THE HOUSING MARKET DIDN’T SEEM LIKE AN OBVIOUS BENEFICIARY OF the age of easy money. As the World Trade Center toppled on September 11, 2001, and Osama bin Laden’s lieutenants boasted of crippling the U.S. economy, the real estate market and the overall economy wobbled—especially around the key New York area. Home prices had enjoyed more than five years of gains, but the economy was already fragile in the aftermath of the bursting of the technology bubble, and most experts worried about a weakening real estate market, even before the tragic attacks.
But the Federal Reserve Board, which had been lowering interest rates to aid the economy, responded to the shocking September 11 attacks by slashing interest rates much further, making it cheaper to borrow all kinds of debt. The key federal-funds rate, a short-term interest rate that influences terms on everything from auto and student loans to credit-card and home-mortgage loans, would hit 1 percent by the middle of 2003, down from 6.5 percent at the start of 2001, as the Fed, led by Chairman Alan Greenspan, worked furiously to keep the economy afloat. Rates around the globe also fell, giving a green light to those hoping for a cheap loan.
For years, Americans had been pulled by two opposing impulses—an instinctive distaste of debt and a love affair with the notion of owning a home. In 1758, Benjamin Franklin wrote: “The second vice is lying; the first is running in debt.”1 The dangers of borrowing were brought home in the Great Depression when a rash of businesses went bankrupt under the burden of heavy debt, scarring a generation. In the 1950s, more than half of all U.S. households had no mortgage debt and almost half had no debt at all. Home owners sometimes celebrated paying off their loans with mortgage-burning parties, setting loan documents aflame before friends and family. The practice continued into the 1970s; Archie Bunker famously held such a get-together in an episode of All in the Family.
Until the second half of the twentieth century, borrowing for anything other than big-ticket items, such as a home or a car, was unusual. Even then, home buyers generally needed at least a 20 percent down payment, and thus required a degree of financial well-being before owning a home.
But the forces of financial innovation, Madison Avenue marketing, and growing prosperity changed prevailing attitudes about being in hock. Two decades of robust growth justified, and encouraged, the embrace of debt. Catchy television commercials convinced most people that debt was an ally, not an enemy.
“One of the tricks in the credit-card business is that people have an inherent guilt with spending,” said Jonathan Cranin, an executive at the big advertising agency McCann-Erickson Worldwide Advertising, in 1997, explaining the rationale behind MasterCard’s “Priceless” campaign. “What you want is to have people feel good about their purchases.”2
By the summer of 2000, household borrowing stood at $6.5 trillion, up almost 60 percent in five years. The average U.S. household sported thirteen credit or charge cards and carried $7,500 in credit-card balances, up from $3,000 a decade earlier.3
Americans borrowed more in part because there was more money to borrow. Thanks to Wall Street’s 1977 invention of “securitization,” or the bundling of loans into debt securities, lenders could sell their loans to investors, take the proceeds, and use them to make even more loans to consumers and companies alike. Thousands of loans ended up in these debt securities. So if a few of them went sour, it might have only a minor effect on investors who bought the securities, so the thinking went.
The shift in attitude toward debt gave life to the real estate market. More than most nations, the United States worked at getting as many people in their own homes as possible. Academic data demonstrated that private-home ownership brought all kinds of positive benefits to neighborhoods, such as reduced crime and rising academic achievements. The government made the interest on mortgage payments tax deductible, and pressure on Congress from vested interests in the real estate business kept it that way; other benefits doled out to home sellers and buyers became equally sacred cows.
Low-income consumers and those with poor credit histories who once had difficulty borrowing money found it easier, even before Alan Greenspan and the Federal Reserve started slashing interest rates. In 2000, more than $160 billion of mortgage loans were outstanding to “subprime” borrowers, a euphemistic phrase invented by lenders to describe those with credit below the top “prime” grade. That figure represented more than 11 percent of all mortgages, up from just 4 percent in 1993, according to the Mortgage Bankers Association.
Low borrower rates helped send home prices higher after the 2001 attacks. Until 2003, the climb in prices made a good deal of sense, given that the economy was resilient, immigration strong, unemployment low, and tracts of land for development increasingly limited.
