Stories from 2008's Great Recession | 60 Minutes Full Episodes

Today, many people are worried about their bank, while devastated giants like Citigroup are bailed out again and again, many smaller banks are failing. The federal agency taking over weak banks is the Federal Deposit Insurance Corporation, the same people who guarantee that depositors won't lose their money almost every Friday. Now the FDIC is seizing several banks. You haven't seen these acquisitions because they are done secretly at night to ensure there is no unnecessary panic on the part of depositors, but last week we were given extraordinary access. to one of these operations because the FDIC wants you to see what happens to your money when your bank fails.

They are going to start in a branch. Take out the cash. Take him inside the bank. This is a team of FDIC agents preparing to seize. a bank outside of Chicago, what we need to do is get the corporate records that they have registered this hotel under a fictitious name CB and Associates to avoid a bank run. They don't want anyone to know who they are or why they are here, everyone knows this is for the closure of Heritage Community Bank. Cheryl Bates and Arthur Cook are in charge of the operation which has been given the code name.

Happy stranger considering what they are about to do, don't talk outside. from this room what's going on what we're here for They're here to take over the five branches of Heritage Community Bank, a 40-year-old local bank that offers savings, student loans, mortgages and checking, but like so many others recently, Heritage made bets Dilapidated real estate Sheila Bear is chairwoman of the FDIC How many banks failed last year? 25. How many do you expect to go bankrupt this year? Is increasing. There have been 16 now, so our loss projections are increasing. We are having to increase premiums. on banks to address loss projections going forward, it's a very difficult environment right now.

I wonder if you have a figure in mind for how much the FDIC is willing to pay for bank failures in 2009. Well, we have to do a five-year plan. projection uh, over the next five years we project that we will lose $65 billion in bank closures. 65 billion of them were about to be spent on the imminent bankruptcy of Heritage Community Bank. It had 12,000 deposits totaling more than 200 million. dollars the FDIC team waited for the last client to leave Cheryl Bates ready to come in What kind of specialists do you have on this team? we have accountants we have asset specialists who specialize in loans we have people who specialize only in physical facilities and we have a group of investigators come and do a review of the reasons for the bank's failure, really your entire team could come in and manage the bank.

Yes, four months ago, the FDIC and the state of Illinois ordered the bank to stop making risky loans and raise cash. but Heritage couldn't find new investors the night of February 27 no one at the bank knew the end was

minutes

away the FDIC entered all five branches at once CEO John Saphir was told that the bank he was in found the job of his life was no longer his, we waited outside while they delivered the news to Heritage Bank employees his pay ended at 6 pm in 601 he received a payment that was paid by the FDIC unused vacation time will be paid so you won't lose it At the time, Operation Happy seemed pretty bleak, which is correct because I would say that a large majority of employees don't know that the bank is in trouble and is about to close.

We want to make it as seamless as possible for your depositors, so there is no deposit. or lose money and they reacted a little bit with dismay and shock that we were there and it's just a very difficult period for them so it's the end of that whole chapter of their lives when we come in and we seem to be. The bad thing is, some of those people have been there for more than 20 years and those are the ones who take it the most because they feel that they have put their life into it and now it is no longer there.

Make sure that no one enters without FDIC badges, the employees now work for the FDIC, a public notice was posted and that was the signal for a team of almost 80 people to take over the bank, they took control of the bank's website and added a notice that all deposits were safe and then we started an inventory of all assets and liabilities, which is happening right now, we are matching the bank staff with their FDIC counterparts, the accounting staff is meeting with our accounting managers and then we have an investigations group that comes and does a review of the bank, they gave the news to the media and prepared to reopen the bank on Saturday morning as usual.

What is expected of the customers? I think customers will. Some of them will come with a feeling of fear. Fear created the FDIC in 1933 after the Depression unleashed panics that wiped out even the healthy banks we've existed in for 75 years. No one has ever lost a penny of insured deposits. No depositor has ever lost a penny since the FDIC came into operation. that's why you have to make sure you're under the insured deposit limits, but no one has lost a dime and the insured deposit limit is what is now 250,000, that's the base limit when the FDIC comes in and compensates depositors in a bank.

What has failed is tax money, no, it is money from our reserves, which and we are financed by insurance premiums that are evaluated in the banks, so no, it is not taxpayers' money. EIC Chair Sheila Bear is a former Treasury official and finance professor. who has written children's books about the wisdom of saving maybe some of Wall Street's CEOs should have read the children's books maybe so maybe Bear warned two years ago that bad mortgages were threatening the financial system and now she is managing the biggest bank failures in years, including the The collapse of Washington Mutual and the sudden failure of IndyMac in California last summer told us we would go in.

