WASHINGTON, June 23 (Reuters) – Sales of new U.S. homes dropped a record 32.7 percent in May to the lowest level in at least four decades as the boost from a popular tax credit faded, adding to worries of a slowing economic recovery.
The Commerce Department said on Wednesday single-family home sales tumbled to a 300,000 unit annual rate, the lowest level since the series started in 1963.
In addition, April and March sales figure was revised down to 446,000 units and 389,000 units respectively. The drop in sales in May unwound two months of gains, which had been inspired by a government tax credit for home buyers.
Prospective home owners had to sign contracts by April 30 to qualify for the tax credit. Analysts polled by Reuters had forecast new home sales sliding to a 410,000 unit-pace. New home sales are measured at contract signing.
“The previous two months were revised down, so the lift from the tax credit was less than we previously realized. We are getting a little nervous,” said David Sloan, an economist at 4Cast in New York. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic on existing home sales, see: link.reuters.com/gaw43m ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
U.S. stocks fell after new home sales data, and the major indexes turned negative. In addition, the S&P home builders ETF (XHB.P) fell 1.6 percent. U.S. government debt prices added to gains.
The report was the latest in a series to suggest that the economy’s recovery from the worst downturn since the 1930s might be losing strength.
It also came as Federal Reserve policymakers gathered for a two-day meeting at which they were expected to extend their pledge to hold overnight interest rates ultra low for “an extended period” to aid the still fragile economic recovery.
The U.S. central bank is not seen lifting rates, currently near zero, until next year.
A report on Tuesday showed sales of previously owned homes, which are recorded at contract closing, fell unexpectedly in May.
The expiry of the tax incentive has also resulted in a decline in new home construction and demand for home loans applications for loans to buy homes fell last week, staying near 13-year lows.
Last month’s weak sales pace saw the supply of homes available for sale jumping a record 46.6 percent to 8.5 months’ worth, the highest in nearly a year, from 5.8 months’ worth in April. However, the number of new homes on the market dipped 0.5 percent to 213,000 units, the lowest since November 1970.
The median sale price for a new home fell 1 percent in May from April to $200,900. In the 12 months to May, prices fell 9.6 percent, the largest decline since July 2009. (Reporting by Lucia Mutikani; Editing by Neil Stempleman)
How many real estate agents and brokers does it take to sell a California home? 2 ¼ if we look at current inventory levels and the amount of Californians with a real estate or broker’s license. One of the early observations of the housing bubble was how much money was being spent in the economy because of high wage California housing bubble jobs. Toxic loan after toxic loan provided wonderful commission checks but also provided the state with a nice chunk of tax revenue. Year after year this went on. Our fate has been intertwined with real estate and since real estate has busted so has ourstate economy. I remember a few colleagues that were pulling in high six-figure incomes as mortgage brokers and real estate agents and were spending every dime as quickly as it came in. Many have downsized drastically and don’t have a penny to their name. Ironically many of these people drank their own Kool-Aid and bought million dollar homes with the same mortgage sewage they were passing onto their clients. A few are now in bankruptcy and many have lost or will lose their homes.
California is likely to face a lost decade in housing. Do I mean from 2000 to 2010? In some areas we have already reached a lost decade. Yet many areas will face their lost decade from 2010 to 2020. Here are 5 reasons why California real estate will have a decade of slow or no growth ahead:
Reason #1 – High paying finance and real estate jobs are gone
I went ahead and compiled 14 years of license and broker data for California above. From 1996 to 2002 we averaged approximately 300,000 active licensees in the state. This was before the bubble ramped up. We reached a peak in 2008 of 549,000 active licensees. Today that number is down to 493,000 and is continuing to fall as many simply let their license expire. Even with recent sales increases we are still close to half the volume of the bubble years. Plus, home prices are half of what their peak values were. So even basic math will tell you that at the very least, half of income in this industry is gone (for example the 5 to 6 percent agent cut is based on the sale price). Then on the lending side you have 96.5% of loans being government backed and these don’t provide the nice kickbacks that the option ARMs did for example. In other words, high income no GED required jobs are now gone. Even those with industry specific degrees and training are finding it hard to get good jobs in today’s economy.