Then things went overboard, as America’s raging love affair with the home turned unhealthy. Those on the left and right of the political spectrum have their favorite targets of blame for the mess, as if it was a traditional Whodunit. But like a modern version of Agatha Christie’s Murder on the Orient Express, guilt for the most painful economic collapse of modern times is shared by a long cast of sometimes unsavory characters. Ample amounts of chicanery, collusion, naiveté, downright stupidity, and old-fashioned greed compounded the damage.
AS HOME PRICES SURGED, banks and mortgage-finance companies, enjoying historic growth and eager for new profits, felt comfortable dropping their standards, lending more money on easier terms to higher-risk borrowers. If they ran into problems, a refinancing could always lower their mortgage rate, lenders figured.
After 2001, lenders competed to introduce an array of aggressive loans, as if they were rolling out an all-you-can-eat buffet to a casino full of hungry gamblers. There were interest-only loans for those who wanted to pay only the interest portion of a loan and push off principal payments. Ever-popular adjustable-rate mortgages featured superslim teaser rates that eventually rose. Piggyback loans provided financing to those who couldn’t come up with a down payment.
Borrowers hungry for riskier fare could find mortgages requiring no down payments at all, or loans that were 25 percent larger than the cost of their home itself, providing extra cash for a deserved vacation at the end of the difficult home-bidding process. “Liar loans” were based on stated income, not stuffy pay stubs or bank statements, while “ninja” loans were for those with no income, no job, and no assets. Feel like skipping a monthly payment? Just use a “payment-option” mortgage.
By 2005, 24 percent of all mortgages were done without any down payments at all, up from 3 percent in 2001. More than 40 percent of loans had limited documentation, up from 27 percent. A full 12 percent of mortgages had no down payments and limited documentation, up from 1 percent in 2001.
For those already in homes, lenders urged them to borrow against their equity, as if their homes were automated-teller machines. Citigroup told its customers to “live richly,” arguing that a home could be “the ticket” to whatever “your heart desires.”
“Calling it a ‘second mortgage,’ that’s like hocking your house,” said Pei-Yuan Chia, a former vice chairman at Citicorp who oversaw the bank’s consumer business in the 1980s and 1990s. “But call it ‘equity access,’ and it sounds more innocent.”4
As lenders began exhausting the pool of blue-chip borrowers, they courted those with more scuffed credit. Ameriquest, which focused on loans to subprime borrowers, ran a suggestive ad in the 2004 Super Bowl showing a woman on a man’s lap after an airplane hit sudden turbulence, saying “Don’t Judge Too Quickly … We Won’t.”
Head-turning growth at Ameriquest, New Century Financial, and other firms focused on these subprime borrowers put pressure on traditional lenders to offer more flexible products of their own. Countrywide Financial Corp.’s chairman, Angelo Mozilo, initially decried the lowered lending standards of other banks—until his company began to embrace the practices of the upstarts.
During the 1980s, Mozilo, a forceful executive and gifted salesman born to a butcher in the Bronx, taught employees how to sell mortgages quickly and efficiently, focusing on plain-vanilla, fixed-rate loans. The banking establishment didn’t give Mozilo and his California operation much of a chance, but by the early 2000s, profits were soaring, and the company was the largest mortgage lender in the country.
Mozilo didn’t so much run Countrywide Financial as rule over it. Rivals called him “The Sun God,” both for how his employees seemed to worship him as well as for his deep, permanent tan. Mozilo drove several Rolls-Royces, often in shades of gold, and paid his executives hundreds of thousands of dollars. Mozilo’s shiny white teeth, pinstriped suits, and bravado helped him both stand out and send a message: He was going to shake up the staid industry.
By 2004, competitors were biting at Mozilo’s heels, and Countrywide began to adjust its conservative stance, pushing adjustable-rate, subprime mortgages, and other “affordability products.” ARMs were 49 percent of its business that year, up from 18 percent in 2003, while subprime loans were 11 percent, up from less than 5 percent.5 Mozilo said down payments should be eliminated so more people could buy homes, “the only way we can have a better society.” He called down payments “nonsense” because “it’s often not their money anyway.”6
Mozilo was merely reacting to executives like Brad Morrice. In the early 1990s, Morrice worked at a mortgage lender in Southern California, watching housing prices in the region swing violently. In 1995, Morrice, along with two partners, pulled together $3 million to form New Century, a lender focused on borrowers with poor credit sometimes ignored by major lenders. They chose a name that seemed to foreshadow big changes on the way for the nation.