Yeah, when IndyMac failed, you were watching these scenes on TV of people lining up outside the bank like it was 1932. Yeah, that's what you thought. from that I think people just forgot that banks fail and how the FDIC works your money was safe it was safe it was probably the safest place in the world to have your money because we were operating the institution at the time what kind of blow was that in Their balance sheet, I think we ended up at over nine billion dollars for 33 billion, yeah, it was very rigid. The question is: how many times can the FDIC do that?

At what point is the FDIC bankrupt? The FDIC is backed. by the

full

faith and credit of the United States government, so if necessary, we try not to and we don't want to, but if necessary, we can borrow from the treasury to make up any shortfalls, so that the FDIC never goes bankrupt. Grope, no, we're the government, we're backed by Full Faith and Grant from the United States government, but customers at the former Heritage Community Bank outside Chicago weren't so sure about the safety of their money Saturday In the morning, the bank reopened its doors. time and the FDI sees Ricky McCullough standing at the front door the people who came this morning what were they asking Can I still write checks?

Can I access my safe? Can I use my ATM? And all those questions you answered. Yes, client Bill Hess showed up on a mission with an empty briefcase and intended to leave with all of his money. We will be happy to ask you any questions. I do not care anymore. He said I don't care anymore. I got a little worried so I walked in and one of the things he said to me as he opened his briefcase was he said 'well I don't have a gun here' so I said 'well that's a good count,' McCullough explained to Hess. and his wife.

Audrey that his savings were safe, so if you have one account, it's 250. If you have one account, it's 250. So now it's 500. Hess's briefcase was empty when he came in and empty when he left, we thought we were going to see closed and the doors closed, yeah, you know, so how do you feel now that you've talked to them? Okay, a shirt, yeah, a shirt, yeah, sure, yeah, you had confidence in the FBI agent right now, yeah, now if they can't pay. Then I won't have confidence in them. One customer took most of the money from him, but for many his concern was for the bank employees.

I hope everyone stays and I hope they don't let anyone go. We're ok. He keeps coming to see us. There are three ways the FDIC takes over a bank: It can close it and pay depositors. He manages the bank himself or, more often, he will try to find a buyer. We have offers from five different parties for a few days. Prior to the acquisition of Heritage Community Bank we were at the FDIC office in Dallas where they were holding a secret online auction in hopes of finding a buyer for Heritage. I wanted to congratulate you. We have decided to accept one of your three offers.

The winner was. MB Financial a nine billion dollar Chicago bank the night of the acquisition all branches in Heritage communities became MB Banks Mitchell feiger is mbceo it's almost like nothing happened uh almost nothing happened uh they are the same products It's the same Services It's the same people serving the same customers It was a good deal for Feiger The FDIC paid MB Financial $3.5 million MB got all the customer deposits and loans if some of those loans fail in the future the FDIC will take care of at least 80 percent of the losses we wonder what Fieger thinks about the health of banking today you have to believe that dozens and dozens and dozens more banks have to go bankrupt but okay, what do you mean that's okay, okay because I think the process is smooth, depositors are

full

y protected by industry-funded FDIC insurance, um uh, and I think eliminating weak players and taking some capacity away from the industry It's good, it's good for the industry, it's good for survivors, in the end it will produce a much healthier life. banking system, if you can put Heritage Community Bank out of its misery, why can't you do the same for Citigroup?

First of all, I'm not talking about open operating institutions, we can only deal with the resolution of a federally chartered bank or state chartered depository institution and these very large institutions that the incumbents are creating now are really very large financial organizations, so that they have more than a bank, it is a stockbroker, they are offshore operations, they are foreign deposits, we notice that the wild giant banks are rescued by investors. in failed community banks like Heritage are eliminated Ben Bernanke, the chairman of the Federal Reserve says the system is unfair to smaller banks and that's how it is.

I think that's true and in the future I think we really need to review the sizing. of these institutions and whether we should do something about it he surprised us when he suggested that perhaps taxpayer-bailed megabanks should not be allowed to exist in the future. I think that may be something Congress needs to think about. actually limit the size that a bank can be, yeah, well, you know, I think taxpayers should rightly ask that if an institution has gotten that big, is there no alternative but for taxpayers to provide support in case of that we allow so many institutions to exceed that kind of threshold. the idea would be that no bank would grow so large that it posed a systemic risk to the economy. that would be a very different world, it would be a different world because Heritage Community Bank was bought by MB Financial, the FDIC didn't have to do it. pay depositors, even accounts that exceeded the insurance limit were safe for Cheryl Bates.