And many other jobs tied to the FIRE side of California employment and construction took big hits:
These were good paying jobs that are now gone. Many of these jobs depended on the perpetual growth of the housing bubble. But even as we will see with inventory levels, do we still have a bubble in this industry?
Reason #2 – Too little inventory and sales for the amount of workers
I went ahead and took a major snapshot of how much MLS inventory is currently listed for public view in California. Although inventory is spiking, you start seeing issues that are plaguing the industry:
Since February of this year California has added 64,500 homes to the MLS, an increase of 41 percent. This is a massive jump. Part of this jump aligns perfectly with the failure of HAMP and more banks pushing inventory onto the market.
But let us use that current inventory number and run a quick analysis:
493,576 real estate agents and brokers / 219,217 homes on the CA MLS = 2 ¼ agents and brokers for each home
I find the above fascinating. We have close to 500,000 licensed agents and brokers for 219,000 homes on the market. And you wonder why we have a problem? This is like going to a used car lot with 20 cars and finding 50 sales representatives. However like many things in life, I believe that the Pareto principle applies here as well. That is, 80 percent of sales is likely to come from 20 percent of those with active licenses.
Although the shadow inventory is much larger than the 219,000 homes on the MLS, agents and brokers only make money when they sell. And banks don’t seem in a big hurry to move the entire inventory out at once. In other words, we have years of junk built up in the pipeline with wages slashed.
Reason #3 – California budget and revenues shattered
If you want to see a problem in the making look at this:
The state for the fiscal year of 2007-08 collected over $101 billion. How do things look today?
For the fiscal year that is coming to an end, we are projected to bring in $81 billion. We are short by $20 billion and this includes every kind of tax increase you can imagine. This does little considering half of the state revenues come from personal income taxes and many of those high paying bubble jobs (see above) are now gone. Yet the state kept spending more and more assuming that a Ponzi like income stream was going to come in forever. That is not the case as we are now painfully finding out so we must adjust.
The Legislative Analyst Office (LAO) is projecting problems well into 2015. Another issue that the state will have to contend with is high pension costs of soon to retire baby boomers. Recently CalPERs announced that the state will need to pitch in $700 million to cover its poor bets. They are pulling back for the moment:
“(LA Times) Facing political fire, the state’s largest public pension fund Wednesday retreated for a month from a plan to approve a $700-million increase in taxpayer contributions it gets from the state and about 1,000 school districts.
State Treasurer Bill Lockyer, a member of the California Public Employees’ Retirement System board, said the fund needs to assess the consequences of the huge hike on California at a time when the state faces an estimated $19-billion budget deficit.”
You can rest assured that there will be some serious battles on this front for years to come.
Reason #4 – Shadow inventory
The Wall Street Journal put together data regarding shadow inventory that we already knew about. California ranks near the top of shady banks and home squatters that are simply staying put and not paying their mortgage:
This is just nuts. In California 7 percent of loans that are 90 days overdue are not in foreclosure! What is even more stunning is the nationwide amount of people living in homes with no payment and foreclosure for 2 years! This is a slap in the face of every prudent middle class American. And the idea of poor homeowners is nonsense here in California. You have folks living in prime locations not paying their mortgage who can easily afford a nice rental. But they’ll sit it out while banks sit back and suck on thetaxpayer gravy train. This data merely confirms what we already know. The state is plagued with delinquent loans. In fact, 15 percent of all California loans are 30+ days late or worse.
Reason #5 – Consumer psychology and jobs
The mantra that real estate prices never fall is completely shattered for an entire generation of Americans. Those who lived through the Great Depression are largely absent from our current economy and can’t share their wisdom. And given the preference of Americans to watch Dancing with the Stars instead of reading some history, many have forgotten that real estate can crash and crash hard. But if history is any guide, we will have a generation of Americans who are more cautious and thus will put a lid on any mega jumps in appreciation for the next decade.
