By Brian Summerfield, Online Editor, REALTOR® Magazine
Following the subprime mortgage meltdown in 2007 and subsequent housing crisis, the line from most commentators was that no one saw it coming. The near-collapse of finance and credit in this country was like a bolt from the blue. Who could have possibly predicted it?
Another bit of post-meltdown conventional wisdom was that all the parties involved — Fannie and Freddie, government regulators and policy makers, Wall Street’s biggest banks, investment ratings agencies, mortgage brokers, borrowers, and even real estate practitioners — played some part in the collapse. The overall system was more or less healthy, but the selfish and shortsighted decisions of some “bad actors” from all of these groups led to market failure.
Michael Lewis, acclaimed author of Liar’s Poker, Moneyball, and The Blind Side, offers a contrarian perspective on both of these phenomena in his most recent book, The Big Short: Inside the Doomsday Machine (W.W. Norton & Co. Inc., 2010). Regarding the first point, there were at least a few people who figured out what was going on in the financial markets. For them, it was never a matter of whether there would be a day of reckoning or not — it was just a question of when. They invested accordingly, and their bets paid off big as the economic edifice came crashing down.
That part of the book is interesting, but the more important issue for readers is the second one. Lewis, who once worked on Wall Street, says the origins of the collapse were not in the rapacious greed of a few scoundrels from various groups, but rather in systemic problems — some of which have been in place for several decades — that create reckless investments and obfuscate risk. To that end, Lewis discusses the following details to make a very compelling case.
FROM THE BOOK: 5 LESSONS FOR THE REAL ESTATE INDUSTRY Continue reading »