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

Summary

The video script delves into the 2008 financial crisis, focusing on the government's intervention in the banking sector. It discusses the Federal Deposit Insurance Corporation's (FDIC) role in seizing and managing failed banks, the impact of Lehman Brothers' bankruptcy, and the subsequent investigation by Anton Valukas. The script also explores the aftermath, including the FDIC's challenges, the government's decision to take an ownership stake in major banks, and the ongoing issues with mortgages and credit defaults. It highlights the concerns of investors and homeowners, the potential for further economic downturn, and the unpredictable future of the financial markets.

Takeaways

• 🏦 The Federal Deposit Insurance Corporation (FDIC) is responsible for handling unsound banks, often taking them over in secret to prevent panic among depositors.
• 🔍 The FDIC's operation 'Happy' was featured to show the process of seizing a failing bank, Heritage Community Bank, which had made ruinous bets on real estate.
• 📈 The number of bank failures is increasing, with 25 banks failing in the previous year and projections for more in the current year.
• 💵 The FDIC projected losses of 65 billion dollars over five years due to bank closures, which affects their ability to pay for bank failures.
• 👥 The FDIC team consists of various specialists, including accountants and asset specialists, who can effectively manage the transition of a seized bank.
• 🚫 The FDIC ensures that depositors do not lose any money, even in the event of a bank failure, up to the insured deposit limit of $250,000.
• 📊 The FDIC is funded by insurance premiums from banks, not taxpayer money, and is backed by the full faith and credit of the U.S. government.
• 📉 The failure of Lehman Brothers, the fourth-largest investment bank in the world, had a catastrophic impact on the global economy and led to a massive investigation.
• 🤔 There is evidence suggesting that Lehman Brothers and its accountants may have engaged in fraudulent activities, but no charges have been brought against them by the Securities and Exchange Commission (SEC).
• 🏢 The SEC's oversight of Lehman Brothers was extensive, with officials working inside the firm, raising questions about why problematic practices were not addressed sooner.
• 💼 Bank of America, under the leadership of Ken Lewis, avoided the pitfalls of subprime mortgages and grew to become one of the healthiest banks in the country.

Q & A

What is the role of the Federal Deposit Insurance Corporation (FDIC) in the banking system?

The FDIC is a federal agency that insures deposits in banks, preventing depositors from losing their money in the event of a bank failure. It also takes over unsound banks, often seizing control of them to ensure a smooth transition and protection of depositors' funds.

How does the FDIC handle the seizure of a failing bank?

The FDIC conducts the seizure of a failing bank discreetly, often at night, to prevent panic among depositors. They involve a team of specialists, including accountants and asset specialists, to manage the bank's operations and ensure that all deposits are accounted for and protected.

What was the situation with Citigroup and why were they repeatedly bailed out?

Citigroup, like other large financial institutions, faced significant financial distress due to risky bets on real estate and other investments. The government repeatedly bailed out Citigroup to prevent its collapse, which could have had severe repercussions on the entire financial system.

How many banks failed in the year prior to the events described in the transcript, and what was the projection for the following year?

25 banks failed in the year prior to the events described, and the FDIC expected the number to rise, with 16 already having failed in the current year.

What was the projected loss for the FDIC over the next five years due to bank closures?

The FDIC projected a loss of 65 billion dollars over the next five years due to bank closures.

What happened to the employees of Heritage Community Bank after the FDIC seized it?

After the FDIC seized Heritage Community Bank, the employees' pay stopped at 6 pm on the day of the seizure. Their unused vacation time would be paid for by the FDIC, and they essentially became employees of the FDIC at that point.

How does the FDIC ensure that customers' savings are safe after a bank failure?

The FDIC ensures that customers' savings are safe by taking control of the bank's operations and assets. They also provide insurance coverage up to a certain limit ($250,000 at the time of the transcript), so depositors do not lose any money.

What is the process for the FDIC to find a buyer for a seized bank?

The FDIC conducts a secret online auction to find a buyer for a seized bank. They receive bids from interested parties and choose the most suitable one to take over the bank's operations.

What was the outcome for the customers of Heritage Community Bank after it was seized by the FDIC?

After Heritage Community Bank was seized, the FDIC found a buyer, MB Financial, which took over all of Heritage's branches, deposits, customers, and loans. This ensured a seamless transition for the customers and protected their savings.

What is the FDIC's stance on the size of financial institutions and the potential need for regulations?

The FDIC's Chairman, Sheila Bear, suggested that Congress should consider limiting the size of banks to prevent institutions from becoming so large that their failure poses a systemic risk to the economy and requires taxpayer bailouts.

Outlines

00:00

🏦 FDIC Seizure of Unsound Banks

The Federal Deposit Insurance Corporation (FDIC) is stepping in to seize and manage failing banks to protect depositors' funds. The process, often conducted secretly to avoid panic, is highlighted through the operation 'Happy', where the FDIC takes over Heritage Community Bank. The bank's closure was kept secret from employees until the last moment to prevent a bank run. The FDIC's Sheila Bair discusses the increasing number of bank failures and the projected losses for the next five years. The FDIC team's diverse specialists ensure a smooth transition, and the bank's reopening assures customers that their deposits are safe.

05:02

📊 The Aftermath of Bank Takeovers

After the FDIC takes control of a failed bank, they manage the bank's website, inventory assets and liabilities, and prepare for business resumption. The FDIC, established in 1933, has never allowed an insured depositor to lose money, currently insuring up to $250,000 per depositor. The FDIC is funded by bank insurance premiums, not taxpayer money. Despite this, customers of the former Heritage Community Bank were initially uncertain about the safety of their funds. The FDIC often finds buyers for seized banks, in this case, MB Financial, which took over all deposits, customers, and loans, with the FDIC covering a significant portion of future loan losses.

10:02

🏛️ The Lehman Collapse and Its Impact

The bankruptcy of Lehman Brothers, the fourth-largest investment bank in the world, had catastrophic effects on the global economy. Anton Valukas was appointed to investigate the bankruptcy, resulting in a 2,200-page report that suggested top Lehman officials and Ernst & Young, the accounting firm, could face charges for misleading practices. The report detailed how Lehman hid billions in debt using an accounting trick called 'repo 105'. Despite evidence of fraud, no prosecutions have occurred, and Lehman's executives have largely avoided repercussions.