On Friday the California unemployment rate came out and we are still at a record high of 12.6 percent. Adjusted for the underemployment rate we are closer to 23 percent. Even the running average at the BLS shows us over 21 percent:
Keep in mind this is a one year rolling average so this will only move higher as we have been at peak levels for many months. This also goes back to my earlier reasons for a lost decade in home prices. Those high paying jobs are gone. You can only purchase a home by what your income can support. A large number of those depended on toxic mortgagesthat were easy to churn on a short notice. After all, giving NINJA loans with no verification allowed seedy mortgage brokers to turn out loan after loan. Now even with lax lending inFHA insured loans, at least they have to verify income. As it turns out, there simply isn’t that many that can qualify in California.
I see a sideways moving decade for California real estate. And for the next one or two years prices will start trending lower again as the Alt-A and option ARM waves hit and the gimmick parade starts running out. You can only keep a lid on corruption for so long. The “once in a century” problems now seem to be hitting every month. A near 1,000 point drop in the Dow, the trillion dollar Euro bailout, and other mega events will come quicker as a reckoning day will hit. All it takes is a failed Treasury auction and you can kiss cheap mortgage rates goodbye.
As a manager with the Los Angeles County Registrar Recorder, I am in charge of the software development team who creates applications to handle property document recording. Whenever one buys, sells or refinances a house or land, property documents are generated. These documents must be submitted to a County Recorder for storage and indexing to be made available as a public record. Los Angeles County – having well over 10 million residents – is the most populous county in the United States and contains 88 separate cities. As such, my office records – or processes – over 2 million property document recordings per year. Until now, each one of those documents must be brought in by hand, looked over, entered into our application and then scanned for permanent storage. (The current system was brought online in January 2007, as documented by this video: ELECTRONIC RECORDING ARCHIVE – 2007)The transport, handling and mailing back of paper documents is an overwhelming task. It is also very expensive both in terms of labor and time. For years, the various county Recorder offices wished to pursue something more streamlined. With the advent of newer, less expensive and more accessible technology, the possibility of scanning in documents at the title company (http://en.wikipedia.org/wiki/Title_insurance) offices and electronically sending these documents to the county offices is a reality. State law, however, impeded the process for many years. Up until today, only Orange and San Bernardino counties were allowed by law to electronically record title company documents. In order to change this, several County Recorders worked with the State Legislature and Attorney General office to pass a law (AB 578 – http://ag.ca.gov/erds1/) entitled the Electronic Recording Delivery Act, which enabled a statewide standard and governance for an Electronic Recording Delivery System (ERDS). Los Angeles decided to partner with Orange, Riverside and San Diego counties to move forward with an in-house developed system, which allowed for economies of scale, flexible implementation and leveraged the 10-year electronic recording experiences of the Orange County Clerk-Recorder. The new system was dubbed, SECURE. It was developed by in-house staff, along with a contractor, who also maintains (as a vendor) the current Orange County recorder system. All four counties own the software and work together to move forward with improvements.[CLICK ABOVE FOR LARGER IMAGE]The above screen shows the common submitter client to be used by title companies, service providers and other institutions in order to submit documents. In this case a Deed is being prepared to be sent to Los Angeles County. The submitter – if authorized – is able to send these documents to any county in the system.Each county participating in the SECURE system is able to leverage the infrastructure built for the system and hosted at the Orange County data center. This data center is a purpose-built facility designed for extreme reliability and high availability. All title companies and other submitters – such as banks – will submit documents through an encrypted Internet connection to the Orange County data center. The documents will be held there until the various participating county recorders pick them up and process them.The structure will look similar to this:All submitters – Financial Institutions such as banks, Title Companies and eventually governmental departments such as the IRS and SSA –are able to use the common client, submit to the common data center and be assured that