The WSJ broke a big story today about an inquiry into shady behaviour at the Congressional Budget Office.
At the heart of the story is former CBO economist Lan T. Pham, who says she was fired for sharing her pessimistic outlook for banking and housing sectors in 2010.
Pham made this explosive claim in a letter to Sen. Charles Grassley (embedded below). Here’s an excerpt:
I was repeatedly pressured by the CBO Assistant Director, Deborah Lucas, in charge of the Financial Analysis Division to not write nor discuss issues in the banking sector and mortgage markets that might suggest weakness in these sectors and their consequences on the economy and households.
- Statements could not be made attributing the decline in property tax revenues to foreclosures and the decline in home prices, which runs counter to common sense and the findings by the U.S. Senate Joint Economic Committee of the U.S. Congress.
- Foreclosures had no impact on home prices (negative externalties, spillover effects). This runs counter to common sense, and a prominent national home price index by Corelogic in the CBO’s key database subscription showing clearly the distressed homes component of the index worsens home price declines.
- The decline in home prices had no impact on household wealth, which runs counter to common sense and the fact that the home is a significant asset or source of ‘wealth’ for most households. According to the Federal Reserve, about $7 trillion in home equity evaporated in the housing collapse.
- The emerging foreclosure fraud problems in September 2010 were due to media “sensationalism”, “the kind of event of the moment where we should be adding scepticism, not just repeating the hype in the press” and discussing it “lacks judgment about what is important’.