15:02

🕵️‍♂️ SEC's Role in the Financial Crisis

The Securities and Exchange Commission (SEC) is under scrutiny for its failure to act on evidence of Lehman Brothers' fraudulent activities. During Lehman's final months, SEC and Federal Reserve officials were embedded within the firm, aware of its precarious financial state but failing to disclose this to investors. The SEC's inaction and the government regulators' presence inside Lehman during its collapse complicate any potential prosecution. Critics argue that the SEC's failure to protect investors undermines its role as a regulatory body.

20:03

💼 Wall Street Executives and the Financial Crisis

Despite the financial crisis, many Wall Street executives have maintained their wealth and status. Former Lehman CEO Richard Fuld runs a consulting business and most of his senior colleagues have found new roles. In contrast, Matthew Lee, the Lehman accountant who raised concerns about the firm's accounting practices, is seeking employment. Critics argue that the complexity of Wall Street's financial instruments makes them incomprehensible to most, and that the government's recent investment in banks is a necessary step to stimulate lending and economic recovery.

25:04

💼 Bank of America's Expansion and Strategy

Bank of America, under CEO Ken Lewis, has grown significantly by acquiring leading companies in various banking sectors, such as Countrywide in mortgages and MBNA in credit cards. This strategy has turned it into a nearly three trillion-dollar conglomerate, often referred to as the Walmart of banking. The bank's总部位于Charlotte, North Carolina, and its growth has contributed to Charlotte becoming a financial powerhouse. Lewis believes that the era of excessive executive compensation is over, and he predicts a return to more regulated capitalism within three to five years.

30:06

🏘️ The Impact of the Mortgage Crisis on Housing and Foreclosures

The collapse of the housing bubble has led to a surge in foreclosures and a sharp decline in home prices. Miami-Dade County is particularly hard hit, with奥斯卡 Munoz's company experiencing a high demand for their services in clearing out foreclosed homes. The market is flooded with properties for sale, many of which are bank-owned or in distress. Real estate broker Peter Zalewski, who runs 'Condo Vultures Realty', sees opportunity amidst the downturn, as vultures clean up after the 'killing' in the market.

35:08

📉 The Commercial Real Estate and Credit Crisis

The crisis in the mortgage market was just the beginning, with commercial real estate, credit cards, and auto loans expected to follow suit. Investment fund manager Whitney Tilson predicts a second wave of mortgage resets with alta and option arm loans, which could lead to a significant number of defaults and further economic pain. The stock market is seen as forward-looking and currently presents bargain opportunities despite the anticipated bad news ahead.

40:09

📊 The Overhang of Housing Supply and Economic Outlook

The supply of housing units on the market has grown significantly, indicating that the economic difficulties are far from over. Sean Egan, who runs a credit rating firm, believes it will take several years to work through the oversupply in the housing market. He also warns of impending issues in other areas such as commercial real estate, credit cards, and auto loans. Despite the grim outlook, Tilson and Egan find value in the stock market, which they believe has already priced in the severity of the economic downturn.

Keywords

💡Bank Bailouts

Bank Bailouts refer to the emergency financial assistance provided by the government to banks and financial institutions during a crisis to prevent their collapse. In the video's context, it discusses how large financial institutions like Citigroup were repeatedly bailed out using taxpayers' money, which raises questions about fairness and the systemic risk they pose to the economy.

💡Federal Deposit Insurance Corporation (FDIC)

The FDIC is a U.S. government agency that provides deposit insurance to depositors in banks. It is tasked with the resolution of failed banks to ensure that depositors do not lose their money. The script describes the FDIC's role in seizing and managing the closure of failing banks like Heritage Community Bank, emphasizing its function to protect consumers' deposits up to a certain limit.

💡Bank Failures

Bank Failures occur when a bank can no longer meet its obligations to its depositors and is closed by the chartering authority. The video discusses the increasing number of bank failures, with the FDIC projecting significant losses from bank closures, indicating a distressed environment within the banking sector.

💡Real Estate Bets

Real Estate Bets in the script refer to the risky investments made by banks in real estate that led to significant losses. Heritage Community Bank, for example, made 'ruinous bets on real estate,' which contributed to its failure, illustrating the risky nature of such investments and their impact on bank stability.

💡Insured Deposits

Insured Deposits are bank deposits that are protected by the FDIC up to a certain amount ($250,000 at the time of the script). This means that if a bank fails, the FDIC will ensure that depositors do not lose their insured amount. The script highlights the safety of insured deposits and the FDIC's role in maintaining depositor confidence.

💡Repo 105

Repo 105 is an accounting maneuver used by Lehman Brothers to temporarily remove assets from its balance sheet, making the firm appear less leveraged. The script describes how Lehman misused this trick to deceive investors and regulators about its true financial health, which is considered a form of financial deception.

💡Systemic Risk

Systemic Risk is the risk that the failure of one financial institution could trigger a series of failures, leading to the collapse of the entire financial system. The video discusses the idea that no bank should be allowed to grow so large that its failure would pose a systemic risk, suggesting regulatory measures to limit bank size.

💡Subprime Mortgages

Subprime Mortgages are home loans made to borrowers with blemished or limited credit histories, who typically have a higher risk of defaulting on their loans. The script mentions that the bursting of the subprime mortgage bubble was just the start of a larger financial crisis, indicating the role these mortgages played in the economic downturn.

💡Alt-A and Option ARM Loans

Alt-A and Option ARM loans are types of mortgages that were considered higher quality than subprime loans but still carried significant risks. The script warns that these loans, which also reset to higher interest rates, are now causing a second wave of defaults and foreclosures, contributing to the ongoing housing crisis.

💡Foreclosure

Foreclosure is the legal process by which a lender reclaims a property from a borrower who has defaulted on their mortgage. The video describes the high rate of foreclosures resulting from the resetting of Alt-A and Option ARM loans, which has led to a glut of properties on the market and further depressed home prices.

💡Toxic Portfolios

Toxic Portfolios refer to investment portfolios filled with assets that have lost significant value or are expected to lose value, such as the mortgage-backed securities that were heavily tied to subprime loans. The script mentions that Wall Street's most famous investment houses were collapsing under the weight of their toxic portfolios, leading to government intervention and bailouts.