their documents are routed to the appropriate County Recorder.The system started out on December 1, 2009 with only Orange and Los Angeles counties active. Within six months, it is expected that other counties will be brought online. As the system is enhanced and developed title companies will be allowed to submit more documents and eventually scale back their paper handling processes altogether.This will result in a decrease in costs to the title companies as well as to the counties as a result of paper handling efficiencies. Of the two million annual documents recorded and by the Los Angeles County Recorder, 60% will be able to be processed eventually through this system. Since each document must currently be mailed back to the customer by the recorder, an annual savings in postage and mail handling is expected to show efficiencies.Once the document has been submitted to the Recorder office, it will be examined and – if valid – accepted for recording. The document will be stored in the recording archive and is available for further activities as needed by the general public.[CLICK ABOVE FOR A LARGER IMAGE]After the document has been recorded, the lead sheet (in the case of LA County, who attaches a separate sheet to the front of each document) and the first page are returned to the submitter. They are then able to print and mail the document back to the customer.[CLICK ABOVE FOR A LARGER IMAGE]As seen in the above image, the recorded document has been automatically returned to the submitter. At this stage, the process is complete for the county recorder.Since the SECURE (www.secure-erds.com) group owns the software, the counties will be free to upgrade and enhance the software to fit future needs. These future processes will include an interface to allow banking institutions direct access to send documents such as reconveyances and liens directly from their internal systems. This will further reduce costs as those documents are currently delivered via certified mail. Further enhancements will include electronic delivery of notary signatures, when that becomes allowed in the state. Because the system is built to abstract the back-end recording system from the delivery system, any number of California counties are able to join as participants and leverage the infrastructure already built by Orange, LA, Riverside and San Diego counties.
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I can say having a Real Estate license, that nearly every home I have sold in the last few years have or are heading in default status. They know for a fact that the equity they have lost will take too long to recover and they will not see a glimmer of hope in their lifetime. With all the shadow foreclosures out there not listed (believe me there is too many to count) and the current 7.4 Million in default… Does it make any sense to continue? With the reports that it is stabilizing…I disagree 125%. Do they mention…who these so called “EXPERTS” work for? Exactly who are buying these homes?? It’s not you or me as individuals but corporations and banks buying them in pools, lots or “TAPES”. Once again do not believe that it is heading back….it will take many years! If it was that easy then I will suspect fraud is involved. Think about it, It took a home from the 50’s 60’s 70’s & 80’s to see a 50%-100% increase in the 2000’s. So now you are telling me that it will take 2 years for these homes that lost value in the neighborhood of 50-75%??? to come back this quick?? I DON’T THINK SO! This is my opinion.
The American Dream Has Quickly turned into an American Nightmare!
Heated pools, ocean views and media rooms are not what most people would expect to find in a foreclosed property, but more high-end homes—priced over a million dollars—have been falling into the hands of banks this year.
Photo credit: Stephen Scott
This foreclosed home in Fort Mill, S.C. is currently listed at $1.148 million.
Foreclosures of homes worth over $1 million began increasing at the end of 2009, according to exclusive data provided by foreclosure tracking website RealtyTrac. Foreclosures reached a high in February 2010, the last month data is available, when 4,169 homes were somewhere in the foreclosure process; either having received a foreclosure notice, had an auction scheduled or the lender took ownership of the property. That’s a 121 percent increase from a year ago.
The deterioration comes just as housing experts say that foreclosures in the low- and mid- ends of the housing market are showing signs of stabilization.
“They were able to stave off foreclosure longer,” says independent real estate analyst Jack McCabe, CEO of McCabe Research and Consulting in South Florida. “Lower-end homeowners were the first ones to see the escalating foreclosures because they generally do not have the cash reserves or credit available that the luxury homeowners do. They had the ability to take their credit cards and pull out thousands of dollars while the lower end buyers were already tapped out.”
