Housing Crisis on The Huffington Post

October Home Sales Up 10.1 Percent From September

2009-11-23T10:26:12Z

WASHINGTON — Home sales surged for the second month in a row in October, climbing to the highest level in 2 1/2 years as first-time buyers rushed to take advantage of an expiring tax credit.

Home sales nationwide are now up nearly 36 percent from their bottom in January, data Monday showed, though they are still 16 percent below the peak in autumn 2005. At the current sales pace, there is only a 7-month supply of homes on the market and in some areas there are bidding wars.

FHA: Wealthy Buyers Qualifying For Guaranteed Mortgages, Despite Depleting Reserves

2009-11-20T15:27:44Z

The Internal Revenue Service is giving tax rebates to first-time buyers, and soon to move-up buyers, in a program beset by accusations of fraud. And the government agency that issues mortgage insurance, the Federal Housing Administration, is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling. On Thursday, the Mortgage Bankers Association said more than one in six F.H.A. borrowers was behind on payments.

Judy Montero: The "Home" in Home for the Holidays

2009-11-20T14:20:53Z

In all the talk about budgets and dollars and cents and how much to spend on homelessness, it's important to remember the human beings we are making decisions about.

During this holiday season when we celebrate our blessings with our families, I find it is important to remember those who are less fortunate. There are a great many people who are homeless today that just a year ago had homes. They had jobs. They paid their taxes. And, they never thought they would find themselves on the streets and needing help.

We're talking about people like Amber Batson-Vasquez. Amber was trapped in an abusive relationship and at the time she was able to escape with her baby son, the recession had hit. Like thousands of other pour souls who have been suffering in Denver because of the economy, this bright, educated young woman couldn't find work.

"I applied for job after job but continued to be rejected," says Amber. "My son and I were moving from place to place, there was no stability in our lives." Amber never imagined she would be homeless. Having to endure this taxing situation month after month drove Amber into clinical depression. "Being homeless was a very humbling experience," says Amber. "I felt helpless and confused. I didn't know what to do or where to go but I knew I needed help."
Due to the recession, people are living on the edge. We can't turn our backs on them and thanks to Denver's Road Home, the community's 10-year-plan to end homelessness, we are helping.

At Project Homeless Connect on Oct. 9 at the Pepsi Center, a one-stop shop for the homeless involving over 500 community volunteers, Denver's Road Home served over 300 families (reaching over 500 children) who are homeless or at risk of being homeless. Demand for services is clearly up at a time when community resources are diminishing rapidly.
After being accepted into a transitional housing program, Amber received help in finding a job. She was then referred to the Family and Senior Homeless initiative, a permanent housing program of Denver's Road Home administered by the Denver Rescue Mission. "I was able to save up money to buy a car and things fell into place," says Amber. "Not only did I have the financial resources that I needed to move into a home, but I was also given much needed emotional support and encouragement." With employment and a stable living environment, Amber and her young son are happy and healthy.

There are thousands of people like Amber who work hard to support their families - people who desperately need Denver's Road Home. Since it was launched four years ago Denver's Road Home has experienced incredible success. It has:

• Raised $12 million from businesses, individuals and foundations;
• Found employment for 3,278 homeless individuals;
• Prevented 2,232 seniors, families and individuals from becoming homeless;
• Mentored 564 families and seniors;
• And developed 1,500 new units of housing for homeless individuals and families. Each unit is attached to substance abuse, employment, day-care and other services and tenants are expected to pay 30 percent of their income in rent.

Even in this extraordinarily challenging economy the number of chronically homeless - the people who cost taxpayers the greatest amount because they use the most expensive services like jail space and detox facilities - has continued to decrease.

And the business community, led by the Downtown Denver Partnership and the Business Improvement District, credits Denver's Road Home with helping to create an atmosphere where downtown business can prosper.

Helping the homeless is not just the right thing to do - it's the smart thing to do.

