Behind the Housing Crash: Confessions from an Insider

This purchase was made to enhance my knowledge of the written topic. I thought the author did his due diligence but to no avail. Greed prevailed and good business practices were not followed. If the lesson was not learned history will repeat itself. I for one can hedge against this repeat lesson after reading his book. Thank you Mr. Clarey!

Aaron Clarey writes in a style that is very accessible. This is geared to probably a 10th grade level - and that is good, in that anyone should be able to follow and understand his points. I got the book this morning and read the whole thing in one sitting. Thats how easy and fast you can follow this material. Ive been involved in the Mortgage Banking industry for over 10 years, but mostly from the wholesale residential origination / secondary marketing side. His experience focuses very heavily on his main experience on commercial lending and takes a lot of shots at RE developers and is thorough about the conflicts of interest in the commission-based compensation structures for brokers and bankers. The book is repetitive, and skilled editing could have reduced the size of the book by 30% easily. It is not an academic treatment of mortgage banking at all. For that, Id recommend the books by Frank Fabozzi, who writes some of definitive tomes on these subjects. There is a lot that Clarey either doesnt mention at all (like Yield Spread Premium, credit rapid rescores, AU, Alt-A, FNMA/FRE community products, CRA, buybacks, and some of the political forces behind the lowering of agency guidelines) He focuses mainly on RE Developers, their cozy relationships with Banking management who ignored credit-risk practices. Just the slightest swipe on MBS/CDO repackaging. He makes a lot of hay about oversupply of units, since his main experience seems to have been underwriting / credit analysis on commercial developments. This is a large part of the story, but there are huge areas he misses, or only mentions in passing. Still, a pretty good book for someone unfamiliar with how all this happened - but there are more comprehensive books on the history and development of mortgage banking out there. This is vintage 2008, so a new edition would be warranted.

Let us not forget what happened and why- take these lessons from an insider about what greed and wilful incompetence can accomplish. This book is an example of no matter how much technology, facts, stats and common knowledge is available there will always be a willing participant with a blindfold if theres a commission involved. Simply, do not trust that in todays world of instant knowledge that the correct decision will be made by those in power. They didnt get there by being smart, as proven by the book.

Just finished reading the book, and I recommend it. I have problems with it, but still give it 5 stars because it is a valuable contribution to economics. My main problem is that Clarey says not to completely blame the Fed for the housing crash. I disagree. They were 100% responsible. So why the high rating? In Austrian economics we blame central banking for the boom/bust cycle and we attribute it to misallocation, and lately moral hazard. Clarey provides a first-hand account of what that looks like -- indeed a valuable contribution. It is a vindication of what we have predicted and it provides the gore-ey details. However with regards to my disagreement with Clarey, lets suppose that the Fed had been restricted to its original charter -- providing loans to handle duration mismatch during crisiss. And let us suppose that interest rates were set by markets depending on paid-in capital and deposits of gold or silver. Further let us suppose that banks could only loan out said paid-in capital and deposits, and that there was no interbank market financed and set by the Fed. What would have happened to interest rate? They obviously would have risen right when the Fed was cutting rate. Could reverse-am loans and other liar loan products even exist? No. The Fed in its current revision is the problem

I originally bought the book, Behind the Housing Crash because I met the author and I thought, Hmm, I know someone who wrote a book, I should be supportive and buy it. I did not expect the book to be as page turning and enjoyable as it was. In all honesty, I am not a financial guru. I do not read the financial page of the paper for enjoyment, nor do I subscribe to various financial magazines. In fact, I prefer to leave that aspect of my life to my financial advisor. So, when I picked up Behind the Housing Crash, I honestly expected it to be dry and boring and difficult to read. Boy was I wrong! It was thoroughly enjoyable, EXTREMELY well written and very easy to understand. I honestly wish that I had read this book years ago. Mr. Clarey has worked in the industry, done extensive research, laid out the facts, supported that with charts and graphs, and yet, he goes above and beyond just informing. He shares stories and anecdotes that turn all the data into reality and make it very easy to read. Although a very easy book to read, parts were hard to stomach. It is distressing to discover that banks do not always look at the facts and figures and do not base their decisions on research based practices and data. This book opened my eyes and really made me understand fully why we have so many homes that are being foreclosed on and brand new homes that are left sitting empty. It is with full confidence that I recommend Behind the Housing Crash. It is a great read, very informational and easy to follow. I cant imagine a person out there who wouldnt learn at least one thing from reading this book.