The New Century offer: People with bad credit could get loans to buy a home, albeit at much higher rates than those offered to borrowers with pristine credit. To limit their risks, New Century’s executives had the good sense to sell their loans to investors attracted to the hefty interest rates. It was a blueprint followed by rival lenders. Orange County in Southern California quickly became the epicenter of subprime lending.
Morrice and his partners took New Century public in 1997, just as the housing market began to heat up. New Century, which billed itself as “a new shade of blue chip,” reached out to independent mortgage-brokerage firms around the country, often tiny, local outfits that found customers, advised them on which types of loans were available, and collected fees for handling the initial processing of the mortgages. Brokers favored lenders like New Century that made loans quickly, and didn’t always insist on the most accurate appraisals.
A revolution in home buying was under way: The same borrowers who once saw banks turn up their noses at them now found it easy to borrow money for a home. With immigrants rushing into Southern California, and those with heavy debt or limited or dented credit history trying to keep up with rising home prices, Morrice and his partners enjoyed a gold rush.
As profits rolled in, New Century’s executives chose a black-glass tower in Irvine, California, as their headquarters, and treated their sales force of two thousand to chartered cruises in the Bahamas. Later, they held a bash in a train station in Barcelona and offered top mortgage producers trips to a Porsche driving school. A “culture of excess” was created, says a former computer specialist at the company.
Lenders like New Century relaxed their lending standards, a sharp break with past norms in the business. Regulators gave New Century and its rivals leeway, and New Century became the nation’s second-largest subprime lender, competing head-to-head with older rivals like Countrywide and HSBC Holdings PLC. Wall Street was impressed; David Einhorn, a hedge-fund investor with a stellar record, became a big shareholder and joined the company’s board of directors.
By 2005, almost 30 percent of New Century’s loans were interest-only, requiring borrowers to initially pay only the interest part of the mortgage, rather than principal plus interest. But such loans exposed borrowers to drastic payment hikes when the principal came due. Moreover, more than 40 percent of New Century’s mortgages were based on the borrowers’ stated income, with no documentation required.
Some employees, like Karen Waheed, began having qualms about whether customers would be able to make their payments. She worried that some colleagues weren’t following the company’s rule that borrowers had to have at least $1,000 in income left over each month, after paying the mortgage and taxes.
“It got to a point where I literally got sick to my stomach,” she recalls. “Every day I got home and would think to myself, I helped set someone up for failure.”7
By 2005, “nonprime” mortgages made up nearly 25 percent of loans in the country, up from 1 percent a decade earlier. One-third of new mortgages and home-equity loans were interest-only, up from less than 1 percent in 2000, while 43 percent of first-time home buyers put no money down at all.
Rather than rein it all in, regulators gave the market encouragement, thrilled that a record 69 percent of Americans owned their own homes, up from 64 percent a decade earlier. In a 2004 speech, Federal Reserve chairman Alan Greenspan said that borrowers would benefit from using adjustable-rate mortgages, which had seemed risky to some, and were a type of loan the Bank of England was campaigning against. Greenspan clarified his comments eight days later, saying he wasn’t disparaging more conservative, fixed-rate mortgages, but his comments were interpreted as a sign that he was unconcerned with the housing market. In the fall of 2004, Greenspan told an annual convention of community bankers that “a national severe price distortion seems most unlikely.”
The Fed also chose not to crack down on the growing subprime-lending industry, even as some home loans were signed on the hoods of cars. In many states, electricians and beauticians were given more scrutiny and training than those hawking mortgages. Several years later, Greenspan said, “I did not forecast a significant decline because we had never had a significant decline in prices.”
Lenders ramped up their activity only because a pipeline of cash was pumping hard, dumping money right in front of their headquarters. The pipeline usually went through Wall Street. After New Century issued a mortgage, it was bundled together with other mortgages and sold to firms like Merrill Lynch, Morgan Stanley, and Lehman Brothers for ready cash. New Century used the money to run its operations and make new loan commitments. The quasi-government companies Fannie Mae and Freddie Mac, pushing for growth, also became hungry for the high-interest mortgages from New Century and others, egged on by politicians pushing for wider home ownership.
