Well another Friday came and went and more weekend meltdowns were on the agenda. This time it was Lehman Brothers, the second big investment bank to experience trouble. I have friends at Lehman and they have been scared to lose their jobs for months, and yet they had nothing to do with mortgages. I know a couple with a large exposure in Lehman stock and have been paralyzed to take action to move out of the position for the past year. The time came and went, unfortunately. No bailout this time.

During the mortgage hay days, Lehman did a lot of new development deals. They occasionally brought us in for a “reality” consult after reviewing appraisals already done for new deals. We weren’t asked to do any project appraisals, only “reality check” on the price point and local absorption. I suspect they were “arbitraging” the relationship between reality and what needed to be done to make the deal. Smart people too.

When you think about the scope of the mortgage problem that continues to unfold, its pretty scary and likely has quite a way to go. It says a lot about how ridiculous the talk of “bottoms” and “temporary” conditions really are. I mean, the idea that housing is going to be fine in less than a year is completely insane given the damage that remains to be discovered.

I tried to think of the big players in the mortgage market of the past five years:

Countrywide: bought at a discount by BofA (for their technology/servicing)
WaMu: Under legal pressure, removed CEO, stock price fell to the floor, rumors of buyout
Bear Stearns: Big subprime player. Gone for nearly nothing by JPMorgan Chase
Lehman Brothers: Big mortgage player. Lots of development financing. Nearly gone
Merrill Lynch: Just bought by BofA
Barclay’s: Took their licks in write downs and were too undercapitalized to take over Lehman.
Fannie, Freddie: The housing bill placed nearly all it’s faith in Frannie and now the former CEO’s are eligible for $24M in parachutes. A potential for $200B in losses.

Up until now, the billions in mortgage losses were just numbers to me. But now, the numbers are more in context because they have brought down some of the biggest, most profitable financial firms out there.

All because of idiotic lending practices.

Old school leadership at these entities were no match for fast changing mortgage products without meaningful regulatory oversight.

Well, of course it wasn’t worth it.


  1. Edd C Gillespie September 14, 2008 at 10:39 pm

    I am coming to the slow realization that mortgage lending has little to do with people buying homes they can live in and afford to pay for. I have been so naive.
    Mortgage lending became a shell game and then some spoil sport took one of the shells.

  2. Edd C Gillespie September 15, 2008 at 10:30 am

    Oops, you missed AIG.

  3. Jonathan J. Miller September 15, 2008 at 11:25 am

    AIG? Whats $50B in the scheme of things? 😉

  4. JDallas September 15, 2008 at 12:02 pm

    Its amazing how these were some of the top firms in the nation/world. Then in a matter of months, they all become casualties in this whole lending shell game. You would’ve thought with all the experience/education/resources these companies had that they would have seen this coming a mile away. Oh well …

  5. JB in NYC September 15, 2008 at 2:25 pm

    In retrospect, it appears Bear Stearns may have actually derived a “first to fail” benefit.

    Without specifically identifying firms, properties or price points, it would be interesting to know how finance industry players responded to “reality” consults.

    Did some ignore the analysis and recklessly charge ahead?

    Did some heed cautionary advice and restructure borrower loans and/or syndications to reduce investor risk?

    Did any simply decide a deal was too risky and walk away?

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