It was her fourth close this year, but certainly not her last. What do you want people to think when you tell them you're from the FDIC? I always want them to think that I am one of the good guys and we want to make sure they get their money back in case their bank goes bankrupt. Which they will be fine because the FDIC is there on September 15,

2008

. Lehman Brothers, the fourth largest investment bank in the world. The world declared bankruptcy, causing chaos in financial markets and nearly bringing down the global economy. It was the largest bankruptcy in history, bigger than General Motors.

Washington Mutual Enron and Worldcom combined. The federal bankruptcy court appointed Anton Velucas, a prominent Chicago attorney and former United States attorney. conduct an investigation to determine what happened included in the nine-volume, 2,200-page report was the finding that there was enough evidence for a prosecutor to bring a case against senior officials at Lehman and one of the country's largest accounting firms. for misleading government regulators and investors, which was two years ago and there have been no prosecutions Anton Velucas has never given an interview about his report until now this is the largest bankruptcyof the world what were the effects the effects were the financial disaster that we are experiencing right now and who was hurt everyone was hurt the entire economy has suffered from the fall of Lehman Brothers so everyone yes, everyone when Lehman Brothers collapsed, 26,000 employees lost their jobs and millions of investors lost all or almost all of their money, setting off a chain reaction that produced the worst financial crisis and economic slowdown in 70 years.

Anton Velukas' job was to provide the bankruptcy court with accurate and reliable information that the judges could use to resolve the claims of creditors who were rummaging over Lehman's corpse if he had ever done something like this before. I've never done anything like Lehman Brothers and I don't think anyone else has done anything like Lehman Brothers, so your job, I mean, in some ways, your job was to assess blame, our job is to determine what really happened. Turn the card face up. the table and let everyone see what the facts really are. The Velukas team spent a year and a half interviewing hundreds of former employees and, after reviewing more than 34 million documents, told how Lehman bought huge amounts of real estate that it couldn't get rid of when the market went down, how it had borrowed $44 for each one he had in the bank to finance the deals and how Lehman executives manipulated balance sheets and financial reports when investors began to lose confidence and competitors approached.

Do these quarterly reports represent a fairly accurate picture of the company's financial situation for investors? In our opinion, they did not. I mean, isn't that against the law? Certainly in our opinion. my opinion was against civil law so to speak, there were convincing claims that this was a fraud. Yes, my compelling claims about Lucas mean there is enough evidence for the Justice Department or the Securities and Exchange Commission to bring charges against Lehman's top executives, including CEO Richard Fold, for overseeing and certifying misleading financial statements and against Lehman's accountant, Ernst Young, for not challenging Lehman's figures, would manipulate the figures and move what turned out to be approximately $50 billion in assets from the United States to the United Kingdom just before printing them. their financial statements about a week after the financial statements had been distributed to the public that $50 billion would reappear here in the United States again on the books of the United States in the next financial statement they would move it overseas again and file it the report and then moving it back sounds like a shell game it was a shell game it was a trick Lehman misused an accounting trick called repo 105 to temporarily remove the $50 billion from its accounting books to make it appear it was reducing its dependence on borrowed money and it was reducing its debt Lehman never told investors or regulators this is really a hoax to make the company look healthier than it was yes deliberate yes how are you so sure about that because we read the emails where we observed people saying they were doing it.

We interviewed the witnesses who wrote those emails or some of those emails and asked them why they were doing it and they told us that they were doing it for the purpose of affecting the numbers. Do you think the executives knew that? This was wrong for some of them, there were certainly concerns expressed from high levels about whether this is appropriate, what happens if the street finds out about this, so, you know, there was a concern that there is a real question about whether we can do this. or whether this was correct or not, one of those people was Matthew Lee, who had been a senior executive at Lehman and the accountant responsible for its overall balance sheet.

Lee was one of the first to raise objections within Lehman about the accounting trick known as repo 105. It sounded like a rat poison repository 105 when I first heard about it, so I looked up what it was and didn't like what I saw. There was a point where you saw that the accounting principles used by Lehman Brothers changed on November 30, 2007. at the end of our fiscal year and I expected that we would make a loss that year like all the others and when I saw that we made money it was a record year , I actually thought that didn't sound right, you knew the markets were working. bad, so why wasn't Lehman doing bad?