Highlights

The FDIC is seizing several banks secretly at night to prevent panic.

Heritage Community Bank failed due to ruinous bets on real estate.

FDIC agents are specialists in accounting, asset management, and investigations.

FDIC's Sheila Bair discusses the increase in bank failures and the financial distress.

Heritage Community Bank held over 200 million dollars in 12,000 deposits.

The FDIC is prepared to lose 65 billion dollars on bank closures over the next five years.

Bank employees are often unaware of their bank's failing health.

FDIC takes control of bank websites and assures public of deposit safety.

The FDIC insures up to 250,000 dollars per depositor, funded by bank premiums, not taxpayer money.

Sheila Bair suggests Congress should limit the size of banks to prevent future bailouts.

Investor Whitney Tilson predicts a second wave of mortgage defaults from alt-a and option arm loans.

Tilson estimates over 70% of option arms will default.

The SEC had daily oversight of Lehman Brothers yet failed to act on questionable accounting practices.

Former SEC Inspector General David Kotz implies that the SEC's presence at Lehman Brothers complicates prosecution.

Bank of America's strategy of avoiding subprime mortgages has left it in a strong position.

Ken Lewis, CEO of Bank of America, believes the era of excessive financial service compensation is over.

Whitney Tilson sees the stock market as a bargain, despite upcoming financial challenges.

Transcripts

a lot of people are worried about their

Bank these days while devastated giants

like Citigroup get bailed out again and

again and again many smaller banks are

failing the federal agency that takes

over unsound Banks is the Federal

Deposit Insurance Corporation the same

people who guarantee that depositors

won't lose their money most every Friday

now the FDIC is seizing several Banks

you haven't seen these takeovers

happening because they're done secretly

at night to make sure that there's no

needless Panic by 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 has failed

