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Glenn Hubbard and I were on opposite sides of a court case and I didn’t even know it!

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Matt Taibbi writes:

Glenn Hubbard, Leading Academic and Mitt Romney Advisor, Took $1200 an Hour to Be Countrywide’s Expert Witness . . . Hidden among the reams of material recently filed in connection with the lawsuit of monoline insurer MBIA against Bank of America and Countrywide is a deposition of none other than Columbia University’s Glenn Hubbard. . . . Hubbard testified on behalf of Countrywide in the MBIA suit. He conducted an “analysis” that essentially concluded that Countrywide’s loans weren’t any worse than the loans produced by other mortgage originators, and that therefore the monstrous losses that investors in those loans suffered were due to other factors related to the economic crisis – and not caused by the serial misrepresentations and fraud in Countrywide’s underwriting.

That’s interesting, because I worked on the other side of this case! I was hired by MBIA’s lawyers. It wouldn’t be polite of me to reveal my consulting rate, and I never actually got deposed so it’s not in the public record, but I will tell you that it was exactly half of Hubbard’s. On the other hand, it seems possible Hubbard did at least twice as much work per hour as I did, so his rate may well have been fair. More on this below.

Taibbi writes of Hubbard’s consulting work:

So how did Hubbard manage to analyze Countrywide and conclude that mass fraud in its underwriting procedures wasn’t problematic? Easy: He didn’t look at the underwriting! All Hubbard did was take a group of Countrywide loans and compare them to a group of other loans from the same time period.

When that comparison revealed that Countrywide’s loans failed at about the same rate as the non-Countrywide loans, he smartly concluded that fraud wasn’t the problem and that macroeconomic factors must have been the cause.

Sounds good. But there was a problem with the control group:

Except for one thing: He left out the fact that about half of the loans in the “non-Countrywide” pool he selected for his analysis were originated by companies that were also being sued for underwriting fraud and other irregularities. What Hubbard did is compare a bunch of bad loans to a bunch of bad loans.

Taibbi then provides some deposition transcript which he characterizes as Hubbard being “intentionally obtuse”:

Q. Did you make any factual inquiry into the nature of either the process of origination or the process of due diligence by Countrywide?

A. I’m not an underwriter in this proceeding, so neither of the assignments that I told you would require such. . . .

Q. So is that a yes in response to my question?

A. You have to tell me the question again.

And then this bit:

Q. So in the aggregate, more than half of your entire population in the control group was affected by litigation?

A. I think, well, yes, by number of pools, yes.

Q. And in neither your initial report nor your rebuttal report did you disclose that fact for the benefit of the court?

A. Well I’ve already told you I didn’t think it was relevant from my –

Q. I’m aware that’s what you said today. But the fact is in neither your initial report nor your rebuttal report did you disclose that more than half of all the securitizations in your so-called control group were affected by litigation?

A. If I don’t think something is a relevant fact, why would I have disclosed that?

Q. You’re agreeing with me, you didn’t disclose it, right?

A. That’s a factual question. You had innuendo attached to it.

Q. Well, sir, I do think it’s significant that you didn’t disclose that fact, that’s why it’s in my question. I just wanted to confirm you did not disclose that fact, right?

A. I didn’t disclose the fact.

I don’t want to discuss any of the specifics of the case—if you read the above carefully, you can see that all I’m doing is quoting from Taibbi and revealing the non-secret that I consulted on the case too. But I do want to make some comments based on my general experiences of legal consulting in previous cases.

First, not having seen the details of the deposition, I can’t really say for sure, but I think Taibbi is perhaps being too hard on Hubbard for giving evasive answers. I gave a deposition as an expert witness once (on a different case) and what I recall is the lawyer on the other side asking many many pointless-seeming questions, every once in a while coming up with a gotcha-type question that seemed completely off base. So it’s possible that a response that looks evasive is merely careful. There’s no point in giving a more complete answer; the lawyer will come back at you with more in any case.

