The Big Picture’s Big Blame List

June 29, 2009

Barry Ritholtz excerpts a list from his new book, Bailout Nation, listing those most directly responsible for the financial crisis.  It would be easy to quibble about the order of some (really, Reagan just below Clinton?  When you’re trying to make a list of those directly responsible, I would think Reagan would be far below the likes of Paulson, Rubin, and Summers) but there was one entry that I really disagree with:

27. Appraisers (the dishonest ones)

Adding his parenthetical comment makes the accusation appear safe enough, but Mr. Ritholtz knows as well as I do that appraisers make their money only when originators/lenders/brokers send business their way.  Appraisers don’t sell their services direct to the home buyer in any meaningful volume.

And Mr. Ritholtz has been among the most vociferous in pointing out that these companies that order the appraisals, and the individuals at those companies who are compensated based on their mortgage volume, had been incentivized to order appraisals that met a certain dollar value which turned out to be very optimistic during the housing bubble years.

And when the lenders desire overvaluations (Ritholtz points out that they are doing so right now, even to the point of saying the National Association of Realtors and Mortgage Brokers’ Association may be “pro-fraud”) and are the only customers for appraisers, the choice is between providing the highest number in your estimate range or trying to find another job… And I can’t imagine there are many openings within the real estate industry for those with an appraiser’s skill set.

Mr. Ritholtz’s conditional in parentheses does absolve those who left the industry from his scorn, but I would argue it is hardly fair to those who chose an occupation that they would prefer to do in a forthright manner, but were no longer to do so if they wished to stay off the Bad Appraisers quarantine list (which probably has a striking amount of overlap with the unemployment rolls).

(For more on the blacklisting of appraisers that fail to perform in-line with the brokers and lenders’ wishes, please see Calculated Risk’s Tanta’s explanation of the principle behind it)

… and the cow goes moo

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