they're going to start at one branch

pull the cash out take it inside the

bank this is a team of FDIC agents

preparing to seize a bank outside

Chicago what we need to do is we need to

pull the corporate records they've

checked into this hotel under a

fictitious name CB and Associates to

prevent a run on the bank they don't

want anyone to know who they are or why

they're here you all know that this is

for the closing of Heritage Community

Bank Cheryl Bates and Arthur cook are in

charge of the operation that has been

given the code name happy strange

considering what they're about to do do

not discuss outside of this room what is

going on what we're here for they're

here to seize all five branches of

Heritage Community Bank a 40 year old

local bank providing savings student

loans mortgages and checking but like so

many others recently Heritage made

ruinous bets on real estate Sheila bear

is Chairman of the FDIC how many banks

failed last year 25. how many do you

expect to fail this year it's going up

there have been 16 already now and so

our loss projections are going up we're

having to increase premiums on banks to

address the loss projections going

forward it's a very distressed

environment right now I wonder if you

have a number in mind of how much the

FDIC is prepared to pay for bank

failures in 2009. well uh we have we

make a five-year projection uh that for

the next five years we had we projected

we'll lose 65 billion dollars on Bank

closings 65 billion some of that was

about to be spent on the imminent

failure of Heritage Community Bank it

held 12 000 deposits totaling more than

200 million dollars

the FDIC team waited for the last

customer to leave Cheryl Bates prepared

to go in what sorts of Specialists do

you have on this team

we have accountants we have asset

Specialists who specialize in loans we

have people who specialize in just the

physical facilities and we have a group

of investigators that come in and do a

review on the reasons for the bank

failure really your whole team could

come in and run the bank yes

four months ago the FDIC and state of

Illinois ordered the bank to stop risky

lending and raise cash but Heritage

couldn't find new investors the night of

February 27th no one at the bank knew

that the end was minutes away

the FDIC walked into all five branches

at once the chief executive John saphir

was told that the bank that was his

life's work was no longer his

we waited outside as they delivered the

news to the employees with Heritage Bank

your pay stopped at 6 pm

at 601 you went on a pay which was paid

by the FDIC unused vacation time you

will be paid for it you will not lose it

in that moment operation happy looked

pretty Grim correct because I would say

a large majority of the employees don't

know that the bank is in trouble and

that it's about to close we want it to

be as seamless as possible for your

depositors so no deposit or loses any

money at all and they reacted somewhat

with dismay and shock that we were there

and it's it it is a very trying

period for them so it is an end to that

whole chapter of their lives when we

walk in we are appeared to be the bad

guy I mean some of those people have

been there more than 20 years and those

are the ones who take it the hardest

because they feel that they have put

their life into it and now it's no

longer there make sure that no one comes

in without FDIC badges the employees now

work for the FDIC a public notice went

up and that was the signal to a team of

nearly 80 people to take over the bank

they took control of the bank website

and added a notice that all deposits

were safe

then they started an inventory of all

the assets and liabilities

what's happening right now we're getting

the bank personnel

assigned with their FDIC counterparts

the accounting people are meeting with

our accounting managers and then we have

an investigations group that comes in

and does a review of the bank they broke

the news to the media and prepared to

reopen the bank Saturday morning as

usual what do you expect from the

customers I think the customers will

some of them will come in with a sense

of of fear fear created the FDIC in 1933

after the Depression set off panics that

wiped out even healthy Banks we've been

around for 75 years nobody's ever lost a

penny of insured deposits no depositor

has ever lost a penny since the FDIC

went into business that's right I've

been sure deposits that's absolutely

right which is why you need to make sure

you below the insured deposit limits but

no no one's ever lost a penny and the

insured deposit limit is what right now

it's 250 000 that's the base limit when

the FDIC comes in and makes depositors

whole at a bank that has failed is that

tax money

no it is uh it is money from our

reserves which and we are funded by

insurance premiums that are assessed on

banks so no it is not taxpayer money

EIC chairman Sheila bear is a former

treasury official and professor of

Finance who's written children's books

on the wisdom of saving maybe some of

the CEOs on Wall Street should have read

the children's books maybe so

maybe so bear warned two years ago that

Bad Mortgages threatened the financial

system now she's managing the biggest

bank failures in years including the

collapse of Washington Mutual and last

Summer's sudden failure of IndyMac in

California

we were told we would get in yeah

when IndyMac failed you were watching

these scenes on television of people

lining up outside the bank like it was

1932. yes it was what did you think of

that I think people just forgot that

Banks do fail and how the FDIC Works

their money was safe it was safe it was

probably the safest place in the world

to have your money because we we were

operating the institution at that point

what sort of hit was that on your

balance sheet I think we ended up to uh

it was over nine billion dollars for a

33 billion yes it was very stiff the

question becomes

how many times can the FDIC do that at

what point is the FDIC broke the FDIC is

backed by the full faith and credit of

the United States government so if we

need to we try not to and don't want to

but if we need to we can borrow from

treasury to make up for any shortfall so

the FDIC never goes broke we do go grope

no we are the government we're back by

the Full Faith and Grant of the United

States government but customers at the

former Heritage Community Bank outside

Chicago weren't so sure about the safety

of their money on Saturday morning the

bank reopened on time and the FDI sees

Ricky McCullough stood at the front door

the people who were coming in this

morning what were they asking you

can I still write checks can I access my

safe deposit box can I use my ATM

machine and to all those questions you

answered what yes

customer bill Hess showed up on a

mission with an empty briefcase he

intended to leave with all of his money

we'd be glad to ask any questions for

you I don't care anymore he said I don't

care anymore and so I became a little

concerned so I came inside and one of

the things that he told me as he opened

up his briefcase he said well I don't

have a gun in here so I said well that's

good account McCullough explained to

Hess and his wife Audrey that their

savings were safe so if you have a

single account that's 250 if you have a

single account that's 250. so now that's

500. hess's briefcase was empty when he

came in

and empty when he came out we just

thought we were going to see closed and

the doors locked yeah you know so how do

you feel now that you've talked to them

it's fine

a shirt yeah a shirt yes for sure yes

yes you had confidence in the FBI cic

right yeah now if they can't pay you

then I won't have confidence in them

either

one customer did take most of her money

out but for many their concern was for

the bank employees

hope you all stay and I hope they don't

let anybody go we're fine you just keep

coming back to see us there are three

ways the FDIC takes over a bank

it can close it and pay off depositors

run the bank itself or more often it'll

try to find a buyer we do have bids from

five different parties a few days before

the Takeover 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've

chosen to accept one of your three bids

the winner was MB Financial a nine

billion dollar Chicago Bank the night of

the Takeover all of Heritage communities

branches became MB Banks Mitchell feiger

is mbceo it's almost as if nothing had

happened

uh almost nothing did happen uh it's

it's the same products it's the same

Services it's the same people taking

care of the same customers it was a

sweet deal for feiger the FDIC paid MB

Financial 3.5 million dollars MB got all

of the deposits customers and Loans if

some of those loans go bad in the future

the FDIC will pick up at least 80

percent of the losses we wondered what

Fieger thinks of the health of banking

today you have to believe that dozens

and dozens and dozens of more banks have

to fail

but it's okay

what do you mean it's okay it's okay

because I think the process is smooth

depositors are fully protected

by by an industry-funded FDIC insurance

um uh and I think that taking out the

weak players and taking some capacity

out of the industry is good it's good

for the industry it's good for the

survivors it will produce at the end a

much healthier banking system if you can

put Heritage Community Bank out of its

misery

why can't you do the same with Citigroup

first of all I don't talk about open

operating institutions we can only uh

deal with the resolution of a bank a

federally chartered or state chartered

depository institution and these very

large institutions that are creating the

headlines now these are really very

large Financial organizations so they

have it's more than a bank it's a broker

dealer it's offshore operations it's

foreign deposits we noticed that wild

giant Banks get bailed out investors in

failed Community Banks like Heritage get

wiped out Ben Bernanke the chairman of

the Federal Reserve says that the system

is unfair for smaller Banks and that's

just the way it is well I think that's

true and going forward I think we need

to really review the size of these

institutions and whether we should do

something about that bear surprised us

when she suggested that maybe the mega

Banks those bailed out by the taxpayers

shouldn't be allowed to exist in the

future I think that may be something a

Congress needs to think about actually

limit how big a bank can be yeah well

you know I think taxpayers rightfully

should ask

that if an institution has become so

large that there is no alternative

except for the taxpayers to provide

support

should 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'd 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 pay depositors even accounts

over the insurance limit were safe for

Cheryl Bates it was her fourth closing

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'm one

of the the good guys and that we want to

make sure that they get their money back

should their Bank fail that they are

going to be okay because the FDIC is

there

on September 15 2008 Lehman Brothers the

fourth largest Investment Bank in the

world declared bankruptcy sparking chaos

in the financial markets and nearly

Bringing Down the global economy

it was the largest bankruptcy in history

larger than General Motors Washington

Mutual Enron and Worldcom combined

the federal bankruptcy court appointed

Anton velucas a prominent Chicago lawyer

and former United States Attorney to

conduct an investigation to determine

what happened

included in the nine volume 2200 page

report was the finding that there was

enough evidence for a prosecutor to

bring a case against top Lehman

officials and one of the nation's top

accounting firms for misleading

government regulators and investors that

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 bankruptcy in the

world what were the effects the effects

were the financial disaster that we are

living our way through right now and who

got hurt everybody got hurt the entire

economy has suffered from the fall of

Lehman Brothers so the whole world yes

the whole world

when Lehman Brothers collapsed 26 000

employees lost their jobs and millions

of investors lost all or almost all of

their money triggering a chain reaction

that produced the worst financial crisis

and economic downturn in 70 years

Anton velukas's job was to provide the

bankruptcy court with accurate reliable

information that the judges could use to

resolve the claims of creditors picking

over Lehman's corpse had you ever done

anything like this before I've never

done anything like Lehman Brothers and I

don't think anybody else has ever 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 actually happened put the card's