Second, I was struck by how invested Hubbard seemed to be in this proceeding. When I was deposed, several years ago, it was the mellowest experience ever. This lawyer was sitting across from me asking a bunch of pointless questions, and meanwhile the clock was ticking: I was being paid for every minute. I felt the same warm glow your taxi driver would feel, stuck in midtown traffic—if he were being paid hundreds of dollars per hour of waiting time. I knew what I’d done, we had nothing to hide, there was no statistical funny stuff, all I had to do was answer the questions as they came, one at a time, and not get cute. It was actually entertaining watching the opposing lawyer trying to trap me, cos there was really nothing for him to grab on to. I’n not saying I’m some sort of legal superhero, I’m sure I could get trapped in some settings, and I expect that a sharp lawyer could take some of the innocuous statistical things I do and make them look bad, but the real story here was I didn’t really care. My goal was just to do my job. I’d done the statistical analysis, I’d written my report, and then at that point I was getting deposed. It wasn’t my job to win the case; that was the lawyers’ job. All I had to do was answer the questions honestly; that’s what I was being paid for.

In contrast, Hubbard in his deposition seems really agitated. He does not seem to be answering questions with the calm demeanor of someone who’s being paid $1200 an hour, win or lose. When he says, “That’s a factual question. You had innuendo attached to it,” he really seems to care. I wonder what the background was there, by which Hubbard and the lawyers decided not to disclose in their report where the loans in the control group came from, and how it was they decided that it was not “a relevant fact.” One reason I think that Hubbard legitimately might be worth twice the consulting fee as me, is that often when I consult, it’s just a job, but when Hubbard consults, he’s more invested in the case. For their $1200, his clients are getting an emotional as well as an intellectual commitment.

To put it another way: in my deposition in that other case, I was Bugs Bunny. When Hubbard was being deposed, he was Daffy Duck. Not that I’m always so cool, calm, and collected: in fact, I’d guess that Hubbard is much more Bugs-like and I more Daffy-like in our everyday lives (that’s just a conjecture, I don’t think I’ve ever actually met Glenn Hubbard). As the psychologists tell us, personality traits vary strongly on context.

P.S. When I say that consulting is “just a job,” I don’t mean that I would lie or do anything unethical, merely that in such job-like settings I will try to do my best as a statistician, while letting the lawyers worry about how to win the case.

28 Comments

  1. Anonymous says:

    Maybe you would have been more invested emotionally had you been paid twice as much.

    Do principles have a downward sloping supply? Yes according to Douglas North.

    Maybe Duffy duck plays Duffy duck bc he wants to get hired again. How often does Bugs Bunny get re-hired?

  2. zbicyclist says:

    “When I was deposed … it was the mellowest experience ever.”

    That may not be typical.

    • Steve Sailer says:

      When the corporation I worked for was being sued by shareholders many years ago, the other side deposed me in case I had any inside dirt on my bosses. Our company’s lawyers advised me to be as mellow as possible, don’t get into arguments, don’t try to come up with brilliant insights, don’t do much of anything besides honestly answer exactly the questions asked. So, no coffee for me, got there very early to avoid an agitating rush, and then bored the lawyers for five or six hours before they gave up.

      Of course, it would have been far more stressful if our side wasn’t innocent. (The firm eventually won the case in court years later.)

  3. K? O'Rourke says:

    > All I had to do was answer the questions honestly; that’s what I was being paid for.

    Not my understanding of legal adversarial dispute processing (which I did study from law school notes) – would be interested to get some input from litigation lawyers.

    Perhaps you are being selected by lawyers when they believe a statistician answering questions honestly is in the best interests of their client.

  4. Simone Simonini says:

    Surely bad-performing loans are much more likely to be subject to litigation whether or not they were actually fraudulent.

    • db says:

      What you say is true. But if we want to make the inference that the process used by CW was not fraudulent, then the incidence of fraud in the control is essential. It’s basic Bayesian theory: if we have no idea how often fraud was used in the control group, then how can we update our priors based on the evidence comparing CW to that control group? On his own argument, GH’s testimony seems irrelevant because it contained no useful information with which a finder of fact make an inference about the legal question in the case. It’s a bit subtle, but a savvy judge should probably exclude it under the Federal Rules of Evidence 401 & 402 or, under FRE 104, made the admission conditional on some foundation about the data. But perhaps I’m missing something.

  5. MikeM says:

    From my own experience, I would think that K? is close to the money. If you tell the lawyers at the outset, “Let the chips fall where they may,” they may decide to look elsewhere if they feel you won’t support their case.

    And I wouldn’t (necessarily) blame Hubbard, since I doubt if he selected the “control” group: he may have left that to his attorneys, who (let’s be generous) had no idea as to how to put together a relevant control group. He may have felt that his only recourse while on the stand was to justify his position — I do that all too often when I say something stupid and my wife calls me on it, but I own up afterwards.

