Ed. #98: Critiquing the Bullfights

Study vs. Experience, the First Amendment and the 30-year Mortgage

I may roam around a bit in this somewhat obtuse edition before arriving at anything about mortgage lending, but please bear with me (and ignore misspellings in AI generated images) and, hopefully, this will resonate for readers.[1]

I’m going to draw you in with a rhetorical question followed by a poem that takes a clear position on the answer. Namely, what is more important for credibility: academic study or experience? According to University of Chicago Constitutional Law Professor William Baude’s Divided Argument Substack, “There’s a famous poem attributed to the matador Domingo Ortega, recited by folks like President John F. Kennedy and President Ronald Reagan, that goes like this:

Bullfight critics ranked in rows

Crowd the enormous Plaza full;

But only one is there who knows

And he’s the man who fights the bull.

Despite double entendres and any reputation I have for exposing truth,[2] I am not the bullfighter in this poem, but I do love Professor Baude’s research into the real author of the poem and why it was better told as the matador’s words instead of the poet’s. I’ll come back to the “man who fights the bull” soon enough, but first a little personal history about my own studies.

HLS Class of 1989

Unlike many of my classmates coming out of law school in 1989,[3] I had no desire to pursue a high-minded academic legal practice like Constitutional law or get into cutting-edge areas (at the time) like intellectual property for software companies. Other classmates and friends stayed in Boston, or went to New York or DC, to hone careers as federal prosecutors, commercial litigators, securities lawyers, and took judicial clerkships. A few even went off to LA to become big-time Hollywood agents to the stars.[4] Those are all of the kinds of jobs that non-lawyers generally think of when they think about lawyer jobs.

I wasn’t interested in the limelight[5] or high-minded legal pursuits. I just wanted to get to work in business,[6] specifically real estate law, to privately negotiate agreements among willing parties to facilitate business transactions. So, after law school, I went back home to Chicago to be a “dirt lawyer”.[7] Five years later becoming a bank general counsel at a large mortgage lender seemed like a good fit since bank regulation at the time, like most real estate law, was well settled (e.g., RESPA was already 20 years old when I got into mortgage banking).

Still, the yawns and glazed eyes when I tell people I’m a regulatory lawyer didn’t bother me much as long as it paid the bills. I could even endure some lame attempts to paint regulatory lawyers as nefarious fat cat lobbyists pulling the strings in Washington, DC and being called a leech by former CFPB Director Chopra. But now I’m a mortgage blogger[8] exercising his First Amendment rights with over 3,000 (very appreciated, wise and, might I add, good looking) subscribers. So, between attacks on free speech and mortgage fraud all over the news, it is Revenge of the Nerds and, at cocktail parties I am the Most Interesting Man in the World[9] (and, in light of recently announced troop movements to Portland, definitely not to be confused with the most Oregon man in the world).[10]

Ok, I admit I’m not even close to as interesting[11] as my footnoted classmates, but as I prepare to speak again at the MBA’s 2025 Regulatory Compliance and Risk Management Conference[12], I am grateful that consumer mortgage lending law has become such a tremendously compelling and complicated legal practice area offering boundless fodder for this (hopefully) amusing and thought-provoking cynical commentary.

The Diamond–Dybvig model

This past week I went to a lunch lecture in Milwaukee by Nobel Prize winning economist, Douglas Diamond. Of course, you all know Professor Diamond from the famous Diamond-Dybvig Model of bank runs and financial crises.[13] What? You never heard of it? Ok, the model is “summarized” (without using AI or Wikipedia) in the title of my significantly less acclaimed and academically rigorous Musing entitled “Bank Runs Are Bad” (in which I offered the perspective of a man who “fought the bull” on bank failure).[14]

30-year mortgage-villain or savior?

So, here’s your mortgage content with a bit of a tie into that poem. Professor Diamond’s presentation was about federal mortgage finance and monetary policy and definitely from the economic “egghead” world of academic study, not the bullring of bank management.[15] Professor Diamond suggested that the 30-year fixed rate mortgage has been a culprit in many of our financial crises, even if at times it has helped many consumers weather tough times as a hedge against rising rates. I don’t think Professor Diamond was saying we need to eliminate the 30-year mortgage, but he clearly isn’t a fan. He did not discuss the political tradeoffs either.

Professor Diamond quantified the cost of the federal subsidies that enable the 30-year mortgage and suggested that the true cost to provide that kind of interest rate protection for borrowers is vastly understated.[16] Diamond’s research and similar information could be very important for the disposition of the GSEs and in connection with any upcoming revisiting of the Basel 3 capital standards…., or not; President Trump may have his own ideas for mortgage finance and monetary policy. Trump is definitely not a reader of academic literature, or a reader of much at all, but I am sure he thinks he’s an excellent matador.

Meanwhile, for the sake of those whose livelihoods (and home values) depend on cheap long term mortgage finance, in looking to see if anyone else has studied the cost of the subsidies that enable 30-year mortgages, I came across this 2011 article titled “Housing Market Will Be Fine without 30-Year Fixed Loans” penned by the former director of financial regulation at the Cato Institute, Mark Calabria. Yikes.