face up on the table and let everybody

see what the facts truly are velukas's

team spent a year and a half

interviewing hundreds of former

employees and pouring over 34 million

documents they told of how Lehman bought

up huge amounts of real estate that it

couldn't unload when the market went

South how it had borrowed 44 dollars for

every one it had in the bank to finance

the deals and how Lehman Executives

manipulated balance sheets and financial

reports when investors began losing

confidence and competitors closed in did

these quarterly reports represent to

investor is a fair accurate

picture of the company's Financial

condition in our opinion they did not I

mean isn't that against the law

certainly in our opinion was against

civil law if you will there were

colorable claims that this was a fraud

yes my colorable claims for Lucas means

there is sufficient evidence for the

justice department or the Securities and

Exchange Commission to bring charges

against top Lehman Executives including

CEO Richard fold for overseeing and

certifying misleading financial

statements and against Lehman's

accountant Ernst young for failing to

challenge Lehman's numbers they'd fudge

the numbers they would move what turned

out to be approximately 50 billion

dollars of assets from the United States

to the United Kingdom just before they

printed their financial statements in a

week or so after the financial

statements had been distributed to the

public that 50 billion dollars would

reappear here in the United States back

on the books in the United States in the

next financial statement they would move

it overseas again and file the report

and then move it back right it sounds

like a shell game it was a shell game it

was a gimmick Lehman misused an

accounting trick called repo 105 to

temporarily remove the 50 billion

dollars from its ledgers to make it look

as though it was reducing its dependency

on borrowed money and was drawing down

its debt Lehman never told investors or

Regulators about it this is really

deception to make the company look

healthier than it was yes deliberate yes

how are you so sure of that because we

read the emails in which we observed

people saying that 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 they were doing it for

purposes of affecting the numbers do you

think limit Executives knew that this

was wrong for some of them certainly

there were concerns being expressed by

it at high levels about whether this is

appropriate what happens if the street

finds out about it so you know there was

a concern that there's a real question

about whether we can do this or whether

this was right or not one of those

people was Matthew Lee who had been a

senior executive at Lehman and the

accountant responsible for its Global

balance sheet Lee was one of the first

to raise objections inside Lehman about

the accounting trick known as repo 105.

it sounded like a rat poison repo 105

when I first heard it

um

so I investigated what it was and I

didn't like what I saw was there a point

in which you saw the accounting

principles employed by Lehman Brothers

change November 30th 2007 was the end of

our fiscal year

and I fully expected us you know to make

a loss that year like everyone else

and when I saw we made money it was a

record year in fact I thought that

doesn't sound right you knew the markets

were doing badly so why wasn't Lehman

doing badly and every time I found

something and I went to my boss or

whoever no response that was 10 months

before Lehman Brothers went bankrupt

Lee's position required him to sign off

on the accuracy of the firm's accounting

practices every quarter but in November

of 2007 he declined to do it by refusing

to sign it you were saying that you

didn't believe the numbers correct that

this wasn't a fair and accurate

representation of the financial

condition of Lehman Brothers right

something's up here why can't people

answer my questions you know why has

repo 105 doubled give me an answer

uh not you know nothing was said

Lee continued to press people for more

information but nothing changed in four

months before Lehman collapsed he sent

this letter to Lehman's top Executives

I've been telling you all year I've been

banging my head against the wall

I'm now putting in writing it says it

requires me to bring the attention to

management conduct and actions on the

part of the firm that I consider to be

possibly

unethical and unlawful yeah

what were you talking about specifically

well in that particular letter was

General there were so many specifics I

could have written laundry lists what

kind of a response did you get from this

letter it's like throwing a grenade I

wanted to wake somebody up at least to

address the topics it worked six days

after we sent that letter Matthew Lee

was downsized let go after 14 years but

Lehman Executives couldn't ignore the

letter and ask their accountants from

Ernst young to interview Matthew Lee and

in those interviews we have the notes

which are part of the report

he says very specifically 50 billion

dollars repo transactions moving money

off the balance sheet at quarter end so

our conclusion was Ernst young certainly

knew it as of that time

and did nothing with it the Lucas says

Ernst young was legally bound to make

sure that Lehman's audit committee and

its board of directors knew about Lee's

allegations of unethical and unlawful

accounting practices but they never did

did the audit committee know no did the

board of directors know no did Dick fold

know

did Dick vote though well he says no the

only place Lehman CEO Richard fold is

publicly answered questions about his

firm's bankruptcy has been in front of

Congress I have absolutely no

recollection whatsoever of hearing

anything about

or seeing documents related to repo 105

transactions while I was the CEO of

Lehman he said the same thing to me face

to face

do you believe him there was evidence

which would show that that's not

accurate the president of Lehman

Brothers told us that in fact he had

conversations with dick folt about this

and documents were shared with him which

would reflect the repo 105 transactions

and how they were being used Richard

fultz view on that was that he has no

knowledge of it you have other evidence

that he did a jury would have to decide

who's telling the truth but so far

there's been no jury to hear the

evidence

despite the Lucas's findings and the

supporting documents and testimony to

back them up the Securities and Exchange

Commission has not brought any charges

of any kind against former Lehman

executives

for the past few months we've made

numerous requests to interview the sec's

head of enforcement all of those

requests have been declined the

Securities and Exchange Commission is

not brought a case no they have not does

that bother you

I'm not permitted to be bothered by that

I'm you know my job was to set out the

facts lay it out they have to make their

own prosecutive decisions there is one

plausible explanation why the SEC hasn't

gone after top Lehman Executives as it

turns out some of Lehman's most

egregious accounting Shenanigans took

place right under the noses of

government Regulators how closely was

the SEC monitoring Lehman Brothers

during this time they were on premises

they were talking to the Lehman people

daily they officed there it was not

widely known at the time but during the

last six months of Lehman's existence

teams of officials from the SEC and the

Federal Reserve took up residence inside

the firm to monitor its precarious

financial situation they were inside the

building when Matthew Lee wrote his

letter to Lehman Executives alleging

unlawful accounting practices and they

were there when the practices took place

[Music]

valuca says the SEC also knew that

Lehman was being less than truthful when

it said that it had enough assets to

survive the crisis but that and other

damaging information was never disclosed

to investors who continued to pump

billions of dollars into the firm should

it have been disclosed absolutely isn't

the government the SEC in this case the

the people who were supposed to protect

the investors yes aren't they charged

with informing investors yes why didn't

they do it they may not have had the

expertise necessary to understand the

material they were receiving they were

getting the material whether they

understood it is another question 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