_Behind the Housing Crash: Confessions from an Insider_ describes the causes, symptoms and some immediate consequences of the overly optimistic bank lending policies which were common for the last eight or nine years at most U.S. banks. It is a fascinating book which I would recommend to most readers, and especially to anyone thinking of buying a house or who is entering the corporate world for the first time. The author, Aaron Clarey, is an economics and finance consultant and teacher who worked for nine years at various banks and credit unions in the Minneapolis / St. Paul area of Minnesota. While he cites a large number of facts and figures regarding general trends in lending, home ownership, and home finances, he also writes about his own personal experiences while working in that field. This creates a very readable balance between general theory and personal anecdote. His writing style is conversational with more than a bit of humor. In the book, Clarey discusses some of the historical foundations for the current housing and banking problems, the sociological factors, historical trends, and how all those played out on a large and small scale in the banking, home-building and home-buying industries. But there are two things which make the book a standout (and one that I will likely recommend to a number of friends and have already decided to give to one friend as a very late Christmas gift): 1) There is an amazing amount of very useful detail about the inner workings of the banking system, or at least how it is supposed to work. For instance, while I see a lot of credit unions around and know that they are somehow different than a bank, I was not aware there is a functional hierarchy, with credit unions usually getting the smaller and/or riskier loan applicants who had been passed over by the bigger banks. I knew that car salesman will sometimes bring along repeat customers with them as they change employers, but I was unaware this frequently happened with bankers too. Clarey also gives a lot of in-depth information about why and how to use such tools as absorption studies, price-to-rent and price-to-income ratios, and LTV ratios when considering whether to buy or sell a house. 2) _Behind the Housing Crash_ is also a series of case studies on bad management practices and what signs to watch for when you are wondering if it is time to leave a particular boss, company or industry. There is a discussion of how important morale is to productivity and how simple things like a pleasant atmosphere, consistent procedures and supportive supervisors can vastly improve morale -- or destroy morale and productivity if those things are missing. There is a discussion on how promoting people based not on qualifications but based on family relations (nepotism) or who their friends are (cronyism) ultimately destroys a companys potential. There is also a discussion on why it is a bad sign when a boss is profligate with their subordinates time and energy because the boss hopes if this subordinate will write it up anyway enough times, somehow the loan will suddenly seem profitable. All of these behaviors and many others described by Clarey are common in white-collar settings and usually point to some level of management getting so concerned with appearances or fads they lose sight of the underlying purpose of the business -- in the case of the banks and credit unions Clarey worked for, they lost sight of the fact they were in business to make money and you dont make money on loans unless you loan to people you know will pay you back with interest. Clareys entire discussion of the Thin-Skinned Economy is well worth reading too. Clareys conclusions are well argued and he backs up his arguments with a large array of facts, figures, and information on historical trends. While I dont always agree with his pessimism about how this will all play out in the long run, I thoroughly enjoyed his book and happily give it five stars.

This book should be all over the place. Aaron Clarey should be doing interviews on Bill OReilly and CNBC. If theres justice in this world, Aaron Clarey will find himself sipping some tropical fruit drink on a sandy beach in Hawaii, living off the dividends to well timed investments made possible through his bestseller booksales. This book is the greatest triumph of a trillion dollar I Told You So. Some of us, in our day to day lives, will successfully predict some mundane event. A friend keeps dating the wrong girl and getting his heart broken, a Democrat proposes to raise taxes, Spike Lee produces another movie no one watches. Few of us will ever get the honor of seeing an entire industry fail simply because they didnt take our advice. Aaron Clarey, for the rest of his life, will be able to say I was there when banks were about to crash, and I warned them. As an analyst for several banks and credit unions in the Twins Cities leading up to the housing bubble, Clarey was the one who would run the numbers on housing loan proposals. It was here Clarey learned of and warned about the coming housing crash, much to the chagrin of his superiors. In his book, Clarey creates a narrative of his career in the banking industry as he moves from job to job in search of common sense. Idiot managers, thoughtless MBAs, creepy developers, greedy bankers, fraudulent brokers, all get in his way. In the end, Clarey shows how the fundamentals of banking were ignored at every level throughout the entire economy and how taxpayers ended up footing a $1 trillion bill. The book is filled with graphs and charts showing exactly how the bubble was formed and how it burst. At times the book reads quickly as a novel, an entertaining one. At other times, it reads like an econ textbook and some might find it a bit dry. Luckily, the dry parts account for only about 10% of the book. Something else the reader should understand, the book was self published. The typography is not professionally done nor did Clarey receive the benefit of having three or four editors to make changes to improve readability. Readers shouldnt let any of these aesthetic issues fool them, this is a great book. If you really want to know what happened in those banks across America which lead to a trillion dollars of inflation and tax increases and which is leading the greatest country in the world on the road towards a recession, you need to read this book.