“I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.… I want to roll the dice a little bit more in this situation towards subsidized housing,” Massachusetts Democrat Barney Frank, then the ranking minority member of the House Financial Services Committee, said about Fannie Mae and Freddie Mac in September 2003. Sen. Charles Schumer (D-New York) expressed worries that restricting the big companies might “curtail Fannie and Freddie’s [affordable-housing] mission.”
By selling its loans to Fannie and Freddie, as well as to the ravenous Wall Street investment firms, companies like New Century didn’t need to worry much if they sometimes handed out mortgages that might not be repaid. Like playing hot potato, they quickly got them off their books. Checks and balances in the system were almost nonexistent. Home appraisers, for example, placed inflated values on homes, paving the way for the mortgage deals, knowing that if they didn’t play along, their competitors would.
Banks like Lehman Brothers were eager to buy as many mortgages as they could get their hands on because the game of hot potato usually didn’t stop with them. Wall Street used the mortgages as the raw material for a slew of “securitized” investments sold to investors. Indeed, one of the things the United States excelled at was slicing up mortgages and other loans into complex investments with esoteric names—such as mortgage-backed securities, collateralized-debt obligations, asset-backed commercial paper, and auction-rate securities—and selling them to Japanese pension plans, Swiss banks, British hedge funds, U.S. insurance companies, and others around the globe.
Though these instruments usually didn’t trade on public exchanges, and this booming world was foreign to most investors and home owners, the securitization process was less mysterious than it seemed.
Here’s how it worked: Wall Street firms set up investment structures to buy thousands of home mortgages or other kinds of debt; the regular payments on these loans provided revenue to these vehicles. The firms then sold interests in this pool of cash payments to investors, creating an investment for every taste. Though the loans in the pool might have an average annual interest rate of 7 percent, some investors might want a higher yield, say 9 percent. The Wall Street underwriter would sell that investor an interest in the cash pool with a 9 percent yield. In exchange for this higher rate, these investors would be at the most risk for losses if borrowers started missing their mortgage payments and the pool’s revenue was lower than expected. Moody’s or Standard & Poor’s might give this slice, or “tranche,” of the pool a BBB rating, or just a rung above the “junk” category.
Other investors, though, might be content with that 7 percent yield; they wouldn’t see any losses until the BBB slice was hit. As such, these claims might command a higher, AA rating. Still other investors might want a safer investment yet and be comfortable getting only 5 percent a year; they would receive a slice of the pool with a much higher rating, say AAA.
Dozens of tranches, or claims on the packaged pools of assets, were created in a typical securitization, most rated AAA or close to it, and each paying investors interest based on expected payments of the pool. When Joe Sixpack sent his $1,500 monthly mortgage payment to New Century, the check, along with those of other home owners, would find its way to these “structured” vehicles, where they’d start paying off holders like a cascading waterfall. Part of Joe’s payment first would go to satisfy holders of the AAA slice at the top of the pool, and then trickle down to holders of the tranches rated BBB, BBB– and BB–, each getting paid in full along the way. Losses would infiltrate up from the bottom. So the highest-rated pieces got the first chance at income but the lowest rate of return, while the lowest got the first losses and the highest potential return.
To try to ensure that losses wouldn’t result, Wall Street firms made sure there was more revenue coming into the vehicle than it needed to pay out, just in case there were problems. Or they mixed in other kinds of revenue, such as claims on auto loans or even aircraft leases. To ensure proper diversification, loans were acquired from all over the country and from a variety of different lenders. The resulting investment product was called an asset-backed bond because it was a bond backed by a pool of mortgage loans or other assets.
Through these structures, Wall Street took piles of risky mortgages and created shiny AAA-rated investments—handsome new bonds made from much uglier bonds. The banks usually designed the securities to just barely achieve the credit agencies’ requirements for their top ratings. They had created gold from dross.
Over three decades, as the market to “securitize” loans into investments grew, securities firms, investment banks, and commercial banks searched high and low for mortgages and other financial assets to package into new investments. After stocks tumbled in 2000, fees from the securitization market became even more important to the firms, making them more willing to buy up all kinds of mortgage loans, especially those with high interest rates, to serve as linchpins for these investments.