sec's Inspector General over the

previous four years he'd issued more

than 100 reports about major

deficiencies in the way the SEC did its

job if the SEC knew about some of these

problems at Lehman Brothers and they

weren't disclosed

doesn't it make it difficult for the SEC

enforcement division to come back and

bring action against Lehman Brothers

they were there they saw it yeah I think

that that's definitely an impediment to

a potential case and certainly if you go

before a jury the defense lawyers can

make a big point about the fact that you

were there you knew about it why didn't

you do anything at the time now you're

coming after them in fact former Lehman

CEO Richard fold seemed to be trying out

that defense when he testified before

Congress in 2008. throughout 2008 the

SEC and the Federal Reserve conducted

regular and at times daily oversight of

our business and our balance sheet they

saw what we saw in real time let's just

assume for a moment that Anton velucas's

findings are true I mean isn't this just

a free ticket for executives to say well

look you know Lima did so and so and

nothing happened to them right no I

think absolutely that's a serious

problem I mean obviously there has been

a tremendous financial crisis the people

who engaged in proper behavior need to

be punished I think it's critical for

the SEC to go after not just companies

but also individuals where they have the

evidence to do so when Lehman's

bankruptcy was finally settled there

were claims against it for 370 billion

the creditors settled for about 20 cents

on the dollar

former CEO Richard fold now runs a

Consulting business in Manhattan he lost

most of his fortune and is embroiled in

a raft of litigation but is still a

wealthy man most of his senior

colleagues Ed Lehman have landed on

their feet

Ernst young Lehman's accounting firm is

now being sued by New York state for

aiding and abetting a fraud and Matthew

Lee the senior accountant who blew the

whistle at Lehman is still looking for

work unconvinced that much has changed

in the world of Finance over the last

four years you know the entrepreneurs of

Wall Street are continually getting more

and more sophisticated and they don't

necessarily want Regulators orders

Auditors to fully understand what

they're doing do you believe the balance

sheets of Big Wall Street firms if you

read them now these numbers are so big

and the financial instruments are so

complex that

you know nobody stands a chance really

of understanding I'd have more fun

investing in crap tables in Las Vegas

than

Wall Street firms

banks are supposed to lend money and

when they stop as they have in recent

months the workings of our entire

economy are threatened credit became so

Frozen the government had a step in this

past week and take an ownership stake in

the country's biggest banks on Monday

treasury secretary Henry Paulson

summoned the CEOs of the nine largest

banks to Washington and gave them a

massive amount of money so that they

would start lending again

the largest of the banks is Bank of

America now partly owned by the United

States of America

the head of Bank of America is Ken Lewis

he says when he and the others met at

the treasury Department it became clear

that secretary Paulson's offer was an

ultimatum no negotiation was allowed no

negotiations no so in other words take

it or take it right one of those it said

that he told the bankers and you this is

your patriotic Duty

I don't remember if he used the word but

but there was an element to that that

this was the right thing for the for the

American Financial system

and therefore it was the right thing for

America did you feel that was that a

persuasive line of absolutely I I deeply

believe that

I think he was right on now explained

why it was so important to the

government that everybody agreed that

the the nine largest banks are all in

this if you have a bank in that group

that really really needed the capital

you don't want to expose that bank in

other words stigmatize it so everybody

knows that they're not as good as

somebody else most of you were just

stunned by the amount of money that the

government put on the table yeah at

least I I was and I think most everybody

else was the total was 125 billion

dollars of taxpayers money Bank of

America Lewis says didn't need the money

but got 25 billion anyway do you have

any choice in this in other words can

you take the money and not lend we

wouldn't want to to do it that way

because you can make more money lending

and so it the intent will be to use it

to to grow loans and and to make more

net income but under the treasury plan

there's no requirement that a bank used

the money to lend it could use it to

acquire weaker competitors or put it in

treasury bills one of the few strings

Paulson attached relates to salaries a

bank would have to pay more taxes if it

paid an executive over five hundred

thousand dollars a year

one of the bankers in the meeting

objected and started arguing with

Paulson and that's when Ken Lewis a

Critic of excessive executive

compensation spoke up I did make the

point that we needed to stop talking

about executive cop and get on with this

because that should not stop the deal

actually you're quoted as saying if if

this is what's going to stop this you're

out of your mind I did use I did use the

phrase out of your mind because why

because you thought if it got out

publicly then know that the importance

of this deal getting done versus this

these elements of executive comp

just out of sync I mean this was so much

more important and all of us can can

take a little less money with his salary

and lucrative stock and options Lewis

took home 25 million dollars last year

but he's one of the few in the business

who can be fired without a golden

parachute and he thinks Executives on

Wall Street have made too much money I

think they were overpaid it's more

egregious in financial services than any

other industry that I know of we need to

cut back compensation in this industry

so this is a question everybody wants

answered

is this socialism have we now

sort of stepped taken a huge step away

from the kind of freewheeling capitalism

that we've known for the last 30 or so

years I don't know what we'll call it

but it will be different and there will

be more regulation the era of the golden

era of financial services is over in my

opinion but why isn't it socialism if

government starts owning

Banks and that will not last forever we

will we will pay off the preferred stock

at some point and come back to not being

owned partially by the government can

you give us what your sense of how long

it's going to take I think somewhere

between three and five years we'll pay

it off and then and then you go back to

uh

more toward capitalism it's said that

one of the main reasons the bank is

doing well is because of your decision

not to get into subprime mortgages

in uh in 2001 my first year as CEO

we decided that we just didn't like the

business it was it was too risky and so

we decided to get out of it he makes it

sound like a routine decision but

getting out of most of the financial

products that brought Wall Street

crashing down was significant and now

Lewis runs one of the country's

healthiest Banks which just keeps

growing we saw the strongest growth in

deposits in the third quarter we've ever

seen in our history he told us that

during this crisis people are taking

their money out of other Banks and

putting it in his we Bank every other

American family you know in America you

what we Bank every other American family

in the United States no yeah

half of the American families does

business with us in some form of fashion

you mean credit cards auto loans

deposits accounts checking half the

country

the way B of A accomplished this was by

buying the number one company in

virtually every category of banking for

instance it bought Countrywide and

mortgages and MBNA in credit cards now

it's 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 B of A's trading floor and