McCabe expects to see foreclosures in the high-end market to increase into 2011.
Though the RealtyTrac data is not available on a regional or metropolitan basis, anecdotal evidence indicates the problem is cropping up across the country. Of course, the high-end and luxury categories vary widely from market to market. In some suburban areas of the Northeast and California, for instance, million-dollar homes are fairly common, but nationwide, they represent only 1.1 percent of the overall housing stock.
“We have seen an increase, in the million-plus range, of the number of foreclosures and short sales in the greater Chicago area,” says Jim Kinney, vice president of luxury home sales at Baird and Warner.
He says that of the 295 million-dollar, single-family properties sold in the January-April period this year, 37 were either a foreclosure or short sale (when a bank and homeowner agree to sell the home for less than the loan is worth). During the same period a year ago only 10 of 231 fell into those categories.
In the Fort Myers, Fla. area, a second-home market for the wealthy, Mike McMurray of McMurray and Nette and the VIP Realty Group, says he has seen a few foreclosed homes on the market compared to none last year. He’s currently showing a 4,800 square-foot, $3. 65 million home on Captiva Island, where foreclosures are usually very rare. The bank-owned home has five-bedrooms and access to 150-feet of Gulf coast beachfront.
“There are more we see coming down the pipeline,” McMurray says.
Data shows that that may be the case around the county. The 90-day delinquency rate on home loans worth over a million dollars hit a high in February at 13.3 percent, higher than the overall rate of 8.6 percent, according to real estate data firm First American CoreLogic. Foreclosure proceedings generally begin to start after a homeowner has been at least 90 days late on a mortgage payment, experts say.
One difference in the high-end market is that lenders are willing to do more to head off a foreclosure by either renegotiating the loan or accepting a short-sale transaction, which is essentially a last-ditch effort.
Photo credit: McMurray and Nette of VIP Realty Group
This five-bedroom, beachfront home in Captiva, Fla. is now bank owned and on the market for $3.65 million.
“Lenders are far more likely to go the short sale route,” says Andrew LePage, an analyst at real estate research firm DataQuick. “There’s a lot more money at stake, and maintenance can be high if a foreclosure just sits there.”
A $1.15 -million condominium in Chicago in the landmark Palmolive Building started was initially offered as a short sale but , after a buyer did not materialize, is now owned by the bank , says Janice Corley, founder of Sudler Sotheby’s International Realty who’s currently listing it. The condo has lake views and a long list of luxury-building amenities including a steam room, doorman and gym.
The rise in foreclosures has one Las Vegas real estate agent flying prospective buyers into the city via private jet for free. Luxury Homes of Las Vegas and JetSuite Air teamed up to offer the complimentary trip for buyers flying from Los Angeles to view three foreclosed homes priced between $4.9 and $6.1 million.
Agent Ken Lowman said he gave three tours over a one-week period and hopes to expand the offer to buyers from other West Coast cities.
There’s just too much competition, says Lowman. “It takes an innovative approach like this to get results.”
All I can say is get the pantry ready with canned food. We are facing major problems!
by DIANA GOLOBAY housingwire.com
Tuesday, May 4th, 2010, 8:16 am
The delinquency rate among commercial mortgage-backed securities (CMBS) topped 8% to yet another historical high in April, according to the latest data from analytics firm Trepp.
The percentage of loans 30+ days delinquent, in foreclosure or real estate owned (REO) status jumped 41 basis points (bps) to an overall 8.02%, from 7.61% in March. The share of loans considered “seriously delinquent” — 60+ days delinquent, in foreclosure or REO status climbed 48bps to its own record-high of 7.14%.
The share of CMBS loans past due has marched higher and higher over the last year:
In April 2009, the 30+ day delinquency, foreclosure and REO rate was only 2.45%. Six months ago, that rate nearly doubled to 4.8% in October 2009.