A recent article in the New York Times was a great reminder for me of what could be happening in here if not for Denver's Road Home. According the story, tent cities housing the homeless have been erected in Seattle, Wash., Nashville, Tenn., and St. Petersburg, Florida. Thanks to Denver's Road Home we are not facing that prospect.

While it is important to recognize the success our community has achieved through Denver's Road Home we must realize the economy is continuing to push more men, women and children into homelessness.

Homeless providers report that requests for services are nearing an all-time high. The Mile High United Way said that last month the top five requests for help were:

• Rental Assistance - 3,352
• Utility Assistance - 2,264
• Shelters and Transitional Housing - 1,361
• Food - 845 referrals
• Housing Counseling and Assistance - 574

In Denver, 260 of the 581 homeless children are under the age of 5. And 50 percent of the homeless adults have been without a home for less than 30 days.

We could talk about statistics forever but when you think about whether or not we should support Denver's Road Home consider Amber, her son and all the people like them.

Just like all city efforts, Denver's Road Home has made cuts and is doing more with less. We must continue to be smart with taxpayer dollars. But we can't afford to cut more.

There has never been a more important time to support Denver's Road Home. Just ask Amber what Home for the Holidays means to her.

Overdue Mortgages And Foreclosures Reach Record Highs

2009-11-19T13:34:24Z

US mortgage delinquency rates and the percentage of loans that entered the foreclosure process jumped in the third quarter, with both reaching record highs, the Mortgage Bankers Association said on Thursday.

The percentage of loans on which foreclosure actions were started rose to 1.42 percent in the third quarter, an all-time high, up from 1.36 percent in the second quarter and 1.07 percent in the third quarter of 2008.

Foreclosures: Prime Borrowers Are The Latest Victims

2009-11-19T11:28:18Z

WASHINGTON — The foreclosure crisis likely will persist well into next year as high unemployment pushes more people out of homes, pulls down housing prices and raises concerns about the broader economic recovery.

The latest evidence was a report Thursday that a rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure. That's a shift from last year, when riskier subprime loans drove the housing crisis.

James Altucher: Why Ron Paul is Wrong

2009-11-18T16:41:25Z

In a recent article in Forbes Magazine, former Presidential candidate Ron Paul expounds on why the government has screwed the entire bailout up and that we are heading into a Great Depression even potentially worse than the one that hit in the 1930s.

He's wrong.

Lets take a look, step by step, through his argument.

His first argument is that although the economy seems to be improving, it is a false recovery similar to the false recovery in 1932 and that "the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954."

This is an unfair comparison. Hoover's, and then Roosevelt's, interventions were of a much different flavor than today's stimulus package. In 1930, Hoover signed the Smoot-Hawley Tariff Act, which put tariffs on thousands of imported goods, effectively ending all trade with foreign countries. While Obama has recently put on a small tariff on some Chinese goods, the overall trade situation has not changed much and has had very little intervention that would cause trade to be inhibited. Singlehandedly, Smoot-Hawley made the Depression ten times worse than it could've been, and there is no comparable act now.

In 1931, a full two years after the Depression started, Hoover set up the National Credit Consortium which pushed larger banks to lend to smaller banks. It didn't work. Bernanke and Paulson (and now Geithner), to avoid this pitfall, just directly had the government put money in all the banks (the TARP bill), significantly speeding up the process by which, eventually, money will start to flow through the system.

In 1932, Hoover raised taxes so that the top tax rate went to 63% on personal income and corporate tax went from 12% to 13.75%. While tax hikes might be in our future, so far none have been put in place.

In 1933, Roosevelt signed the National Recovery Act (Hearst referred to the NRA bill as "No Recovery Allowed"), which fixed wages. He did this with good motives: to stop the deflation in people's incomes. But the results of fixing wages produced the opposite effect as employers simply stopped hiring or would hire under the table and wages ultimately fell 21% over the next several years. No such interventionist bill is even being contemplated.

