Wlliam Black, a former bank regulator, made a TED Talk last fall that I wish I had made (but I couldn’t be as eloquent although I have a cooler tie). It should be required viewing by anyone who is connected with the housing industry.

Black’s presentation lays out the financial crisis in the proper context. He provides the recipe for disaster for all to see and it is NOT complicated to understand. Change the perverse incentives and a lot of this goes away. So many opportunities to avoid this crisis were missed.

And this is the first time I’ve heard someone talk about the unrelenting pressure that banks (and mortgage brokers) placed on appraisers, essentially forcing our industry to either make the number of get out of town. By 2007, 90% of appraisers said they were coerced by banks to make the number. That seems low to me. It had to be 100% or else those 10% of appraisers were living in a cave.

I’ll be returning to this video periodically for the foreseeable future as a reminder.

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5 Responses to “Spectacular TED Talk on The US Financial Crisis: How it Happened + How to Prevent”

  1. Thank you for your kind comments.

    I’d love to see you change your picture to one where you are wearing your cooler tie — the one I was wearing during my TED talk is by the Haida people of the Pacific Northwest.

    The 10% of appraisers who didn’t report being coerced during 2006 may well have been the folks who gave into that coercion.

    Best, Bill Black University of Missouri-Kansas City

    • Thank YOU Bill – It was such a joy to watch it – my wife told me about it – I always appreciate it when someone is able to take seemingly complex situations and distill them into understandable story lines. It’s hard to do well. I lived through this period as an appraiser wondering if I missed a math and ethics class in college somehow. To great relief, you made it clear I didn’t.

      You’re definitely right about the 10%. Several of my competitors were in that group and they had mushroomed in size during the boom because they were morally flexible, but eventually either lost their licenses or were crushed by the HVCC agreement b/n Cuomo and Fannie that essentially prevented mortgage brokers from ordering appraisals through them. We avoided mortgage broker work unless we were paid before we gave them the value so we couldn’t be pressured. Needless to say, we didn’t get much work from that sector while my former competitors thrived.

      For ties I tend to go with Ted Baker. ;)

  2. Great stuff. Thanks for sharing Jonathan. I may have to give this some play time on my blog at some point too.

  3. Kevin Byrnes says:

    William Black, thank you for a presentation that is clear and convincing; and for that matter, it sounds beyond a reasonable doubt, too. I really enjoyed it.

    Jonathan, thanks for posting this–my appraisal friend Maureen Sweeney put it on her FB page. Appraisal fraud in Chicago was spectacular; we did work with the Chicago Police Department’s Organized Crime Unit and the bad underwriting we saw in the mortgage files was comical–the old laugh-or-cry scenario. E.g., “She makes $40,000,” scrawled on a sheet of paper, undated, no reference to who “she” was, no indication of the author of the narrative fragment, etc. Enough straw buyers to to stuff an army of scarecrows. Dilapidated 2-flats in Englewood, at successive prices like $50,000; $130,000; $240,000; $320,000, all within a year, and nothing done to improve the 100-year old frame structures (many of which you could now buy for hundreds or a few thousand dollars).

    This presentation is consonant with book I have just read, Age of Greed, by Jeff Madrick. If you don’t mind, here is a link to the review of that book in the New York Review of Books nearly 3 years ago, written by Paul Krugman and Robin Wells:

    http://www.nybooks.com/articles/archives/2011/jul/14/busts-keep-getting-bigger-why/.