FOR INVESTORS, securitized investments were enticing. Stocks were on the ropes and it seemed a better option to plow money into anything housing related, since many other bond investments had skimpier yields. As comedian Jon Stewart later joked, just the aroma of a mortgage was enough to get investors salivating. An ingrained belief arose that the securitization process, by chopping up tens of thousands of loans of varying quality from all over the country into small investments, effectively spread risk from lenders to tens of thousands of investors around the globe. They might catch a cold but no one would likely be killed by a flu outbreak.
One key reason investors were so taken with mortgage-related investments was that companies like Moody’s Investors Service and Standard & Poor’s that were paid to place ratings on it all, blessed the pools of loans with top ratings. Analysts at these firms scrutinized all these debt investments, laboring for weeks before even warning that they might adjust a rating a smidgen. If these prestigious firms placed ratings as high as AAA on the mortgage-related investments, how bad could they really be? investors asked. (In truth, the rating firms tacked on disclaimers, in really fine print, that their ratings were just opinions.) Many investors didn’t even realize they were making housing-related investments. They just focused on the top rating. Some had standing orders at various Wall Street trading desks to buy any U.S. debt rated AAA and sold with an attractive yield.
The real estate bubble would have burst early on were it not for overeager home buyers, of course. Surging housing prices created an illusion of wealth for home owners, encouraging them to save very little and spend more than they were making. Wages were stagnant, making it hard for first-time home owners determined to buy their own home. Undeterred, many borrowed heavily to afford their first home, or to move up to their dream home, complete with granite kitchen counters, stainless-steel appliances, flat-screen televisions, and surround-sound systems. Borrowers often asked for loans much larger than they could afford, sometimes exaggerating their salaries and other financial information to qualify.
The real estate market became the hobby that swept the nation, extended around the globe, and then back again. Reflecting the speculative frenzy, reality television shows debuted, including Flip That House and its competitor, Flip This House. Even the upper echelon got carried away. In the spring of 2004, Lakshmi Mittal, an Indian steel magnate, bought a twelve-bedroom house with a twenty-car garage in Kensington Palace Gardens, London, for an eye-popping $126 million.
Investors like Jeffrey Greene also drove prices higher. Greene, an old friend of John Paulson, had a voracious appetite for real estate in the early 2000s, purchasing hundreds of apartment buildings in Southern California, often at a rapid-fire clip. Greene never asked for a commission from real estate brokers bringing him deals, unlike some of his competitors. Instead, he hoped to be their first call when a new property came on the market. Because he had done so much buying, Greene became familiar with wide swaths of the San Fernando Valley and Hollywood. Within five minutes of getting a new offer for an apartment building or a home, Greene usually agreed to a deal at full price, forgoing time-consuming negotiations or inspections so he could be the first in the door.
“I could tell within five minutes, just from a phone call, if it was a good price,” Greene recalls. “I knew the streets, I knew the rents, and I could picture the buildings. The brokers knew what I wanted.”
By 2005, lenders had granted $625 billion of subprime loans, a fifth of all home mortgages that year, according to Inside Mortgage Finance, a trade publication. U.S. home prices had jumped 15 percent in the previous year and were on average almost 2.4 times annual incomes, compared with a seventeen-year average of about 1.7.8
Bulls were convinced that prices would continue to trend up, noting that homes hadn’t fallen on a national basis in generations. A flattening of prices was as bad as it had gotten since the 1930s. Many experts at most conceded there might be bubbles in some local markets.
A December 2004 interview with Countrywide’s Angelo Mozilo on the Kudlow & Cramer show on the cable-business network CNBC captured the tenor of the times:
LARRY KUDLOW, COHOST: Mr. Mozilo, again, happy holidays to you.
MR. MOZILO: Thank you.
KUDLOW: You can’t see it, sir, but underneath you, it says “bubble shmubble,” which has sort of been our view … People buy homes, ’cause they like to and they can afford to. And …
CRAMER: Right.
KUDLOW: … homes are in short supply relative to demand.
MR. MOZILO: Right.
KUDLOW: Are you in the bubble shmubble camp?