it's 600 miles south of New York

the biggest bank in America is

headquartered in Charlotte some people

don't even know what state Charlotte's

in whether it's North or South Carolina

am I insulting you no in fact I always

say Charlotte North Carolina just so so

I don't have to ask a question

you have this building this building

that building that building then there's

one next to us that building not

surprisingly B of A seems to own

Charlotte and the town grew with the

bank

Hugh McCall was the bank's CEO before

Lewis it started out as a 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

this sort of Southern Underdog of

wanting to be masters of our own fate

and not be dependent on

Northern Capital when you were growing

and you'd go to New York did they not

treat you well is is that did they treat

you like sort of the country bumpkins

and I guess when I was a young man I

always felt a little uncomfortable in

New York this uncomfortable feeling that

they they weren't respecting you did you

have it in your head I'm going to

conquer New York

well that would overstate New York I was

more interested in America

did you really think that you could

overtake Wall Street

well have you ever played tennis once

you size up the competition and decide

whether you can beat him or not hey and

you thought you could I thought I could

and they did

the crowning Victory came last month

when wall Street's most famous

investment houses were collapsing under

the weight of their toxic portfolios and

needed rescuing they went had in hand to

Charlotte North Carolina

everybody thought you were going to buy

Lehman Brothers Friday night that was

the buzz Monday morning

it's not Layman Brothers It's Merrill

Lynch what happened between Friday night

and Monday morning I had talked to

secretary Paulson that that Friday and

basically said we didn't think we could

do the deal without government

assistance with Layman with Lehman that

we couldn't do it without some help

and then about 10 30 John thain called

it was Saturday morning September 13th

John thain the CEO of Merrill Lynch was

on the line Layman was on its death bed

Merrill Lynch was said to be next you

always wanted Merrill Edge we've always

thought that was the best you were

drooling for Maryland we have always

thought it was deals of this magnitude

take months of due diligence and vetting

this deal was thrown together over a

weekend with Bank of America spending 50

billion dollars to buy one of wall

Street's emblematic companies

but now B of A is exposed to Merrill

Lynch's poisonous Investments and

continuing losses the question is did

Ken Lewis pay too much some think that

we should have waited until Monday and

see if they would have gone bankrupt

you're saying that if you'd waited they

would they might have gone bankrupt some

think something we would have gotten it

for you know dirt cheap but my point is

you would have had a tarnished brand

you'd have had chaos you would have had

a Court ruling over all of the sale of

assets and that that it was worth it to

us to pay a more market price so that we

could not have that happen

so what about Merrell's 17 000 Brokers

Lewis has said their salaries are too

high is New York going to lose a lot of

jobs do you think I don't think a lot I

mean obviously we have to we we've got

seven billion dollars of call savings to

get and so that that means that there

will be jobs eliminated seven billion

seven billion dollars in Costa oh my God

so the government's rescue isn't helping

everyone on Wall Street what about Main

Street has the lending started did this

jump start lending again it should it's

only been a few days obviously and it

will make a big difference it will we're

sitting down with you Wednesday

the market is at this moment going down

again the Market's going down and what's

worrying me is the fact that we had

we've gotten the financial system in

much much better shape but the economy

is still a question mark and and we we

are in a recession by any standard other

than maybe some technical standard it

feels like a recession and we think it's

going to take some time before you know

it gets better Bank of America is the

largest mortgage lender in the country

so when do you think the housing

problems are going to bottom out our

best guess now is that the toward the

end of the first half of next year we'll

start to see signs either signs of the

bottoming or the actual bottoming what

about credit card debt is that going to

be the next shoe to drop it uh in some

ways already is because uh credit card

losses have have risen pretty

substantially

credit card debt and Auto Loan defaults

are part of why the bank's third quarter

earnings dropped nearly 70 percent Lewis

called the situation a damn disaster do

you think your job is secure

I've not it must I must think that

because I don't I don't think about that

question it doesn't matter your mind I

threw you a Zinger didn't I yeah yeah

did you defeat Wall Street

now to some degree we're part of it so I

don't I don't know that we defeated it

but well if you're number one right and

if the idea was to compete with New York

or Wall Street

um you won we have yes we have we have

one in that sense

when it comes to bailouts of American

Business Barney Frank and the Congress

may be just getting started nearly 2

trillion tax dollars have been shoveled

into the hole that Wall Street dug and

people wonder where's the bottom

it turns out the abyss is deeper than

most people think because there is a

second mortgage shock heading for the

economy in the executive suites of Wall

Street in Washington you're beginning to

hear alarm about a new wave of mortgages

with strange names that are about to

become all too familiar if you thought

sub-primes were insanely Reckless wait

till you hear what's coming

what's the future hold well this shows

one of the best guides to the danger

ahead is Whitney Tilson he's an

investment fund manager who's made such

a name for himself recently that these

investors who manage about 10 billion

dollars gathered to hear him last week

Tilson saw a year ago that subprime

mortgages were just the start we had the

greatest asset bubble in history and now

that bubble is bursting the single

biggest piece of the bubble is the U.S

mortgage market and we're probably about

halfway through the unwinding and

bursting of that bubble halfway it may

seem like all the Carnage out there we

must be almost finished but there's

still a lot of pain to come in terms of

write downs and losses that have yet to

be recognized in 2007 Tilson teamed up

with Amherst Securities an investment

firm that specializes in mortgages

Amherst had done some Financial

detective work analyzing the millions of

mortgages that were bundled into those

mortgage-backed Securities That Wall

Street was peddling it found that the

sub-primes loans to the least credit

worthy borrowers were defaulting but

Amherst also ran the numbers on what

were supposed to be higher quality

mortgages and they were frankly

terrifying as data we'd never seen

before and that's what made us realize

holy cow things are going to be much

worse than anyone anticipates the

trouble now is that the insanity didn't

end with the subprimes there were two

other kinds of exotic mortgages that

became popular called altas and option

arms the option arms in particular lured

borrowers in 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 they went up and so did the

monthly payment so a mortgage of say

eight hundred dollars a month could

easily jump to fifteen hundred dollars

now the alt a and option arm loans made

back in the Heyday are starting to reset

causing the mortgage payments to go up

and homeowners to default the defaults

right now are are incredibly high at

unprecedented levels and there's no

evidence that the default rate is

tapering off those defaults almost

inevitably are leading to foreclosures

and homes being auctioned and home

prices continuing to fall what you seem

to be saying is that there 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 hit yet the alt a and option arm

