Aaron Clarey - Behind the Housing Crash: Confessions from an Insider

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Copyright 2008 Aaron Clarey
All rights reserved.

ISBN: 1-4392-0406-3
ISBN-13: 9781439204061
E-Book ISBN: 978-1-61397-297-7

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To Eden

All the stories contained in this book are true.

Names, times, locations, numbers and other identifying information have been changed to protect the innocent as well as the guilty.

Table of Contents

One of my favorite scenes in one of my favorite movies is the scene from A Bridge Too Far where a young military intelligence analyst named Fuller has mounting evidence the Germans do indeed have armored divisions and tanks in Belgium which would (and did) cause Operation Market Garden to be one of the largest Allied failures in WWII. In the scene he calls in his commanding officer and shows him aerial photographs of German Panzer tanks in the Dutch countryside in the hopes of convincing his commanding officer to call off the operation. Upon seeing the picture of the tanks, the commanding officer, visibly disturbed, rises from his seat, approaches the screen, pointlessly analyzes the tanks and nonchalantly says,

Yes, well I shouldnt worry about that.

To which Fuller responds in disbelief, But siryou do see that they are tanks?

Dismissing it, the commanding officer says, I doubt theyre serviceable.

But they still have guns, Fuller points out.

So have we! the commanding officer vehemently responds.

And despite Fullers concern and evidence of German tanks, his commanding officer dismisses it all in one succinct statement that explains the real reason hes disregarding the tanks;

Now look here 16 consecutive drops have been cancelled in the past few months for one reason or another. But this time the partys on. And no one is going to call it off.

Later in the movie Fuller is approached by an officer who summarily relieves him of duty by saying, You need to rest. You are tired. For Fuller and his pesky intelligence keeps getting in the way of Operation Market Garden.

Of course in the end Fuller proved to be right. The German tanks were not in disrepair. Several divisions of veteran German soldiers were in the area. And when it was all said and done Operation Market Garden cost the lives of 6,600 Allied soldiers and did not end the war by Christmas as proposed it would.

But todays Fullers of the world are of a different breed. For they are not so much WWII military intelligence analysts as much as they are the scores, if not, hundreds of veteran banking industry insiders, who like Fuller, dared to do one thing;

Think.

Though definitely the minority, there are those in the banking industry who had the intellectual veracity and independence to ignore group-think, objectively look at data, objectively look at research or just plain look at what was going on around them and were able to predict the housing crash long before it occurred. And not only were they able to predict it, they tried to warn management so that disaster might be avoided. But just like Fuller in A Bridge Too Far they were told You need to rest. You are tired and were either lectured, disciplined or relived of duty. For they did not conform and play ball, but were getting in the way of what management believed to be perpetual commissions and bonuses.

You yourself may know somebody in banking or real estate who for the past three years was saying this was coming. You may know somebody who works at an actual bank and has regaled you with stories of lax lending standards, loans being made to people who could not afford them and other such unbelievable tales. You yourself may be a Fuller and have seen it first hand, trying to toll the bells to warn somebody, anybody about the impending doom. But while the media and news focus on how mortgage brokers and ignorant, sub prime borrowers were the primary culprits of the housing crash, what they fail to tell is what was happening behind the scenes in the banking industry that created the perfect environment for the crash to germinate in the first place.

That it wasnt just a bunch of renegade mortgage brokers and some sub prime borrowers that caused this, but it was an industry wide group-think that forfeited quality and credit in exchange for short term profits, bonuses and commissions that caused a systematic collapse of the housing market, and spread to the larger economy. That there are criminals and villains beyond the mortgage broker and sub prime borrower who are to blame. That they were fully warned in advance about the potential for a housing bubble. And that the Fullers of the world were pressured, silenced, if not fired and disciplined for not playing ball and daring to have the gall to point out the obvious. And just as it would be a crime not to have the heads roll for those responsible for 6,600 Allied deaths, so too would it be a crime not to punish those responsible for a housing market crash, a stock market crash, an economy in recession and millions unemployed.

For I too am a Fuller.

And I am pissed.

Before the economy, corrupt mortgage brokers, shady real estate developers, and inept banking management is addressed, key to understanding how the housing crash came about is to understand the mentality or psychological backdrop Americans had that permitted such an outlandish thing to occur in the first place. And that is the concept of the Thin Skinned Economy.

The Thin Skinned Economy is simply where it is more important to be nice than right. That it is more important to avoid upsetting somebody than doing the correct thing. That customer satisfaction is paramount to all other goals, including profitability. And if necessary the viability of the firm should be sacrificed to avoid telling the customer no. In other words, the customers, no matter how spoiled, unprofitable or irrational are to be kowtowed to like a hotel heiress even if it brings about the demise of the firm.

The origins of the Thin Skinned Economy I speculate came about as Americans and westerners became so accustomed to the wealth and benefits produced by capitalism that you have nearly two to three generations who were never told no as children. Starting off with the Baby Boomers, passing their entitlement mentality on to Generation X, and now Generation X instilling that into their children, nearly all of the American population have never known poverty, never known failure and never known true strife. And being brought up with every whim and desire satisfied, it is the more motherly approach to child rearing where the child is cajoled into behaving through bribery and cake, than the fatherly approach where a child is told no and enforced through the threat of punishment that the majority of Americans are accustomed to. This approach has now resulted in effectively an entire nation that is not used to being told no. Worst still, not only are they not used to it, they are enraged by it, at minimum filing a complaint, if not throwing a full temper tantrum should they face that unacceptable word no.