The rate of growth is more pronounced in the seriously delinquent bucket. At the same time last year, 1.78% of CMBS loans were 60+ days delinquent, in foreclosure or REO status. That more than doubled to 3.91% by October 2009.
Despite the new records, the rate of growth in delinquency slowed somewhat from what Trepp called a “breakneck pace” in March.
“Last month, the market was taken by surprise when delinquencies shot up 89 basis points. About 40 basis points of that increase was due to the massive Stuyvesant Town loan becoming delinquent,” Trepp said in e-mailed commentary. “Even so, the 49 basis point net increase was more than twice the increase posted in February.”
Multifamily loans within CMBS were the only collateral type to post a decrease in delinquency in April. Trepp found this sector eased 13bps to 13.06% delinquent. Office loans grew to 5.37% delinquent, from 4.73% in March.
Retail delinquencies grew 41bps to 6.44%, while industrial delinquencies gained 5bps to 5.44%. Hotel delinquencies swelled 27bps to 17.16%, Trepp found.
This in combination with A.K. Barnett-Hart’s Thesis make’s one hell of a Discovery.
LEGAL AND ECONOMIC ISSUES IN
SUBPRIME LITIGATION
Jennifer E. Bethel*
Allen Ferrell**
Gang Hu***
Discussion Paper No. 612
03/2008
Harvard Law School Cambridge, MA 02138
ABSTRACT
This paper explores the economic and legal causes and consequences of recent difficulties in the subprime mortgage market. We provide basic descriptive statistics and institutional details on the mortgage origination process, mortgage-backed securities (MBS), and collateralized debt obligations (CDOs). We examine a number of aspects of these markets, including the identity of MBS and CDO sponsors, CDO trustees, CDO liquidations, MBS insured and registered amounts, the evolution of MBS tranche structure over time, mortgage originations, underwriting quality of mortgage originations, and write-downs of investment banks. In light of this discussion, the paper then addresses questions as to how these difficulties might have not been foreseen, and some of the main legal issues that will play an important role in the extensive subprime litigation (summarized in the paper) that is underway, including the Rule 10b-5 class actions that have already been filed against the investment banks, pending ERISA litigation, the causes-of-action available to MBS and CDO purchasers, and litigation against the rating agencies. In the course of this discussion, the paper highlights three distinctions that will likely prove central in the resolution of this litigation: The distinction between reasonable ex ante expectations and the occurrence of ex post losses; the distinction between the transparency of the quality of the underlying assets being securitized and the transparency as to which market participants are exposed to subprime losses; and, finally, the distinction between what investors and market participants knew versus what individual entities in the structured finance process knew, particularly as to macroeconomic issues such as the state of the national housing market. ex ante expectations and the occurrence of ex post losses; the distinction between the transparency of the quality of the underlying assets being securitized and the transparency as to which market participants are exposed to subprime losses; and, finally, the distinction between what investors and market participants knew versus what individual entities in the structured finance process knew, particularly as to macroeconomic issues such as the state of the national housing market.
Deal Journal has yet to read “The Big Short,” Michael Lewis’s yarn on the financial crisis that hit stores today. We did, however, read his acknowledgments, where Lewis praises “A.K. Barnett-Hart, a Harvard undergraduate who had just written a thesis about the market for subprime mortgage-backed CDOs that remains more interesting than any single piece of Wall Street research on the subject.”
A.K. Barnett-Hart
While unsure if we can stomach yet another book on the crisis, a killer thesis on the topic? Now that piqued our curiosity. We tracked down Barnett-Hart, a 24-year-old financial analyst at a large New York investment bank. She met us for coffee last week to discuss her thesis, “The Story of the CDO Market Meltdown: An Empirical Analysis.” Handed in a year ago this week at the depths of the market collapse, the paper was awarded summa cum laude and won virtually every thesis honor, including the Harvard Hoopes Prize for outstanding scholarly work.
Last October, Barnett-Hart, already pulling all-nighters at the bank (we agreed to not name her employer), received a call from Lewis, who had heard about her thesis from a Harvard doctoral student. Lewis was blown away.