resets when homeowners will pay higher

interest rates in the next three years

we're at the beginning of a second wave

how big is the potential damage from the

old days compared to what we just saw in

the subprimes well the subprime was

approaching a trillion the Alta is about

a trillion and then you have option arms

on top of that that's probably another

five to six hundred billion on top of

that how many of these option arms would

you imagine are going to fail well north

of 50 percent my gut would be 70 percent

of these option arms will default how do

you know that we know it based on

current default rates and this is before

the reset so people are defaulting even

on the the little three percent teaser

interest only rates they're being asked

to pay today

that second wave is coming ashore at a

place you might call the repo Riviera

Miami-Dade County

Oscar Munoz used to sell real estate now

his company clears out foreclosed homes

the business is just going through the

roof for us fortunately for us

unfortunately for the poor families who

are going through this I wonder do you

ever come to houses where the people are

still here absolutely that's really a

sad situation I'd rather not meet the

people why not it's not easy to to come

in and move a family out

it's it's just our job to do it for the

bank it's it's just the nature of of

what's going on in the market right now

what is going on in the market right now

how much work are you getting every day

we have 20 30 assignments a day a day

just your company just our company and

we're one of the few companies right now

we're hiring we hire we have to hire

people because the demand is is so high

people who've been evicted tend to leave

stuff behind the next house is usually

much smaller Banks hire Munoz to move

the possessions out where by law they

remain for 24 hours often the neighbors

pick through the remains once the homes

are empty the hard part starts trying to

find buyers in a free fall market Miami

real estate broker Peter zalewski talks

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 inventories in some form of

distress they need someone to clean it

up what's the name of your company it's

called condo vultures Realty what does

that mean that in times of distress in

times of uh downturn there's opportunity

and you know vultures are clean up the

mess a lot of people seem to think they

kill but they don't actually kill they

clean the killing in Miami was done by

the developers back when it seemed that

the party would never end they sold

hyper-inflated condos at what amounted

to real estate orgies sales parties for

invited guests who were armed with

option arm and all day loans there were

red ropes out outside they had hired

cameramen and they had hired

photographers to almost set the scene of

a Paparazzi they were hiring fake

Paparazzi to make the customers feel

like they were special you were selling

a lifestyle what role did these exotic

mortgages play these alt A's and the

option arms they were essential they

were necessary without the Altair option

our mortgage this boom never would have

occurred it never would have occurred

because without the altez and the option

arms many buyers never would have

qualified for a loan the banks and the

Brokers were getting their money up

front in fees so the more they wrote the

more they made they stopped checking

whether the income was even real they

turned to low and no doc loans so-called

Liars loans and jokingly referred to as

ninja loans no income no job no assets

and they were still willing to lend but

help me out here how does that make

sense for the lender it would seem to be

reckless in the extreme it was but the

key assumption underlying the

willingness to do this was that home

prices would keep going up forever and

in fact home prices Nationwide had never

declined since the Great Depression on

the way up everyone wanted in 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 believe 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 on each now they're all financed

with option armed loans what did you

understand about the loans well

unfortunately I didn't ask too many

questions I mean in the old days I would

shop around but because of the frenzy

and I was so busy looking to buy other

properties I didn't really focus on

shopping around for mortgage brokers but

if you're investing in real estate

you're buying multiple properties you

should be asking a lot of questions yeah

why didn't you ask I was busy I was

really busy looking at property all the

time all day long did you read the

paperwork no I didn't now she's losing

money on every property you know that

there are people watching this interview

who are saying you know she was just

foolish

she was greedy and foolish she was

buying small apartment buildings and

wasn't paying enough attention to how

they were financed my full-time job is

on my acupuncturist so this is just a

side thing you're an acupuncturist but

you got stuck in real estate yeah

geosmith says she was misled and she

hopes to renegotiate her loans but many

other buyers have simply walked away

from their properties this Miami luxury

building was a sellout but when we

visited a quarter of the condos were in

foreclosure what did this place go for

this was originally purchased in October

of 2006 for 2.4 million dollars 2.4

million what's it worth now uh the

asking price from the lender is 939 so

it lost a million and a half dollars in

value in a couple of years since the top

two years

and there are tough years to come

because just like the subprimes the alt

a and option arm mortgages were bundled

into Wall Street Securities and sold to

investors in a nutshell 2009 looks like

what to you miserable 2010. minutes are

even worse

Sean Egan runs a credit rating firm that

analyzes corporate debt Fortune Magazine

cited Egan as one of six Wall Street

Pros who predicted the fall of the

financial Giants this next wave of

defaults which everyone agrees is

inevitably going to happen how Central

is that to what happens to the rest of

the economy

core it's core because housing is such

an important part

we're not going to get the Housing

Industry back on track until we clear

out this garbage that's in there that

hasn't cleared out yet in fact we

haven't seen the bottom it's getting

worse what do you think there are some

statistics from the National Association

of Realtors and they track the the

supply of housing units on the market

and that's grown from 2.2 million units

about three years ago up to 4.5 million

units earlier this year so you have you

have the massive Supply out there of of

units that need to be sold well with the

housing Supply increasing that much what

does it mean it means that this problem

the economic difficulties are not going

to be resolved in a short period of time

it's not going to take six months it's

not going to take 12 months we're

looking at probably about three four or

five years before this over

the supply overhang is worked through in

the next four years eight million

American families are expected to lose

their homes but even after the

residential meltdown Whitney Tilson says

blows to the financial system will keep

coming the same craziness that occurred

in the mortgage Market occurred in the

commercial real estate markets and

that's taking a little longer to to show

but but they're going to be big losses

there credit cards auto loans you name

it so we're maybe halfway through the

mortgage bubble but we may only be in

the third inning of the overall bursting

of this asset bubble does that mean that

the stock market is going to continue

plunging as we've seen the last several

months actually we're the most bullish

we've been in 10 years of managing money

and the reason is is because the stock

market for the first time I can say this

in years has finally figured out how bad

things are going to be and the stock

market is forward-looking and with U.S

stocks down nearly 50 percent from their

highs we're actually finding Bargains

Galore we think Corporate America is on

sale

the stock market will still have a lot

of figuring to do with more troubling

news on the horizon The Mortgage Bankers

Association says one out of 10 Americans

is now behind on their mortgage that's

the most since they started keeping

records in 1979.