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Ed Morrison · The Bubble
June 14th, 2008
From a new series in the Washington Post:
For David E. Zimmer, the story of the bubble began in 1986 in a high-rise office overlooking Lake Erie.
An aggressive, clean-cut 25-year-old, armed with an MBA from the University of Notre Dame, Zimmer spent his hours attached to a phone at his small desk, one of a handful of young salesmen in the Cleveland office of the First Boston investment bank.
No one took lunch — lunch was for the weak, and the weak didn’t survive. Zimmer gabbed all day with his clients, mostly mid-size banks in the Midwest, persuading them to buy a new kind of financial product. Every once in a while, he’d hop a small plane or drive his Oldsmobile Omega out for a visit, armed with charts and reports. The products, investments based on bundles of residential mortgages, were so new he had to explain them carefully to the bankers.
Last 5 posts by Ed Morrison
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June 15th, 2008 at 7:48 pm
This article on “The Bubble” is truly one of the finest I’ve read in explanation of HOW it happened.
My congratulations to the writers!! You’ve done a superb job!!
Dee Wood
June 17th, 2008 at 10:17 pm
One thing took me a while to understand. Maybe more apparent to the rest of you, but just in case. In places where there was a bubble, I wondered how appraisals ever got approved? Here, you have to be within 1% or so of the market value in a neighborhood for a comparable home. I’m still not convinced I get it, but I do understand one thing. People got approved for say a $400k loan but offered $450 and paid the difference in cash. Somehow the appraisal only ‘counts’ on the mortgaged part. Using this theory, you can put in 100k over what any other home on the market has sold for as long as your mortgage is for an amount that matches the market.
I still don’t get it, why someone would be willing to spend 100k or more than any other home with like value has been worth. It was truly a gold rush mentality, all the way around no?