And every time I found something and went to my boss or whoever, there was no answer, this was 10 months before Lehman Brothers went bankrupt, Lee's position required him to approve the accuracy of the company's accounting practices every quarter but in November 2007 you refused to do so by refusing to sign it you were saying that you didn't believe the numbers were correct that this was not a fair and accurate representation of Lehman Brothers' financial situation right, something is going on here why don't people can you answer my questions? Do you know why repository 105 has been duplicated? Give me an answer.

No, you don't know, nothing was said. Lee continued to press people for more information, but nothing changed in the four months before Lehman collapsed. He sent this letter to Lehman's top executives. I've been telling you all year that I've been banging my head against the wall. I am now putting in writing that it says it requires me to call attention to management conduct and actions by the company that I consider to be possibly unethical and illegal, yes what were you talking about specifically? Well, in that particular letter it was General, there were so many details I could have written laundry lists.

What kind of response did you receive from this letter? It's like throwing a grenade. I wanted to wake someone up. at least to address the issues it worked six days after we sent that letter. Matthew Lee was fired after 14 years, but the Lehman executives could not ignore the letter and asked their accountants at Ernst Young to interview Matthew Lee and in those interviews we have the notes that are part of the report, it says very specifically that transactions of repos for $50 billion took money off the balance sheet at the end of the quarter, so our conclusion was that Ernst Young certainly knew about it at the time and did nothing with it, Lucas says Ernst Young.

He was legally required to make sure that Lehman's audit committee and its board of directors were aware of Lee's allegations of unethical and illegal accounting practices, but they never did. Did the audit committee know? No. Did the board of directors know? Well, he says no, the only place Lehman CEO Richard Fold publicly answered questions about the bankruptcy of his company was in front of Congress. I have absolutely no recollection of hearing or seeing documents related to 105 repo transactions while he was CEO of Lehman. He told me the same thing face to face, do you believe him?

There was evidence that would show that that is not accurate. The president of Lehman Brothers told us that he actually had conversations with Dick Folt about this and documents were shared with him reflecting the repository 105 transactions and how they were being used. Richard Fultz's opinion is that he has no knowledge of it. He has other evidence that he did it. A jury would have to decide who is telling the truth, but so far there has been no jury to listen. the evidence despite Lucas' findings and the supporting documents and testimony supporting them the Securities and Exchange Commission has not filed any charges of any kind against former Lehman executives over the past few months we have made numerous requests to interview the boss from sec law enforcement all those requests have been rejected the securities and exchange commission has not filed a case no they haven't that bothers you.

I'm not allowed to get upset about it. I know my job was to state the facts. If they are found to have to make their own procedural decisions, there is a plausible explanation for why the SEC hasn't gone after Lehman's top executives, as it turns out that some of Lehman's most egregious accounting shenanigans took place right in front of them. noses of government regulators. The SEC monitored Lehman Brothers during this time they were at the facility, they spoke daily with the Lehman people who worked there, it was not well known at the time, but during the last six months of Lehman's existence, teams of SEC officials and the Federal Reserve took up residence within the company to monitor its precarious financial situation.

They were inside the building when Matthew Lee wrote his letter to Lehman executives alleging illegal accounting practices and were there when the practices took place. Valuca says the SEC also knew Lehman was being less than truthful when it said it had enough assets to survive the crisis, but that and other damaging information was never revealed to investors who continued to pump billions of dollars into the company. , if it had been revealed, it is not the government at all, the SEC in this case. the people who are supposed to protect investors yes, aren't they in charge of informing investors? yeah, why didn't they?

They may not have had the expertise to understand the material they were receiving, they were getting the material, if they understood. Another issue is that the very fact that government regulators were inside the company with access to its books and records would complicate any prosecution. of Lehman officials until four months ago. David Kotz was the inspector general of the SEC for the previous four years had issued more than 100 reports about significant deficiencies in the way the SEC did its job, if the SEC knew about some of these problems at Lehman Brothers and they were not disclosed, doesn't it make it difficult for the SEC enforcement division to come back and bring action against Lehman Brothers were there, they saw it, yes, I think that's definitely an impediment to a potential case and certainly if you go before a jury, the defense attorneys they can make a big point about the fact that you were there, you knew it, why did you do it?

If you don't do something then, you're chasing them now; In fact, former Lehman CEO Richard Fold appeared to be testing that defense when he testified before Congress in

2008

. Throughout 2008, the SEC and the Federal Reserve conducted regular and sometimes daily investigations. . supervision of our business and our balance sheet, they saw what we saw in real time, let's assume for a moment that Anton Velucas' findings are true. I mean, isn't this just a free ticket for executives to say? Well, look, you know Lima did it and So, and nothing happened to them, right, no, I think it's an absolutely serious problem.

