Flashback:

April 10, 05: In ‘An Economy On Thin Ice’, the former chairman, Paul Volker wrote: I don’t know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change.

Volker is back today with another dire warning which could be read in the New York Times: Do you think that Sir Alan Greenspan will take his fame with him in his grave?… “Too many bubbles have been going on for too long. The Fed is not really in control of the situation.”

Another day of infamy with Merrill announcing a Record Loss on $15B Writedown for Failed Investments. Security today is a vain word as you can see: The wealthy may be the next victim of the housing crisis, a Reuters headline revealed today.

“The next wave of problems will come from prime borrowers who bought too much house or borrowed too much against it,” said Michael van Zalingen, director of home ownership services at Neighborhood Housing Services of Chicago. A “prime” borrower is one with good credit. Real estate agents warn that some high-income borrowers have already been forced to sell or leave their homes and more will follow. Especially those who used their homes as ATMs, withdrawing cash via home equity loans. “For those who utilized home equity loans for five to ten years to finance their lifestyle, the chickens are coming home to roost,” said Chicago-based real estate agent Marki Lemons.

Here is a story that will shred the light on business practice. Yes, sure there are consumers who didn’t provide accurate info about their income, but the problem as we see it here at ‘IDWT’ is that appraisers, brokers and bankers are supposed to know their stuff and what they are doing. Obviously not!

Convicted Appraiser Exposes Toxic Debt Tie to Inflated Values - Home appraiser Julian “Tony'’ Perez conjured $7.5 million out of thin air in the first six months of 2001 by overvaluing 33 condominiums in the Atlanta area. Perez valued eight unfinished properties at the Deere Lofts development on April 2. Some were missing ceilings, cabinets or sinks. Each had been bought the previous week for $90,000 to $167,000. Perez said they were worth $177,000 to $330,000, according to the U.S. Attorney’s Office in Atlanta.

“These are the worst condos ever,'’ Perez said last January during testimony at the federal trial in Atlanta of developer Phillip Hill, who used the appraisals to resell the properties. “Those values are super over-inflated, probably double what the amount of that property is probably worth.'’
Perez and appraisers like him helped exaggerate U.S. mortgage values by as much as 10 percent, or $135 billion, in 2006, according to Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. Such appraisals artificially inflated the value of collateral supporting mortgage-backed securities and are contributing to record foreclosures because borrowers end up owing more than their houses are worth…. more