These are just a few of the "interventions" that Bernanke, Paulson, Geithner have avoided in their attempts to fix the current issues without repeating the mistakes of the fast. The comparison is unjust at this point.

Ron Paul states, "Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate."

If a bubble is being created, I'd like to see it. When there's a bubble, everyone will feel flush. Just as they did in 1999 from the internet bubble and in 2006 from the housing bubble. There's no bubble right now. In fact, the M2 money supply is actually decreasing. We are in a deflationary environment that desperately needs to be reflated. Until that happens, there's no worry about bubbles.

Ron Paul further says, "Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers."

Well, over 100 banks now have been shut down by the FDIC. And one of the largest broker-dealers, Lehman Brothers, was allowed to fail (with disastrous consequences). It sounds nice in theory to allow the excesses work through the system and I do believe that to a large extent is possible, Paulson and then Geithner have been allowing this to happen. But you don't want the system to collapse. Some institutions can only fail if we're willing to risk the tens of millions of checking accounts that people have with banks and the millions of credit lines that small businesses have with banks to make basic needs like payroll, etc. While it's fine to speak theory about our excesses, the average man, woman, and business can't change the status quo too much without significant personal pain being felt.

Perhaps Ron Paul doesn't mind because a better system would be the result, but I think the consequences in the short-term would be unbelievably painful and would rival the misery of the dustbowl Great Depression.

Ron Paul says, "Even with the massive interventions, unemployment is near 10%".
Most of the stimulus bill is taking effect in 2010. Even the "shovel ready" projects that were supposed to begin in 2009 are getting a slow start thanks to bureaucracy and won't have an effect until sometime next year.

Not only that, companies did exactly what they were supposed to do in the beginning of this recession -- they slashed inventories faster than any other time since 1940, and they fired the people used to make those inventories. Well, the world didn't end, and now they have to rebuild those inventories. And the hiring rate will be the fastest it's been in 50 years, as we need to completely restock the shelves. Paul doesn't take this into account in any of his discussions about the state of the current economy, and yet this is probably the most important statistic out there at the moment.

Paul says, "foreigners are cutting back on purchases of Treasury debt"

Well, that might be true, but interest rates are still near all-time lows because US citizens have been upping their purchases of Treasury debt as our personal savings rate reaches a ten year high.

Paul says, "As the housing market fails to return to any sense of normalcy"

Actually, the Case-Shiller Home Price index has been up the past four months in a row. So lets calm down a little bit and wait and see what happens. But its wrong to say its "failing to return to any sense of normalcy".

Finally, Paul, in a fit of rage about a declining dollar, says, "The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913."

Well, the stock market is up 10,000% since then. And in every way the quality of our lives is better than 1913. I'd much rather live in 2009 than in 1913.

At the end of the day, don't succumb to populist panic. Capitalism works and is on its way to a recovery if we just sit back and let it happen.

Angelides Commission Staff Announced Before Probe Into 2008 Meltdown

2009-11-17T22:16:06Z

The Angelides commission, convened by Congress to investigate the financial meltdown of 2008, today announced a passel of "senior staff" appointments...

Yet to come: a calendar of public hearings, which are expected to start in December

Lita Smith-Mines: In A Canyon, In A Cavern

2009-11-17T16:33:01Z

Over the course of my decades as a real estate attorney, I had many dealings with one particular lawyer's office. He was so busy representing lenders that I sometimes needed to beg one of his associates or paralegals to provide a closing date that wasn't two or more weeks away. The groveling would resume late in the afternoon before closing as I attempted to ascertain the next day's charges and costs from some member of his overwhelmed support staff.

This lawyer's office always had a full parking lot; more than once I scurried to a closing through rain or sleet or snow after leaving my car at a neighboring building. Upstairs, his waiting room was constantly jam-packed with borrowers and others there for a share of the mortgage money. The receptionist's cheery but robotic "please be patient until a room opens up" greeting always sounded eerily similar to an airline representative announcing an overbooked flight.