  6. Louis says:

    You never met Hubbard?

    That is odd given the size of the campus.

    • Phil says:

      It’s not odd when you consider that Hubbard spends most of his time in his Economics Pleasure-Penthouse, while Andrew toils away in his “office”, which is actually a men’s-room cubicle in the basement of the Statistics Dungeon.

    • Andrew says:

      Louis:

      Maybe I’ve met Hubbard somewhere or another, but I don’t recall such a meeting. I’m giving a talk in the business school in a couple of months—maybe I’ll run into him there?

  7. Jonathan (a different one) says:

    To add another data point from someone who has been deposed a couple of dozen times: it depends. I come into every deposition like Gelman/Bugs. The other attorney always has some way to turn it into Hubbard/Daffy. Usually, it’s not in their interest to do so, so they don’t.

    On the issue mentioned by K? and MikeM, it depends on the case and the issue. Most attorneys are interested to know what an honest appraisal of the data would tell them, because only an idiotic litigator thinks he can get away with an analysis which won’t hold up against reasonably stiff criticism. The client is always free to go another way once they see my analysis, and sometimes they do. But in 30 years of doing this, I have only once encountered an attorney who wanted me to guarantee a particular empirical result before I saw any data, and it was really easy to say no. Theory is another matter. when exploring a theory of the case, it’s often easy to take on the assignment of making the other side look bad in theory. Then one need “merely” explore whether the data supports your own theory.

    • K? O'Rourke says:

      Thats my guess about what went wrong

      “only an idiotic litigator thinks he can get away with an analysis which won’t hold up against reasonably stiff criticism”

      - it seems Countrywide’s lawyers did not do their jobs as well as they perhaps should (which may include hiring other statistician to critique their own expert, privately.

      The adverserial dispute process has a lot going for it (abit like democracy, all the alternatives are worse) but honesty for honesty’s sake ain’t part of it.

  8. Wonks Anonymous says:

    The logical implication would be that Hubbard cherry-picked the loans in the comparison group. Taibbi never explicitly makes that claim. Taibbi’s link was broken (forgot to add “http://” to the href), the deposition is here:
    http://www1.rollingstone.com/extras/Deposition-Transcript-of-Glenn-Hubbard.pdf
    Hubbard claimed he looked at every loan in two databases matching certain criteria for comparability (although it’s suggested those criteria could introduce bias). The lawyer on the other side was interestingly criticizing his analysis by saying that the housing crash (analogized to a new strain of tuberculosis throwing off life insurance esimtates) seemed ex ante unlikely to market participants, hence that Hubbard’s post-crash empirical analysis fails to examine whether Countrywide would have underperformed had housing prices continued to rise (as Countrywide and MBIA expected). Certainly not what I was expecting the point of dispute to be! There’s also a bit on controlling for differences in litigation, but it doesn’t seem he made that work available. It was also unclear if the lawyer was suggesting that misrepresentation was so rife in the industry that you couldn’t determine whether Countrywide misrepresented their underwriting practices by comparing their performance to others. If that was the case, it was confusing how they brought up simulating alternative scenarios for the economy, because the comparisons would still fail to find differences.

    Here’s a great quote for this blog:
    “If you do that, there’s really no material effect. Meaning if something had been statistically insignificant before it was still insignificant. If it was significant it was still significant and the signs were still the same”
    But the difference between statistical significance and insignificance is itself insignificant. Then there follows a bit on Granger causality tests.

    I don’t have any experience in a court, just seeing representations on screen, so I found it odd that Mr. Apfel kept objecting and each time the judge didn’t respond (or the transcript doesn’t bother with “overruled”) and Hubbard responds to the question anyway. Although it seems there’s lots of simultaneous talking that a transcript can’t properly depict. It’s also amusing when someone complains that Apfel keeps shaking his head to signal answers to Hubbard.

    • Simone Simonini says:

      This is a deposition, not trial testimony. No judge was present. Objections at depositions are largely about making the record clear.