Free speech and grace

Finally, I mentioned that I exercise my First Amendment rights in this blog, so I’ll finish with another topic that has me (and many others) amped up: namely, the recent Jimmy Kimmel/ABC/federal government First Amendment/freedom of speech controversy(s). Most folks are picking sides and getting outraged by what the other side has said and done that upset them. Personally, I am outraged from the center because both sides are only half right.

Let me be clear on where I stand: Violence is not speech. Speech is not violence. There is good reason why freedom of speech was the First Amendment in the Bill of Rights. Yet, between Jimmy Kimmel’s demonizing falsehoods for laughs from his partisan audience to the shameless and brazenly illegal efforts of Trump and his administration to restrict speech the President doesn’t like[17] it’s easy to scold both sides in this episode.

But, as the saying goes, fish don’t know they are wet (i.e., they cannot understand being any other way). So, we all need to take a beat and consider Erika Kirk’s heartbreaking plea for grace and forgiveness in lieu of retribution and justice.[18] I totally agree that grace is the only way forward in a pluralistic and diverse society, and pray that Mrs. Kirk’s words and sentiment can overcome current passions.

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[1] Reading and analytical thought is becoming obsolete in the age of smartphones, memes, and outrage inducing images. Thank you again for being readers, but what of your children and grandchildren?

[2] Law school classmate and former Justice Department honcho Rod Rosenstein playfully called me a “muckraking journalist” at a reunion last year. Even in jest, that’s high praise indeed coming from the man who oversaw the investigation into Russian interference with the 2016 election a/k/a the Mueller Report.

[3] Some of my more famous classmates in addition to Rod Rosenstein include the following additional Wikipedia denizens; Anthony Scaramucci, DC Circuit Judges Robert Wilkins and Gregory Katsas, and my law partner Nancy Temple. Another classmate, Mary Rasenberger, just won a massive $1.5 Billion award from the AI company Anthropic in her role as CEO of the Authors Guild. That’s $1.5 Billion with a “B”!! Why didn’t heck I join that guild when I started this blog six years ago???

[4] For example, presently, another classmate, Karl Austen, has a well-known client who is having quite a “moment”. Needless to say, Karl is probably very busy right now, but if you need another outstanding attorney that knows his way around Hollywood call classmate Rob Benun.

[5] Some would snarkily (and correctly) say the limelight wasn’t interested in me either.

[6] Speaking of business, sadly, notwithstanding his uncanny ability to interview famous and important people like George W. Bush, at one meeting, then Caitlin Clark, Patrick Ewing, Wayne Gretzky and Jack Nicklaus at another, author, podcaster, and publisher Scott Becker of the eponymous Becker Strategy Group publications like Becker Private Equity and Business Media and Becker’s Hospital Review does not have a Wikipedia page yet. Still this classmate and good friend is the model by which Robbie Chrisman should emulate as he builds the Chrisman Commentary empire.

[7] Shout out to my old law firm, Rudnick & Wolfe, now part of DLA, and my many mentors there, including loyal Musing reader Don Shindler who is now at Clark Hill.

[8] When I say “blogger”, the younger folks tend to correct me and call me an “influencer”, which makes me chuckle because that’s a really weak moniker for a lawyer.

[9] Actually, I’m going to give that award to Daylight AML’s Bob Simpson because he is a much better doppelganger for Jonathan Goldsmith (minus the goatee) and everyone wants to hear what he has to say about mortgage fraud today.

[10] My wife and I just crossed Oregon off our list of states to visit by crossing the bridge from Vancouver, Washington. Thanks to Ken Larson and the Banner Bank mortgage team for inviting us to your meeting!

[11] I did have one remarkably star-struck reader ask me for a selfie and autographed copy of the MBA’s RESPA at 50 proposals at the MBA Annual last year.

[12] Come get your RESPA questions answered with me and my Mortgage Law Today co-host, Loretta Salzano at 1:00 on Sunday in the opening roundtables for the conference.

[13] In addition to Professor Diamond and Philip Dybvig, the significantly more famous Ben Bernanke also shared that 2022 Noble Prize for the model but apparently didn’t have the “rizz” (or something) to get his name on it. BTW, “rizz” won its own award in 2023.

[14] I left a troubled bank in 2009 that failed much later without ever having a bank run or even a threat of one. A bank should never fail without a threat of a bank run (which can be eliminated through deposit insurance). Despite any moral hazard, risk to the taxpayers backing the insurance can be handled with solid regulatory oversight of bank risk management. It is unrealistic to expect depositors to police bank risk through moving their deposits. Policing can only be effectively done by shareholders and prudential regulators. Put that in an economic model and smoke it.

[15] Quantifying risk is the name of the game for “egghead” monetary policy economists. Unfortunately, Professor Diamond told me afterwards that his presentation was not yet available for publication.

[16] Professor Diamond puts heavy emphasis on mark to market accounting for banks.

[17] I’m not sure if Trump’s openly acting illegally toward speech rights is better or worse than how the Biden Administration denied they were coercing Google, Twitter and other media providers to remove speech the Biden folks didn’t like about COVID-19 or Hunter Biden. Is it worse to be shameless about norm breaking or to hide and lie about it because you know it is wrong?

[18] Justice is always in the eye of the beholder.