Those days have vanished; the busted bubble of real estate reduced most closing offices to chasms of inactivity. But now, in the throes of a November real estate boomlet, I called this familiar office on a Tuesday afternoon and set closing for Friday. As if that wasn't enough of a shocker, the attorney himself conveyed my clients' mortgage fees and expenses before lunch on Thursday!

When I arrived at the building, I parked perhaps 10 paces from the entrance. Passing the large "space available" sign in the lobby where a mortgage brokerage once held sway, I entered the waiting elevator as if it was reserved just for me. Upstairs, the unoccupied front desk was devoid of the tell-tale signs of receptionist taking a restroom or food break. There was no half-filled tea or coffee mug sitting besides the phone; absent was the frame containing a picture of a kid or a dog or that frazzled "I hate Mondays!' cat. All that greeted me was a notepad on which someone had scribbled: PLEASE SIGN IN. At 11:30 AM, it appeared I was the first to place my name on the pad that day.

Initially, I couldn't quite grasp why I felt so unsettled. I didn't actually hear wind whistling down the empty corridors, and the lack of employees and absence of chatter only vaguely brought to mind a high school lesson on the Dust Bowl. But there was no mistaking the echo as the closing attorney's voice bounced off the walls in greeting. This formerly haughty closing behemoth personally escorted me to a conference room and fawningly inquired whether I "needed anything" while I waited for the other parties to arrive!

My momentary sense of schadenfreude evaporated once I considered how many jobs had been lost in this office. The laid off paralegals, processors, and attorneys might have found other jobs, but they certainly weren't here to generate income for their boss while also buying bagels and beverages from the local deli. The absent workers couldn't pick up birthday cakes at the nearby bakery, and their non-patronage probably contributed to the shuttered dry cleaning store across the road. Darn, I really wanted to enjoy my fleeting feelings of karmic payback, knowing how many toxics loans were closed in these cavernous offices. But instead, I dreadfully pondered: how many jobs in our altered real estate landscape were lost and gone forever?

Howard Glaser: "Shocked, Shocked" at FHA Troubles: Another Mess for Obama's Mop

2009-11-17T14:46:42Z

The Federal Housing Administration today releases its report projecting the health of the FHA fund that is backstopping 40% of new mortgages being made in America.

There will no doubt be some who are shocked -- shocked! -- that FHA is under stress. We don't really get it. Every major private financial institution in the country has taken taxpayer cash to cover their losses from the mortgage meltdown. In fact, the largest financial institution that hasn't taken a dime of federal funds is....are you ready....a federal corporation -- the FHA.

Now, that may change in the future. FHA is not immune from the laws of economics. Facing the equivalent of a 500 year flood in the housing market, and having stepped into the void left by reckless lenders who pillaged the mortgage system, FHA now finds itself tight on capital. Duh, as my 11-year-old would say.

The real surprise is not that FHA might need an infusion of funds in the midst of an historic disruption in the housing market, but that it has fared so well until now compared to private bank lenders.

Here is one thing for certain: today's report will be used as a proxy for a larger debate about the extent of government support for the housing market. There are some people in Washington who simply believe that the federal government just should not be involved in the business of home lending, especially to non-traditional borrowers.

The numbers on minority lending are particularly startling -- FHA and VA together accounted for 60% of all mortgage lending to African Americans last year. They accounted for 50% of all mortgages to Hispanics. The private market has abandoned minority lending in the guise of raising credit standards. As a consequence, we have a tale of two mortgage systems in this country -- one for affluent whites, and one for people of color. Curtailing FHA lending beyond what is really necessary for prudent risk management will shut the door to homeownership for qualified minority borrowers. That is what is at stake in the debate over FHA, which is as much about ideology as it is about risk.

More broadly, FHA is critical to a stable housing market, and housing is critical to economic recovery. We have to be very careful that, in addressing FHA risk, we do not pull the plug on the housing market.