  9. Bill B. says:

    I’ve been deposed at least 50 times in class action employment cases, sometimes for as many as four days on a single case. What I came to learn is that the opposing attorneys pretty much have their briefs written before your deposition. They are just looking for snippets of testimony to fill in the blanks. The reason the opposing attorney is staring off into space while you are making your most brilliant point is that she has absolutely no use for what you are saying. She’s got a list of questions with yes/no answers, and the associates at her firm have done hours of research to let her know whether your answer is going to be yes or no. What gets the attorney REALLY agitated is when she thinks she’s got you absolutely boxed in to giving a yes or no answer that fits in with her brief and you refuse to give a yes/no answer. When an attorney loses their cool in deposition it is either an act done for strategic advantage or they are a lousy attorney. For the expert, nothing good can come from getting or appearing agitated in deposition, especially now that almost all depositions are videotaped. I mostly worked for plaintiffs, and the opposing social science expert almost always billed roughly twice my rate. And as rebuttal witnesses, their job was almost always much easier than mine!

  10. Steve Sailer says:

    Having seen “Inside Job,” in which Hubbard’s mercenary disingenuousness is highlighted, my immediate reaction to your headline (before seeing the rest of your post) was: “Yeah, but I bet Hubbard got paid more!”

  11. Andrew says:

    I have no idea of the background of this case, whether Hubbard was just rattled or if he really cared; and, if he really cared, whether it was his professionalism as a consultant, or if he genuinely felt that Countrywide were the good guys here, or whether he has a political/moral objection to business lawsuits, or maybe he’s just a fighter and always wants his side to win.

    • Phil says:

      Former political consultant James Carville once said “You pay for my head, and I throw my heart in for free.”

  12. Steve Sailer says:

    Here’s a clip from the Oscar-winning documentary “Inside Job” in which Hubbard more or less turns into Daffy Duck on screen while being subjected to hostile questioning:

    http://www.youtube.com/watch?v=CaXNqGgIc-g

  13. Steve Sailer says:

    Whether Countrywide was more at fault in the housing disaster than its competitors is of course a difficult question. I’ve been thinking about it for a long time. I would say Countrywide was especially culpable, that Angelo Mozilo ranks as the most central figure in the whole housing mess. But that’s partly because they weren’t some obvious sleazeball small-timers. Before founder David S. Loeb retired at the beginning of the last decade, Countrywide been an impressive firm.

    Angelo Mozilo’s elevation from #2 to #1 allowed him to indulge his ambition without Loeb’s oversight. A key event was that in 2002, a UCLA business professor named Eric Flamholtz suggested to Mozilo the disastrous strategy of trying to grow Countrywide’s share of the mortgage market from ten percent to an oligopolistic 30 to 40 percent.

    Mozilo saw that George W. Bush was telling federal regulators to back off from questioning dubious lending in the name of “Increasing Minority Homeownership.” So Mozilo made diversity, fighting the lingering effects of racist redlining, and welcoming immigrants to the American Dream the the public rationalizations for his putting the pedal to the metal within Countrywide. Here’s his February 2003 Harvard address that’s just drenched in Diversity Talk:

    http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/m03-1_mozilo.pdf

  14. I need to increase my consulting rate!

  15. Corey says:

    Several years ago I helped a friend in law school do a <a href=
    http://www.thelawinsider.com/mock-trial-lawschool/what-is-a-mock-trial/
    mock trial by playing the role of the defendent.
    (The facts of the case escape me, but I do recall that I was a doctor and the plaintiff was a patient with a back injury, and that the facts were very ambiguous.) My friend told me that a key to a good cross-examination is to ask questions about just those actions which could plausibly admit unscrupulous motivations, carefully passing over any facts that might justify those actions, and certainly *not* inquiring about motivations. Seeing her in action questioning the opposing team’s witnesses was quite striking — a carefully selected set of simple questions does seem like an accusation of malfeasance, and no opportunity is offered to justify one’s actions.

    What I see in each exchange is Hubbard attempting to address the implicit, unasked question. In the first exchange, the unasked question that Hubbard wants to answer is, “How can you purport to claim that Countrywide’s underwriting shows no evidence of systematic fraud without inquiring into the actual process by which the loans were originated?” He wants to point out that his analysis was of one narrow category of evidence which might be expected to show signs of systematic fraud if it were present. In the second exchange, Hubbard doesn’t want to baldly state that he omitted a certain fact, which is all the question asks for. He wants to explain that the omission was in good faith; he clearly resents not being given the opportunity to do so.

    The problem with Hubbard’s approach is that trying to address the innuendo directly just makes it more salient, and at the same time makes one look evasive for failing to answer the simple question actually being asked. Daffy Duck never looks admirable.