While this book could have been better edited, I wont bother with those trivial details. In my view, anyone with savings or investments in U.S. financial institutions should read this book. This is a well-told account of how the housing bubble came into being and then popped. Mr. Clarey tells the story from his point of view as an analyst/underwriter at a credit union and then at some local banks in the Minneapolis/St. Paul area. He doesnt name these, so we have to take his account on his word. Clareys description of how real estate developers continued building in the face of a housing glut, of how bankers continued to loan them money in order to earn the loan commissions, of how loans were poorly documented because they were made to good guys or because they helped the little people is like a tour through a financial butcher shop. These folks did all these things despite easily available data showing there was no need for more housing stock. My wife and I both wondered who in the world was buying all the new houses in St. Louis ten years ago. Its not as though the old ones were being torn down (generally) as the new ones were built. Continually rising prices in the face of an expanding supply? Thats hardly what youd expect from Econ 101. Clarey also describes how mortgage brokers and banks worked the system in similar ways for existing home sales, although I dont believe he was personally involved in that business. Mortgages were poorly documented - or sometimes not documented at all - because they were promptly resold to collateralize investment bonds. The mortgage originators got their commissions, the bond sellers got their commissions and the CDO buyers got burned. The author has a great grasp of financial fundamentals. I used to wonder myself about the phenomenal run-up in stock prices over the last 30 years. I recall a friend of mine asking me in the early 80s, When do you think the Dow will break 1000? In the late 90s I called him and asked, So, Mike, when do you think the Dow will break 10,000? My conclusion was that there was too much money chasing too few investments and that maybe this was due to the way the tax code for retirement plans was written. In the U.S., tax-deferred retirement savings can only be invested in stock and bond markets. What else explains a 10-fold gain in the DJIA in less than 20 years? Theres been nothing like it in the history of the U.S. exchanges. (Search the web for historic DJIA and look at the period since 1980.) Mr. Clarey mentions this tax law factor himself as one reason for the bubbles of recent history; in particular, how all the retirement funds in the market drove the dot com bubble and then led to a ready market to buy CDOs (bundled mortgages) at the start of the housing bubble.

Aaron Clareys book Behind the Housing Crash: Confessions from an insider contains various topics from the primary financial system of banks to specifics in different ratios corresponding to different banking metrics such as Housing Supply to Equilibrium,Loan to value, and equity based loans. The way Clarey attempts to cover these range of topics is by providing anecdotal situations as well as providing an analysis into what made these loans unsuitable for transaction,while correspondingly providing a statistical overlay that would support his conclusions when diving into his central themes of economics; for example, during his underwriting times, he mentions individuals inflating home asset prices in order to use this fabricated value as collateral for an supplementary loan proposal, he dives into why the specific property was inflated and then after providing additional examples, he provides the reader with statistics on the overall marketplace so that the bigger picture is more evident. In conclusion, if you want to get a better grasp of what transpired into the years leading to the 2008 financial Crisis; this book will give you a solid foundation of the economics from a human point of view.

I am very satisfied with this book. The author explains the causes of the housing crisis from his own perspective in the mortgage industry. From my perspective as a licensed independent real estate broker, I saw the egregious behavior of realtors and mortgage brokers steering financially illiterate borrowers into toxic mortgages. They didnt care about the best interests of their clients, but only for their commission checks. The National Association of Realtors (N.A.R.) was at ground zero of the Housing Crisis, and their members (realtors) were in the best position to recognize and stop the crisis, but they did absolutely nothing to protect their clients. Thats one of the reasons why I got out of the realtor business.