Now, we are not saying that FHA does not have serious problems. The 2007 and 2008 book of FHA business is in deep trouble. As the subprime market collapsed in late 2006 and early 2007, mortgage brokers and lenders who had feasted on exotic loans simply took off their subprime hat and put on their FHA hat. And FHA was not prepared for that. But the real sin is that once they saw it coming midway through 2007, FHA's response was: do nothing. Some of the more responsible private lenders instituted --for their own self protection-- much higher standards than FHA's requirements. But many did not -- and FHA failed to tighten standards when it would have made a difference. That's why today there are 100 FHA approved lenders with a total default rate in excess of 14% -- ten points above the national average for FHA lenders. And the worst 25 FHA lenders have a default rate in excess of 20%.

The shame is that had FHA taken some responsible actions to increase credit standards in 2007 or 2008 the agency would not be facing a crisis today. Instead, they kicked the can down the road and left a mess for the newly installed FHA chief, David Stevens and Obama HUD Secretary Shaun Donovan.

We raised many of these concerns privately with FHA back in 2007. When it became apparent that FHA did not want to institute risk controls (presumably out of concern for reducing mortgage credit to a market starving for capital), we went public with warnings that FHA could be the next casualty of the housing meltdown, as reported in the New York Times, Washington Post, Wall Street Journal and elsewhere.**

Today, there is a new sheriff in town. In the three months that Stevens and Donovan have been at the helm, they have done more to protect FHA from risk than the agency had done in three years, including installing FHA's first Chief Risk Officer. They will have to do more. Because the failure to deal with FHA risk earlier, before the trickle of FHA lending grew to a flood, has made today's problems that much more challenging and left Stevens and Donovan with a raft of unpalatable solutions.

**Public Warnings To Bush Administration on FHA:

"Looming Deficit Impedes Federal Housing Agency", New York Times, April 22, 2008
"It's a toxic brew," said Howard Glaser, a mortgage industry consultant who served as HUD general counsel during the Clinton administration. "All the ingredients are there for the problem to escalate."

"The Risks of Rescuing Borrowers" New York Times, May 22, 2008
''There's real concern about the degree of risk that FHA is taking on,'' said Howard Glaser, a mortgage industry consultant.

"FHA Faces $4.6 Billion in Losses", New York Times, June 22, 2008
Howard Glaser, a mortgage industry consultant who served as HUD general counsel in the Clinton administration, sees the anticipated loss as a concern. "Congress is relying on F.H.A. to help stabilize the mortgage market, but it's not clear that F.H.A. is as strong as it could be," he said.

"Danger Looming for FHA" Washington Post, October 4th 2008
"FHA is assuming the risks of a mortgage market abandoned by private investors -- without the risk management tools ...My fear is that next year at this time, we will be debating an FHA bailout."

"Obama Inherits Neglected Housing Department" Washington Post: Nov 20th, 2008
"The early warning signals are there," Glaser said. "We may be in a situation where, 'Who is going to rescue the rescuer?' ....An FHA bailout is a clear and present danger."

"As FHA's Role Grows, So Does Risk of Fraud", New York Times, December 8, 2008
Howard Glaser, a onetime HUD official who is a mortgage industry consultant in Washington, said that F.H.A. had largely been treated as a stepchild. Over the last five years, for instance, the agency's staffing levels have remained essentially flat. "If we don't have the capacity to monitor systemic risk in F.H.A., then we are in real trouble," he said.

"Rate of Defaults Is Rising Among FHA-Backed Loans" Washington Post, January 24, 2009
"It confirms the fear that FHA, as the lender of last resort, is getting the debris of the mortgage system," said Howard Glaser, a consultant and former HUD official. "They're suffering adverse selection. . . . They're totally reliant on lenders to protect taxpayer interest in FHA."

Mortgage Delinquencies Hit Another Record In 3Q

2009-11-17T07:01:59Z

NEW YORK — The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows.

For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That's up 58 percent from 3.96 percent a year ago.

