how it worked,
Speaker 1: you know, originations, mortgage servicing, you know how you know
Speaker 1: how mortgage backed securities worked. You know every foreclosures are
Speaker 1: everything that you want to know about mortgages. So YouTube
Speaker 1: really became a sort of dynamic duo of the housing
Speaker 1: market because you covered it from a economics perspective and Tanta,
Speaker 1: of course covered it from the sort of ins and
Speaker 1: outs of the industry. Yeah, it was it was a
Speaker 1: lot of fun and and it really put all the
Speaker 1: pieces together for me. I mean, she she was just
Speaker 1: so she's an outstanding writer. Everybody should read what she wrote.
Speaker 1: And and you know, she really clarified why people would
Speaker 1: make loans that they're not going to get repaid on now.
Speaker 1: And of course nobody would intentionally do that, no individual,
Speaker 1: but she, you know, she made it clear that they
Speaker 1: had moved away from a system where you used to
Speaker 1: do lend to the three seeds and you know, you
Speaker 1: would have credit and capacity and collateral, and they just
Speaker 1: moved to credit and so you know, people weren't paying
Speaker 1: attention to a collateral and capacity to pay the loans anymore.
Speaker 1: And and so you know what was happening is you
Speaker 1: were you know, if people had a good score credit score,
Speaker 1: they give them as much as they want. Bill. There's
Speaker 1: a series of posts that Tanta wrote called the Complete
Speaker 1: uber Nerd, and she had a definition of what an
Speaker 1: uber nerd is. What were these posts and what did
Speaker 1: she mean to convey by saying, you know this this
Speaker 1: idea of the complete uber Nerd. Well, I actually I
Speaker 1: have part of the if she was trying to explain
Speaker 1: to people in detail how things were I have a
Speaker 1: little quote for you. She said, the complete uber nerd
Speaker 1: was intended for someone who was compelled to understand how
Speaker 1: things work in grim detail. Even I think in question
Speaker 1: are tedious in the extreme. And so what you would
Speaker 1: do is just go into every fine detail of mortgage
Speaker 1: servicing or or mortgage insurance and and and by the way,
Speaker 1: she's a very funny writer, and she has a undergraduate
Speaker 1: degree in literature, so she had she was very entertaining too.
Speaker 1: So even though she said it's tedious to the extreme,
Speaker 1: it was great. Well, were some of the more outrageous
Speaker 1: things that you remember from that era of blogging, Things
Speaker 1: that really made you think this is getting out of hand? Well,
Speaker 1: I think one of the most outrageous things for me personally,
Speaker 1: this is pretty Tunta was in two thousands five. One
Speaker 1: of the things I was doing was calling regulators and
Speaker 1: I was I was, you know, talking to senior field
Speaker 1: examiners at the f D, I C. I was talking
Speaker 1: to state regulators and I was going, what's going on,
Speaker 1: Why aren't you guys doing anything? And on the record,
Speaker 1: I would report that on my blog. What they would say, Oh, well,
Speaker 1: we're trying to write a new guidance for non traditional
Speaker 1: warriages and things like that. Off the record, they were
Speaker 1: all saying the same thing, They're terrified and that they've
Speaker 1: never seen such risk concentration in their lives. Anytime anyone
Speaker 1: wrote a memo that would move up the chain, the
Speaker 1: the pointees at the top of each of the organizations,
Speaker 1: the fd I, CE, etcetera. Would would just slam it down.
Speaker 1: And so that, you know, to me, that was one
Speaker 1: of the most shocking things, just how much the political
Speaker 1: appointees were blocking any attempt to adopt the nonsense. That
Speaker 1: is shocking because one of the narratives we hear nowadays
Speaker 1: about the subprime crisis is that not a lot of
Speaker 1: people saw umming, and the people who did see it
Speaker 1: coming are are glorified in books like Michael Lewis's Big
Speaker 1: Short Yeah, but you know, if you look at the
Speaker 1: time frame we were writing about it long before that,
Speaker 1: the plenty of people saw it come, especially from my perspective,
Speaker 1: the economics perspective. Um Tanta had that unique perspective because
Speaker 1: she was, you know, she was an amspolutely expert in mortgages,
Speaker 1: and people would write to me from the mortgage industry
Speaker 1: and go, I know who Tante has to be who
Speaker 1: else could it be? You know, and they go with her.