I mean, obviously, there's been a tremendous financial crisis. People who behaved appropriately should be punished. I think it's critical that the SEC go after not just corporations, but companies as well. also people who have evidence to do so when the Lehman bankruptcy was finally resolved there were lawsuits against it for 370 billion the creditors settled for about 20 cents on the dollar former CEO Richard Fold now runs a consulting company in Manhattan He lost most of his fortune and is involved in a series of lawsuits, but he is still a wealthy man, most of his most important colleagues, Ed Lehman, have recovered.

Young Ernst Lehman's accounting firm is now being sued by the state of New York for complicity in fraud and Matthew Lee, the senior accountant who ratted out Lehman, is still looking for work unconvinced that much has changed in the world. of finances in the last four years. You know that Wall Street entrepreneurs are becoming more and more sophisticated and they don't necessarily want regulators. Instruct auditors to fully understand what they are doing. Do you believe in the balance sheets of the big Wall Street companies? If you read them now, these numbers are so big and the financial instruments are so complex that you know no one really has a chance to understand it.

I would have more fun investing in the craps tables in Las Vegas than in the Wall Street companies that banks are supposed to lend money to and when they stop, as they have in recent months, the functioning of our entire economy is threatened. Credit was frozen so much that the government took a step on this. last week and acquire a stake in the country's largest banks on Monday Treasury Secretary Henry Paulson summoned the CEOs of the nine largest banks to Washington and gave them a huge amount of money to start lending again. the largest of the banks is the Bank of America now owned in part by the United States of America the head of the Bank of America is Ken Lewis, says that when he and the others met at the Treasury Department it was clear that the offer of the Secretary Paulson it was an ultimatum no negotiation allowed no negotiation allowed that's not the case inother words take it or take it well, one of those who said he told the bankers and this is your patriotic duty.

I don't remember if he used the word, but there was an element to it that this was the right thing to do. for the American financial system and therefore was the right thing for the United States. Did you feel like that was a persuasive line of absolutely? I deeply believe that I believe he was right. Now he explained why it was so important to the government that everyone agreed. that the nine largest banks are all in on this, if you have a bank in that group that really needs the capital, you don't want to expose that bank, in other words, stigmatize it so that everyone knows that they are not as good as someone.

Otherwise most of you were stunned by the amount of money the government put on the table, yes at least I was and I think most others were. The total was 125 billion dollars of taxpayer money. Bank of America Lewis says he didn't need the money but I have 25 billion anyway, do you have any options? In other words, can you take the money and not lend? We wouldn't want to do it that way because you can make more money by lending, so the intention will be to use it to increase lending and generate more net income, but under the treasury plan there is no requirement for a bank to use the money to lend, He could use it to acquire weaker competitors or put it in treasury bills, one of the few conditions Paulson set. refers to the salaries that a bank would have to pay plus taxes if it paid an executive more than five hundred thousand dollars a year, one of the bankers at the meeting objected and began arguing with Paulson and that's when Ken Lewis, a critical of excessive executive compensation, spoke out.

I pointed out that we had to stop talking about the executive police officer and get on with this because that shouldn't stop the deal. In fact, you're quoted as saying that if this is what's going to stop this, you're crazy. I did it. use, I used the phrase out of your mind because because you thought that if it was made public then you should know that the importance of this deal closing compared to these elements of the executive composition are just not in sync. I mean, this was a lot more important and we can all make a little less money from his salary and lucrative stocks and options.

Lewis took home $25 million last year, but he is one of the few in the business who can be fired without a golden parachute and he believes Wall Street executives have made too much money. I think they were overpaid. It is more egregious in financial services than any other industry that I know of. We need to cut compensation in this industry. This is a question everyone wants answered: Is this socialism? Have we now taken a big step away from the kind of carefree capitalism we have known for the last 30 years? I don't know what we'll call it. but it will be different and there will be more regulation, in my opinion the golden age of financial services is over, but why isn't it socialism if the government starts owning banks and that won't last forever, we will pay the money. preferred stock at some point and no longer be partially owned by the government.

Can you give us your idea of ​​how long it will take? I think three to five years we'll pay for it and then it'll be gone. Going back to, more towards capitalism, it is said that one of the main reasons the bank is doing well is because of its decision not to get into subprime mortgages in 2001, my first year as CEO, we decided that we just didn't we liked the business. It was too risky and that's why we decided to get out of it. He makes it sound like a routine decision, but exiting most of the financial products that brought down Wall Street was significant, and Lewis now runs one of the healthiest banks in the country. which continues to grow, we saw the highest growth in deposits in the third quarter that we have ever seen in our history.