Commercial Real Estate Crisis: Was It Created By The Bailout?

2009-11-16T17:16:48Z

In a pattern familiar from the housing crisis, the value of commercial real estate has been plunging while the volume of distressed commercial real-estate loans is rapidly rising. The problems in commercial real estate could slam financial institutions, especially smaller regional and community banks, with billions of dollars in new losses. That, in turn, could snuff out whatever chances we have of a sustained economic recovery.

David Fiderer: The Moral Compass Missing From The Greatest Trade Ever

2009-11-16T08:47:16Z

John Paulson was dissatisfied. The marketplace had not satiated his appetite for placing bets against subprime mortgage securities. So he cooked up a scheme to issue billions more in new securities designed by him to fail. The scheme worked, and his hedge fund earned billions.

The most interesting part of The Greatest Trade Ever, by Wall Street Journal reporter Gregory Zuckerman, describes Paulson’s plan to give irrational exuberance an extra boost. It’s one thing to trade against the value of securities that have already been issued. That’s what the free market is all about. But it’s quite another thing to direct your banks to originate new securitizations for no legitimate business purpose. No wonder Paulson slammed the book for “numerous inaccuracies” without citing specifics.

Here’s how Zuckerman recounts the scheme, which was initiated by Paulson and one of his fund managers, Paolo Pellegrini:

Paulson and Pellegrini were eager to find ways to expand their wager against risky mortgages. Accumulating it in the market sometimes proved to be a slow process. So they made appointments with bankers at Bear Stearns, Deutsche Bank and Goldman Sachs, and other banks to ask if they would create CDOs that Paulson & Co. could essentially bet against.

More specifically, Paulson asked his investment banks to create new issues of repackaged subprime mortgage securities, known as collateralized debt obligations, or CDOs, so that they could be sold to some suckers at close to par. That way, Paulson’s hedge fund could approach some other sucker who would sell an insurance policy, or credit default swap, on the newly minted CDOs. Bear, Deutsche and Goldman knew perfectly well what Paulson’s motivation was. He made no secret of his belief that the CDOs’ subordinate claims on the mortgage collateral were close to worthless. By the time others have figured out the fatal flaws in these securities, which had been ignored by the

rating agencies, Paulson could collect up to $5 billion.

Paulson not only initiated these transactions, he also specified the terms he wanted, identifying which mortgages would be stuffed into the CDOs, and how the CDOs should be structured. Within the overall framework set by Paulson’s team, banks and investors were allowed to do some minor tweaking. Zuckerman writes:

Paulson’s team would pick a hundred or so mortgage bonds for the CDOs, the bankers would keep some of the selections and replace others, and then the bankers would take the CDOs to the ratings companies to be rated…To try and protect themselves, the Paulson team made sure that at least one of the CDOs was a “triggerless” deal, or a CDO crafted to be more protective of [the] equity slices by making other pieces of the CDO [which Paulson had bet against] more likely to take early hits. Paulson’s goal was to make the equity piece at bit safer, but this step made the other parts of the triggerless CDO even more dangerous for anyone who had the gumption to buy them.

Prior to 2006, there were not many opportunities for naked short selling on subprime securitizations. But in January of that year, investment banks launched a new product, which enabled Paulson to place those bets on a large scale. The ABX index, a sort of Dow Jones Average of subprime mortgage securities, facilitated benchmarking the price of credit default swaps. But it appears that Paulson made much more money by betting against the newly issued CDOs.

Here’s how Trader Daily reported it:

Paulson and Pellegrini then skinned the subprime cat two ways, via an ABX index position and by shorting individual CDO names. Their real score came through the second approach, which involved a huge purchase of credit default swaps tied to certain handpicked CDOs;Paulson homed in on the most troubled mortgage pools, regardless of rating-agency or Wall Street assurances. The value of the CDS instruments he amassed went through the roof when the CDOs’ value plummeted as subprime borrowers, many with adjustable-rate hikes kicking in, began to default. [Emphasis added.]