Speaker 1: You know, I'd love her and her her secret safe
Speaker 1: with me. And the reason she was writing under a
Speaker 1: student and if she wanted to go back to work,
Speaker 1: she was afraid she was giving away too much of
Speaker 1: what the mortgage industry did. Yeah, I wanted to ask
Speaker 1: about that because you know, nowadays most a lot of
Speaker 1: people who blog blog under their real names, but ten
Speaker 1: years ago, a lot of blogging was done under pseudonyms. Um,
Speaker 1: I didn't know your name for a long time. Obviously,
Speaker 1: Tanta blogged under a pseudonym for a long time. But
Speaker 1: talk to us about the influence she had. What kind
Speaker 1: of people were reaching out back in those early days
Speaker 1: and just saying, oh my god, what is such an
Speaker 1: incredible wealth of knowledge you're bringing him? Well, you know
Speaker 1: that she was quoted as Tanta in the in the
Speaker 1: Federal Reserve paper in two thousand seven. You know, Paul
Speaker 1: Krugman mentioned her several times. Uh, he thought that was
Speaker 1: one of the greatest things about blogging. Was I think
Speaker 1: he wrote about her was that an absolute expert in
Speaker 1: this area can come out when you need her him
Speaker 1: or her, and you learned this incredible thing about this
Speaker 1: industry that you didn't know. You know, Campball be experts
Speaker 1: in every industry. So that's me. It was amazing. And
Speaker 1: let me add this too, is that content changed the
Speaker 1: world of blogging. Every every single blogger out there owes
Speaker 1: her something because she started writing for my blog in
Speaker 1: two thousand six. In two thousand seven, she called. She
Speaker 1: kept calling him and goes, Bill, New York Times just
Speaker 1: stole one of your stories. The Wall Street Journal just
Speaker 1: stole one of your stories, and frequently that. It wasn't
Speaker 1: quite true because I was talking to journalists at every
Speaker 1: major place, Financial Times, everywhere, and they weren't really stealing
Speaker 1: our stories. But what they were doing, they're telling me
Speaker 1: their editor wouldn't let a pension. They got it from
Speaker 1: a blog. And so Times that wrote this piece that
Speaker 1: you just said. But we mentioned every you know your name,
Speaker 1: we linked to your stories, we expert briefly excerpt, we
Speaker 1: tend you readers, and you won't mention that you know
Speaker 1: our site. And uh in that week, Walter Journal, Financial
Speaker 1: Times and are Times all major major risk. I remember
Speaker 1: that happening, and I'm sure Joe does as well. This
Speaker 1: was a very, very special time in the financial blog
Speaker 1: is fair. This was really when it took off, And
Speaker 1: part of the reason was because everything was moving so fast,
Speaker 1: the blogs were in an excellent, excellent position to get
Speaker 1: there before the sort of traditional media. Yeah. And you know,
Speaker 1: in the blogging also brought out some experts like Taker
Speaker 1: and experts in other areas to it. Really it really helped,
Speaker 1: I think, and and and I think the some of
Speaker 1: the best journalists got a lot of their you know,
Speaker 1: they worked with us and other bloggers to build great stories.
