Joseph Mason arrived at LSU’s E.J. Ourso College of Business in July as the Hermann Moyse Jr./Louisiana Bankers Association Endowed Chair of Banking in the finance department.
Mason has also proved to be popular with national news outlets seeking answers to their questions about the financial crisis. He’s been quoted by Bloomberg, CNN, Christian Science Monitor, Fox Business News, MSNBC and National Public Radio.
Mason, who left as an associate professor of finance at Drexel University’s LeBow College of Business in Philadelphia to come to LSU, has addressed the Senate Banking Committee, the House of Representatives Financial Services Committee and the Federal Reserve Board and has advised the Government Accountability Office and Federal Deposit Insurance Corporation.
Before joining the academic world, he studied consumer credit, bankruptcy and structured finance as a senior financial economist at the Office of the Comptroller of the Currency.
1. What’s most intriguing about the economic crisis?
Probably the most interesting aspect is the reluctance to learn from prior experience with crises. Crises are not unique. The common thread I see in everyone that goes through a crisis is that everyone thinks this one is new, this one is different, this one is unique.
2. What’s going on?
In my expertise, this is an asymmetrical information financial crisis. Most are of this type. We know some banks have losses, but we don’t know which ones. It’s very classic. The information that investors want is typically not available. Nobody thought to collect it. It’s not what the regulators are monitoring.
3. What can be done about it?
The natural prescription would seem to be to give investors the information they want. That would involve closing banks and dealing with today’s financial difficulties head on. There’s a fear of closing the weak banks, but typically not much happens when you close a bank because it’s weak. Take, for example, Countrywide. They weren’t making the best loans. You’re not going to shut down a lot of industry capacity to make good loans. You’re going to shut down industry capacity to make bad loans. You haven’t lost much economically.
4. Is an $825 billion bailout the right move?
No. It’s part of an idea that the objective is not to keep banks from failing. Once you start seeing that there’s an information problem—that is, confusion about who has the bad assets—the goal becomes to reveal those problems. And if there’s a role for additional funds, it’s to make sure that banks that don’t have the assets don’t experience dire difficulties as a result of the confusion.
5. A lot of people are fretting about the specter of bank nationalization. Are they right to be worried?
There seems to be a confusion in the minds of some about nationalization. Consider IndyMac. They’re in the process of being closed down. They are, in fact, closed. That looks to many like a nationalization. It’s not. While the government is certainly managing the institution for a short period of time, the government’s goal in managing that institution is to remove it from the marketplace—to sell it off as a whole or piecemeal, but the government manager’s goal is to put himself out of a job.
6. You said once that the government bailout of Fannie Mae and Freddie Mac was an opportunity for the government to exit its “egregious level of involvement” in housing finance. Why is it egregious?
There were some documents on the Department of Housing and Urban Development Web site from 1996, and they describe what was called the National Home Ownership Strategy—which was a partnership that included everybody from the feds to Fannie Mae to Freddie Mac to homebuilders and banks—with the goal of increasing homeownership to historic levels. One of my favorite passages, paraphrasing, was that they didn’t think the historical barriers to homeownership—like having enough savings to make the down payment or even having enough income—should be a barrier to homeownership going forward. I think we’re seeing the natural result of such a program.
7. So that policy was the Clinton administration’s doing?
It really is not attributable to him per se. It was an initiative that built up steam over many years. That happened to be when it was memorialized.
8. Baton Rouge has an incredibly low foreclosure rate compared to some parts of the country. Is there any chance we could feel our own post-Katrina mini-housing bubble burst?
I think that there’s some overcapacity that needs to burn—not as much as Los Angeles or the Florida condo market. I think there’s going to be a little bit of an adjustment. If this crisis does what crises are supposed to do, in a very painful way, then also preferences will change for smaller homes, more energy-efficient homes. I think you’re already seeing that shift in young people.
9. How do you get to be such a go-to person with national media?
I think I give good interviews. Remember, nobody knew what this was two years ago. Nobody in the industry can talk about it. Their firms will shut them down. Few people off the street know what it is. Also, by my trade, I’m an educator.
10. What do you miss about Philadelphia?
I’ve lived around the country. Every place has its benefits and its drawbacks. After a while, you learn it’s all an adventure and you get to see the way the world ticks.