Among the banks that Paulson had approached, Bear Stearns saw the deal for the sham that it was, and refused to play along. Trader Scott Eichel said that, “it didn’t pass the ethics standards; it was a reputation issue, and it didn’t pass our moral compass. We didn’t think we could sell deals that someone was shorting on the other side.”

Paulson felt unburdened by any moral compass. Though he had made clear that the CDOs should be stuffed with only risky slices of debt, Paulson accepted no personal responsibility, claiming “it was a negotiation; we threw out some names, they threw out some names, but the bankers ultimately picked the collateral. We didn’t create the securities, we never sold the securities to investors…”

Again, we are not talking about the supply and demand in a transparent market. The banks were not responding to the demand for financing these mortgages, which had already been placed into securitizations. Nor were the banks responding to investor demand for repackaged versions of the once-sold securitizations. Paulson asked his banks to artificially inflate the supply. “We want to ramp it up,” Pellegrini told Bear Stearns. Nobody could make the pretense that he was acting in good faith.

The Greatest Trade Ever doesn’t dwell on the legal and moral implications of Paulson’s collaboration with the investment banks. The book, which devotes no more than three pages to the scheme, remains sketchy about a lot of details. (Who issued the CDOs? What were their names? Who sold the credit default swaps?) This may make for a breezier narrative, but it points to the inherent limitations of books that recount private conversations. Sources like Paulson are clearly selective and self-serving in their recitation of facts. I wonder if any of Zuckerman’s sources was candid about the real reason Paulson was able to get so rich so fast: The utter lack of transparency in the markets for private label mortgage securitizations and credit default swaps. The most important part of the story was what no one was talking about.

The other part of the story that no one was talking about was an open secret: Everyone knew that subprime lenders aided and abetted mortgage fraud. To my knowledge, the only investment banker who wrote candidly about the subject was Joseph Tibman, who was at Lehman when it collapsed, and wrote The Murder of Lehman Brothers: An Insider’s Look at the Global Meltdown. Tibman, who clearly has great affection for his old firm, recounted how in 2000, Lehman was tainted because of its financing arrangements with a sleazy subprime lender called First Alliance. The New York Times and 20/20 did a joint expose of First Alliance’s shady practices, and internal documents showed that Lehman knew exactly what was going on. First Alliance was a “financial sweatshop,” where you checked your “ethics at the door,” to promote “high pressure sales for people…in a weak state.” At the time, the head of Lehman’s commitment committee was an executive named Allan Kaplan, who had been with the firm for more than 30 years and was known as “the conscience of Lehman.” Kaplan had opposed the financing of First Alliance on the basis of his moral compass. After the scandal, his decisions on the committee, at least with regard to ethical concerns, were never challenged.

Kaplan’s style was antithetical to that of Dick Fuld, Lehman’s CEO. Tibman recounts a story where Fuld, then a young fixed income trader, rushed into Kaplan’s office insisting that he needed an immediate approval of his trade. Kaplan, of the old school, said he would approve the deal when his desk was clear. Fuld pushed off the papers on Kaplan’s desk and told Kaplan his desk was clear. Kaplan died in 2003, and afterwards, there were fewer restraints on Fuld’s bullying style for pushing deals through. Coincidentally, subprime securitizations took off in a big way the next year. Tibman believes that as much as anything, what killed Lehman was Fuld's emasculation of the risk management function, which served as a moral compass.

Home Prices Will Rise 4% In 2010, Say Realtors

2009-11-16T08:10:37Z

SAN DIEGO — Home prices are expected to grow modestly next year and sales will keep rising as the housing market continues to recover from the worst downturn since the Great Depression, the National Association of Realtors said Friday.

Home resales are projected to total 5.7 million next year, up from an estimated 5 million this year. Prices will climb about 4 percent after a projected decline of 13 percent this year, according to Lawrence Yun, chief economist for the trade association.