Speaker 1: There was some awesome stories in the major media did
Speaker 1: pick up. Let me add just one thing there. The
Speaker 1: downside is that in Tanta was here. I think you
Speaker 1: would agree with me. Is that now now garbage sites
Speaker 1: get credited? Yeah, I mean there's definitely been a big
Speaker 1: proliferation of all kinds of quality since then. Yeah, um,
Speaker 1: did you have did you have people working in finance
Speaker 1: and in Wall Street want to you know, ask you know,
Speaker 1: learning from Tanta And you know, you mentioned the sort
Speaker 1: of influence she had on journalists, but what about the
Speaker 1: influence she had on people working in uh in the industry. Yeah, Well,
Speaker 1: a number of hitch fund managers would email me or
Speaker 1: call me and ask me. You know, Tanta didn't want
Speaker 1: to be available to them, so I would pass their
Speaker 1: emails onto her and then she might send something back
Speaker 1: to me that I could respond back. But a number
Speaker 1: of people in New York were writing to me in
Speaker 1: the financial industry. Did you ever get frustrated that regulators
Speaker 1: or the financial industry didn't take some of the things
Speaker 1: you were writing about more seriously and take some of
Speaker 1: your warnings to heart. Well, you know, I I I
Speaker 1: think that the majority of the people who actually work
Speaker 1: as regulators that they were on board right away. They
Speaker 1: were all terrified. Um and uh. And I still talk
Speaker 1: to some of those people. But you know, if there
Speaker 1: if the political points at the top of the agencies
Speaker 1: are blocking everything they're trying to do, what can they do?
Speaker 1: You know, now we have you know, now we have
Speaker 1: a much better regulators. And as a matter of fact,
Speaker 1: I don't know if you saw that, but the fd
Speaker 1: I C and the Fellow Reserve and they all came
Speaker 1: out and put out a statement on commercial real estate lending.
Speaker 1: And this isn't saying that the commercial real estate lending
Speaker 1: is dangerous of any sort, but they're reminding people not
Speaker 1: to have too much risk calculation, concentration, and to keep
Speaker 1: their underwriting standards you know, intact, and that's the right
Speaker 1: way to do it. You know, they're getting in front
Speaker 1: of the problem that you know, we don't want another
Speaker 1: commercial real estate bus. Speaking of getting in front of
Speaker 1: the problem, it's always you know, the next crisis is
Speaker 1: never going to be the same as the last crisis,
Speaker 1: but they're obviously going to be similarities and echoes of
Speaker 1: past crises. From seeing the housing bubble and the housing crash,
Speaker 1: you know, having a front row seat to that and
Speaker 1: knowing the topic in such detail, what are the things
Speaker 1: you would want to look out for that to you
Speaker 1: scream bubble that to you you're always sort of have
Speaker 1: a radar for for the next potential crisis, you know,
Speaker 1: you know, I think, I think whenever you see a
Speaker 1: rapid increase in lending, uh, you see a decrease in
Speaker 1: underwriting standards, those are things to look for. I mean,
Speaker 1: housing is the worst because it's the biggest market in
Speaker 1: the world, you know, or in the you know, when
Speaker 1: you're talking about the US, the commercial real estate is
Speaker 1: a much smaller lending world. Um, you know, I I
Speaker 1: I was one of those people in the late nineties,
Speaker 1: arguing we had a big bubble in this body market
Speaker 1: and that you know the specization there. You know, all
Speaker 1: that was rampant was nothing. It was not as as
Speaker 1: leverage as the album market. So what would I look for?
Speaker 1: I had to look for for a fast increase in
Speaker 1: in lending and decreasing underwriting standards. Do you see bubbles today? No,
Speaker 1: I'm not really, I see none. Don't put it that way.
Speaker 1: You know, you know you have to look for two things.