“It was a classic example of the innocent going to Wall Street and asking the right questions,” said Mr. Lewis, who in his 20s wrote “Liar’s Poker,” considered a defining book on Wall Street culture. “Her thesis shows there were ways to discover things that everyone should have wanted to know. That it took a 22-year-old Harvard student to find them out is just outrageous.”
Barnett-Hart says she wasn’t the most obvious candidate to produce such scholarship. She grew up in Boulder, Colo., the daughter of a physics professor and full-time homemaker. A gifted violinist, Barnett-Hart deferred admission at Harvard to attend Juilliard, where she was accepted into a program studying the violin under Itzhak Perlman. After a year, she headed to Cambridge, Mass., for a broader education. There, with vague designs on being pre-Med, she randomly took “Ec 10,” the legendary introductory economics course taught by Martin Feldstein.
“I thought maybe this would help me, like, learn to manage my money or something,” said Barnett-Hart, digging into a granola parfait at Le Pain Quotidien. She enjoyed how the subject mixed current events with history, got an A (natch) and declared economics her concentration.
Barnett-Hart’s interest in CDOs stemmed from a summer job at an investment bank in the summer of 2008 between junior and senior years. During a rotation on the mortgage securitization desk, she noticed everyone was in a complete panic. “These CDOs had contaminated everything,” she said. “The stock market was collapsing and these securities were affecting the broader economy. At that moment I became obsessed and decided I wanted to write about the financial crisis.”
Back at Harvard, against the backdrop of the financial system’s near-total collapse, Barnett-Hart approached professors with an idea of writing a thesis about CDOs and their role in the crisis. “Everyone discouraged me because they said I’d never be able to find the data,” she said. “I was urged to do something more narrow, more focused, more knowable. That made me more determined.”
She emailed scores of Harvard alumni. One pointed her toward LehmanLive, a comprehensive database on CDOs. She received scores of other data leads. She began putting together charts and visuals, holding off on analysis until she began to see patterns–how Merrill Lynch and Citigroup were the top originators, how collateral became heavily concentrated in subprime mortgages and other CDOs, how the credit ratings procedures were flawed, etc.
“If you just randomly start regressing everything, you can end up doing an unlimited amount of regressions,” she said, rolling her eyes. She says nearly all the work was in the research; once completed, she jammed out the paper in a couple of weeks.
“It’s an incredibly impressive piece of work,” said Jeremy Stein, a Harvard economics professor who included the thesis on a reading list for a course he’s teaching this semester on the financial crisis. “She pulled together an enormous amount of information in a way that’s both intelligent and accessible.”
Barnett-Hart’s thesis is highly critical of Wall Street and “their irresponsible underwriting practices.” So how is it that she can work for the very institutions that helped create the notorious CDOs she wrote about?
“After writing my thesis, it became clear to me that the culture at these investment banks needed to change and that incentives needed to be realigned to reward more than just short-term profit seeking,” she wrote in an email. “And how would Wall Street ever change, I thought, if the people that work there do not change? What these banks needed is for outsiders to come in with a fresh perspective, question the way business was done, and bring a new appreciation for the true purpose of an investment bank – providing necessary financial services, not creating unnecessary products to bolster their own profits.”
Michael Lewis’s new book, The Big Short: Inside the Doomsday Machine,is already #1 at Amazon. Tonight he had some very cool interviews on 60 Minutes discussing how a few Wall Street outsiders made billions shorting real estate, his thoughts on Wall Street bonuses, and more. These videos are highly recommended now that the NCAA brackets are out and the tournaments are over until Thursday:
is already #1 at Amazon. Tonight he had some very cool interviews on 60 Minutes discussing how a few Wall Street outsiders made billions shorting real estate, his thoughts on Wall Street bonuses, and more. These videos are highly recommended now that the NCAA brackets are out and the tournaments are over until Thursday:
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