He told us that during this crisis people are taking their money out of other banks and putting it into their We Bank, every other American family. you know, in America, what we do in the bank, every other American family in the United States, no, yeah, half of American families do business with us in some way, you mean credit cards, loans for automobiles, deposits, accounts, checking in half the country, as B of A did. This was buying the number one company in practically all banking categories, for example it bought Countrywide and mortgages and MBNA in credit cards is now a nearly three trillion dollar conglomerate the Walmart of banking this is the iconic image of Wall Street 600 Wheeler Dealers buying and selling, but this is the trading floor of B of A and it is 600 miles south of New York, America's largest bank is headquartered in Charlotte, some people don't even know what state Charlotte is in, if it's North or South Carolina, am I insulting you?

In fact, I always say Charlotte, North Carolina, so I don't have to ask a question. You have this building, this building, that building, that building, then there is one next to us, that building, as expected, B of A seems to own Charlotte and the city grew. with the bank Hugh McCall was the bank's chief executive before Lewis. It started as a relatively small regional bank. Well, we didn't like being small. I mean, there's nothing really attractive about being small. He set out to expand the bank's reach from coast to coast and make Charlotte a financial powerhouse.

I think we have these kind of underdogs from the south who want to be masters of our own destiny and not depend on Northern Capital when you were growing up and would leave for New York if they didn't treat you right. The thing is, they treated you like some kind of country bumpkin, and I guess when I was young I always felt a little uncomfortable in New York, that uncomfortable feeling that you weren't respected, did you have that in your head? I'm going to conquer New York. Well, that would overstate New York. He was more interested in the United States.

Did you really think you could beat Wall Street? Have you ever played tennis once you evaluate the competition and decide if you can beat it or not? hey and you thought you could I thought I could and they did the coronation Victory came last month when the most famous investment houses on Wall Street were collapsing under the weight of their toxic portfolios and needed to be rescued they went with their hand to Charlotte , North Carolina, everyone thought you were going to buy Lehman Brothers on Friday night, that was the rumor on Monday morning, it's not Layman Brothers, it's Merrill Lynch, what happened between Friday night and Monday in the morning.

I talked to Secretary Paulson that Friday and basically said we didn't think we could do the deal without government help with Layman with Lehman we couldn't do it without some help and then around 10 30 John called it was Saturday morning September 13 John that the CEO of Merrill Lynch was on the line Layman was on his deathbed Merrill Lynch was said to be next. You always wanted Merrill Edge. We always thought it was the best. I was drooling over Maryland. We always think that deals of this magnitude require months of due diligence and verification. This agreement was made over a weekend.

With Bank of America spending $50 billion to buy one of Wall Street's iconic companies but now B of A being exposed to Merrill Lynch's poisonous investments and continued losses, the question is: Did Ken Lewis pay too much? Some think we should have waited until Monday and see if they would have been ruined. You're saying that if you had waited, they could have gone bankrupt. Some think of something. We would have made it. You know, very cheap, but what I mean is that you would have had a tarnished brand. If there had been chaos, there would have been a court ruling on the whole asset sale and that for us it was worth paying a higher market price for that not to happen, so what about the 17,000 Merrell brokers that Lewis has ?

He said his salaries are too high. Is New York going to lose many jobs? Do you think I don't think much? I mean, obviously we have to. We have seven billion dollars in call savings to be had and that means jobs will be eliminated seven billion seven billion dollars in Costa, oh my goodness, so the government bailout is not helping everyone on Wall Street, What about Main Street? Have loans been started? Did this impulse start to lend again? It should have only been a few days. obviously, and it will make a big difference, we will sit down with you on Wednesday, the market is going down again right now, the market is going down and what concerns me is the fact that we have messed up the financial system in a big way. much better, but the economy is still a question mark and we are in a

recession

from any point of view other than maybe some technical standard, it feels like a

recession

and we think it's going to take some time before you realize it that it improves Bank of the United States is the largest mortgage lender in the country, so when do you think the housing problems will bottom out?

Our best guess now is that towards the end of the first half of next year we will start to see signs of the bottom or the bottom itself, what about credit card debt? That will be the next shoe to drop. In some ways it's already because credit card losses have increased substantially. Credit card debt and auto loan defaults are part of why the bank's third-quarter profits fell nearly 70 percent. Lewis called the situation a damn disaster. Do you think your job is safe? No, I must, I must think that because no, I don't think about that question, it doesn't matter your Remember, I threw a Zinger at you, right?