Speaker 1: One is the fundamentals have to seem like they're out
Speaker 1: of whacks with normal, and two you have to be
Speaker 1: looking for a lot of speculations, so people kicking this
Speaker 1: lending and speculating part. I don't really see that today,
Speaker 1: So you know, I'm not worried about much today. What
Speaker 1: going back to Tonta for a second, what would you
Speaker 1: say was the number one thing you learned from her
Speaker 1: in terms of how to analyze an industry. Are there
Speaker 1: lessons that you learned from her just in generally working
Speaker 1: alongside her that you still take with you today as
Speaker 1: you write and analyze the economy and the housing market. Well,
Speaker 1: she would you know, what she would always try to
Speaker 1: do is She's like, she'd like to look at it
Speaker 1: for one angle and then stepped back and try to
Speaker 1: look at it from another angle. And she was really
Speaker 1: good at that. As a matter of fact, I can't
Speaker 1: tell you what it happened over and over against you said, well,
Speaker 1: what if we look at this from from a different
Speaker 1: perspective here and and it really would help clarify what
Speaker 1: was happening. And I think that was part of the
Speaker 1: reason Tonto was way ahead of everybody else on on
Speaker 1: you know predicting. You know, she was naming names which
Speaker 1: which mortgage companies are going to go under, in which
Speaker 1: banks are going to go under. So that's why we
Speaker 1: couldn't be out shorting people like you know, the big
Speaker 1: short guys. They actually did something very different. What they
Speaker 1: did is not only did they discover this was going
Speaker 1: to happen, but they figured out a way to really
Speaker 1: make a lot of money from it. And that wasn't
Speaker 1: a hard of goal at all. I mean, we were
Speaker 1: just trying to sell me more. Yeah, just a slight
Speaker 1: difference there. So I got to ask the big short
Speaker 1: is out, Are you going to go see it? Oh?
Speaker 1: Absolutely absolutely? Were you a fan of the book. I
Speaker 1: didn't read the books. Well, admit I haven't read it either.
Speaker 1: What this is outrageous? Let me tell you why I
Speaker 1: lived it. I wrote about it every day. You know,
Speaker 1: I know what you did, but I want to see
Speaker 1: the movie fair enough? All right, Well, thank you very much,
Speaker 1: Bill McBride. Absolutely fascinating discussion. Really appreciate you calling, and
Speaker 1: we'll have to get back in touch with you to
Speaker 1: get your take on the movie, or at least you
Speaker 1: should write about it. Okay, I will. Thanks, Thanks so much,
Speaker 1: Thank you well, Tracy, that was a fascinating conversation. What
Speaker 1: was your big take away from that? Well, I mean
Speaker 1: it was kind of nostalgic for me since, as we discussed,
Speaker 1: we we both sort of started our financial journalism careers
Speaker 1: around that time. But even more than that, I really
Speaker 1: like this idea um that you know, when you read
Speaker 1: the Big Short, when you go and see the movie,
Speaker 1: it makes it seem like there was this heiny group
Speaker 1: of incredibly smart men on Wall Street who saw it
Speaker 1: all coming and profited off of it, which wasn't strictly true.
Speaker 1: There were lots of other people like Bill McBride, like Tanta,
Speaker 1: who saw the warning signs there and weren't necessarily listened to.
Speaker 1: You're absolutely right, and on the nostalgia point that you made,
Speaker 1: like that really hit home for me because I started
Speaker 1: off my career just blogging like Bill McBride. My first blog,
Speaker 1: The Stollar, was kind of pseudonymous. I didn't really have
Speaker 1: my name attached to it, and I had totally forgotten.
Speaker 1: But I love the point that it wasn't standard like
Speaker 1: now it's like a blog breaks news, then most news
Speaker 1: organizations are pretty good at crediting them and citing them.
Speaker 1: But I forgot how rare that was and for how
Speaker 1: rare it was for anyone to acknowledge that there was
Speaker 1: good information coming out of new media. And the idea
Speaker 1: that Tanta was one of the people that really pushed
Speaker 1: and said no, like we're doing all this great stuff,
Speaker 1: like newspapers should give us credit, and this idea that
Speaker 1: that turned out to be an influential thing beyond financial bloggers.
Speaker 1: That was a really cool point. And I had never
Speaker 1: had no idea about that, right, I hadn't thought about it. Yeah,
Speaker 1: all right, Well that's it for today's odd LODs. I'm
Speaker 1: Joe wisn't though you can follow me on Twitter at
Speaker 1: the Stalwart and I'm Tracy Alloway. I'm on Twitter at
Speaker 1: Tracy Alloway. Thanks for listening. Joe and I are very
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