Yeah, yeah, you beat Wall Street now, to a certain extent, we're part of that, so no, I don't know if we beat it, but hey, you're number one, right? and if the idea was to compete with New York or Wall Street, you won, we have, yes, we have, we have one in that sense when it comes to bailouts of American companies, Barney Frank and Congress may be just getting started almost 2 trillion dollars of taxes. They have been thrown into the hole that Wall Street dug and people are wondering where the bottom is. It turns out that the chasm is deeper than most people think because there is a second mortgage shock headed to the economy in the executive suites of Wall Street in Washington. starting to hear alarm about a new wave of mortgages with strange names that are about to become too familiar if you thought subprime mortgages were incredibly reckless, wait until you hear what's coming, what's the future, wait well, this shows One of the best guides to The Danger Ahead is Whitney Tilson, a hedge fund manager who has recently become so famous that these investors managing around $10 billion gathered to hear him speak last week.

Tilson saw a year ago that subprime mortgages were just the beginning, we had the biggest asset. bubble in history and now that the bubble is bursting, the biggest piece of the bubble is the US mortgage market and we are probably in the middle of the process of unwinding and bursting that bubble. finished, but there is still a lot of pain to come in terms of write-downs and losses that have not yet been recognized in 2007. Tilson partnered with Amherst Securities, an investment firm that specializes in mortgages. Amherst had done some financial detective work analyzing the millions of mortgages. that were included in those mortgage-backed securities that Wall Street was selling, found that subprime loans made to less creditworthy borrowers were in default, but Amherst also crunched the numbers on what were supposed to be higher-quality mortgages. and they were downright terrifying. like data we had never seen before and that is what made us realize that things are going to be much worse than anyone anticipates, the problem now is that the madness didn't end with subprime mortgages, there were two others types of exotic mortgages that became popular called high and option arms, option arms in particular attracted borrowers with ultra-low initial interest rates called teaser rates, sometimes as low as one percent, but after two , three or five years, those rates reset and went up, as did the monthly payment, so a mortgage of, say, eight hundred dollars a month could easily jump to fifteen hundred dollars now, the alternative and option loans granted in peaks are starting to reset, causing mortgage payments to rise and homeowners defaulting on defaults right now are incredibly high at unprecedented levels and there is no evidence that the delinquency rate is going down, those Defaults almost inevitably lead to foreclosures and home auctions and home prices continuing to fall, what you seem to be saying is thatThere is a very predictable time bomb effect here. exactly I mean, you can look back at what was written in o5 and 07, you can look at the reset dates, you can look at the current default rates and it's really very clear and predictable what's going to happen here, just look at this projection from the Investment.

Bank of Credit Suisse these are the billions of dollars in subprime mortgages that reset last year and this year now look at what hasn't arrived yet: alternative and options arm resets when homeowners will pay interest rates higher in the next three years. We are at the beginning of a second wave, how big is the potential damage from the old days compared to what we just saw in subprime mortgages? Well, subprime was approaching a trillion, High is about a trillion and then you have arms of options on top of that. that's probably another five or six hundred billion on top of that, how many of these weapons options do you imagine are going to fail well above 50 percent?

My instinct would be that 70 percent of these weapon options will not live up to their obligations, how do you know we know that? based on current default rates and this is before the reset, so people are defaulting on even the small three percent interest rates that they are being asked to pay today, that second wave is coming ashore in a place that you could call the Riviera Miami repository. -Dade County Oscar Muñoz used to sell real estate now his company cleans foreclosed homes business is going through the roof for us fortunately for us unfortunately for the poor families that are going through this.

I wonder if you ever come to houses where people are absolutely still here, that's a really sad situation. I'd rather not know people, why not? It's not easy to get a family in and out. It's simply our job to do it for the bank. It's just the nature of. What is happening in the market right now? What is happening in the market right now? How much work do you receive each day? We have 20 30 tasks a day only your company only our company and we are one of the few companies in the right now we are hiring we are hiring we have to hire people because the demand is very high people who have been evicted tend to leave things behind the house Next door is usually much smaller.

Banks hire Muñoz to move possessions to where they remain by law for 24 hours. Neighbors often rummage through the remains. Once the houses are empty, the hard part begins trying to find buyers. in a market in free fall. Miami real estate broker Peter Zalewski speaks like a man with a lot of real estate to move—we have a hundred. and ten thousand properties for sale in South Florida Today 55,000 foreclosures Nineteen thousand bank-owned properties 68 of the available inventory in some type of distress need someone to clean it What is the name of your company? It's called Condo vultures Realty.

What does that mean? that in times of anguish, in times of crisis, there are opportunities and you know that the vultures clean up the mess, many people seem to think that they kill, but in reality they don't kill, the developers cleaned up the carnage in Miami when it seemed like the party never would end. They sold hyperinflated condos in what amounted to real estate orgies. Sales parties for guests who were armed with an optional arm and all-day loans. There were red ropes outside. They had hired cameramen and they had hired. photographers almost set the scene for a Paparazzi and were hiring fake Paparazzi to make them customers feel special you were selling a lifestyle what role did these exotic mortgages play these alternatives A and options were essential were necessary without the Altair option our mortgage this boom never would have never happened would have never happened because without highness and options many buyers would never have qualified for a loan, banks and brokers received their money up front in fees so the more they wrote the more they earned they stopped checking if income They were real and they resorted to Low No Paper Loans, so called Liar Loans and jokingly known as Ninja Loans, no income, no job, no assets, and they were still willing to lend, but help me, how does that make sense to the lender?

It would seem reckless in the extreme, but the key assumption underlying the willingness to do this was that home prices would continue to rise forever, and in fact, national home prices had never fallen since the Great Depression in the On the way up everyone wanted no one expected to feel any pain. People like acupuncturist Rula Geosmus became real estate speculators. How many properties did you buy in this last five-year period? I think in the last five year period I bought about six properties and what did you buy them for? For investments, she says she put 20 percent down. in each one now everyone is financed with loans armed with options, what did you understand about loans?

Well, unfortunately I didn't ask too many questions. I mean, in the old days I compared prices, but because of the frenzy and I was so busy searching. For purchasing other properties, I didn't really focus on looking for mortgage brokers, but if you are investing in real estate and purchasing multiple properties, you should ask a lot of questions. Yeah, why didn't you ask? Was occupied. I was very busy looking at properties all the time throughout the day. Did you read the documents? No, I did not do it. Now she is losing money on every property. You know there are people watching this interview who say you know she was just stupid, she was greedy. and she was foolish to buy small apartment buildings and not pay enough attention to how they were financed.

My full time job depends on my acupuncturist, so this is just a side thing. You're an acupuncturist but you got stuck in real estate, yeah, geosmith. She says she was deceived and hopes to renegotiate her loans, but many other buyers simply walked away from her properties. This luxury building in Miami was sold out, but when we visited a quarter of the condos were in foreclosure, so what did this place do? bought in October 2006 for $2.4 million 2.4 million how much is it worth now? The lender's asking price is 939, so it lost a million and a half dollars in value in a couple of years from the top two years and there are tough years.

Because, like subprime mortgages, alternative and option mortgages were bundled into Wall Street Securities and sold to investors, in short, 2009 looks like what you see as a miserable 2010. The

minutes

are even worse . Sean Egan runs a credit rating firm that analyzes companies. debt Fortune magazine cited Egan as one of six Wall Street professionals who predicted the fall of the financial giants. This next wave of defaults that everyone agrees will inevitably happen. housing is such an important part that we are not going to get the housing industry back on track until we eliminate this garbage that is there that has not been eliminated yet, in fact we have not seen the bottom of it, it is getting worse, is it? what do you think?

I believe there are some statistics from the National Association of Realtors that track the supply of housing units on the market and that has increased from 2.2 million units about three years ago to 4.5 million units at the beginning of this year , so we have a massive supply. There are units that need to sell well with the housing supply increasing so much. What does it mean? It means that this problem, the economic difficulties, is not going to be resolved in a short period of time, it will not take six months. We're not going to take 12 months, we'll probably see three, four or five years before this oversupply thing is resolved.

In the next four years, eight million American families are expected to lose their homes, but even after the housing crisis Whitney Tilson says the blows to the financial system will continue to come, the same madness that happened in the mortgage market happened in the property markets business roots and that's taking a little longer to show, but there are going to be big losses there, credit cards, car loans. name it so maybe we are halfway through the mortgage bubble, but maybe we are only in the third inning of the overall bursting of this asset bubble, does that mean the stock market will continue to tank like we have seen over the past few months? ?

In fact, we are the most optimistic we have been in 10 years of money management and the reason is that the stock market, for the first time, I can say this in years, has finally realized how bad things are going to be. things and stocks The market is looking to the future and with US stocks down almost 50 percent from their highs, we are actually finding bargains galore. We believe that American companies are for sale. The stock market will still have a lot to do with more worrying news on the horizon. The Mortgage Bankers Association says one in 10 Americans is behind on their mortgage, the most since they began keeping records in 1979.