MR. MOZILO: No, I’m probably in the bubblette camp to be honest with you.… There’s a few areas of the country where we have some inventory, but on balance, as you said, Larry, the demographics are clear, there’s tremendous demand for housing, and it’s becoming more and more difficult to build housing and to get land and title than the capital that’s needed to do it.… And so I think that we’re going to have a very healthy housing market.
CRAMER: I have a quick question to ask Angelo. Angelo, fifty-one years. Did you get into the housing business when you were, like, eight?
MR. MOZILO: Fourteen, right—not far from you. I was in 25 West 43rd Street, fourteen years old, as a messenger boy.
KUDLOW: That’s a great story.…
MR. MOZILO: It’s a great country.
CRAMER: Yeah, it is.
KUDLOW: Number one.
CRAMER: It’s a great American story.
KUDLOW: And earnings look great.
MR. MOZILO: It’s a great country.
KUDLOW: Share looks great.
CRAMER: Yeah.
KUDLOW: No, really, it’s a wonderful American story.
CRAMER: It’s a great country, great country.
KUDLOW: And we wish you all the best in the holidays and the new year.9
It became hard to miss the excesses, though. When Alberto and Rosa Ramirez began looking for a home in late 2005, they had realistic expectations. The couple, strawberry pickers who each made $300 a week in the fields around Watsonville, California, near Santa Cruz, pooled resources with another couple working as mushroom farmers and determined they could afford payments of $3,000 a month. When an agent showed them a four-bedroom, two-bath home in the city of Hollister for $720,000, they blanched. They had no assets, six children, and no money for a down payment.
But their agent assured them they could handle it, even though the initial monthly payment would be $4,800. The zero-down mortgage from New Century had a “teaser rate” that would put monthly payments at $5,378, but the agent said they could refinance and “get the payments down to $3,000 or less,” Rosa Ramirez recalls.
The refinancing never happened, though, and cutting back on expenses didn’t help much. About a year after buying the home, they could no longer make the payments.10
A Washington Mutual loan representative made a loan to a borrower claiming a six-figure income from an unusual profession: mariachi singer. The representative couldn’t verify the income so he just had the singer photographed in front of his home dressed in his mariachi outfit. The loan was approved.11
EVERYONE seemed to be drinking the housing Kool-Aid, right? Well, not exactly.
A number of traders saw a real estate bubble forming, but precious few bet that it would burst. There was little incentive for even skeptics to make a radical wager against housing. Traders bucking the bullish consensus risked squandering big profits and ruining their careers if they were wrong. They might make money in a downturn, but who knew how long it would take for any slowdown to materialize? Any profits they might generate with a bearish stance likely would be offset by losses elsewhere at their firms, limiting their paycheck. Radical moves didn’t lead to long careers on Wall Street. So even the bears sat on their hands, letting the bulls run wild.
For those utterly convinced a housing crash was in the offing, there was precious little they could do, anyway. Sure, you could sell a home and move into a rental, but that meant packing up the family and kids, and leaving behind neighbors and friends, never a fun task. A futures market on housing prices never took off. Shorting home builders and lenders was a possibility. Some bears favored a “derivative” investment called a credit-default swap, or CDS, that served as insurance protection for the debt of companies in the subprime-lending business. But these companies didn’t always suffer when housing fell, because some of them benefited in a weak market by grabbing business from rivals or by selling out to larger companies. Besides, there weren’t that many of these corporate bonds in the market; it was difficult to create CDS contracts to protect bonds that didn’t exist.
Shorting risky mortgage loans seemed like the most obvious move for financial traders, but it was even more difficult to get one’s hands on these “mortgage-backed bonds,” or claims on pools of hundreds of different risky loans, to short them or create a CDS contract to protect this debt. Sometimes a bullish investor would buy an entire issue of mortgage-backed securities and resist lending it out, making it impossible for investors to short.
As a result, a shocking few pros in the mortgage-bond world bothered to predict where home prices were going. The direction of interest rates and inflation seemed more crucial to these bonds than the health of housing, which never seemed to hit big problems, anyway. Most analysts didn’t even have basic data about things like the levels of foreclosures around the country, and how home-price appreciation differed, preferring to opine on whether one collection of mortgages looked more attractive than another. They were so involved with analyzing the limbs of each tree in the mortgage world that they didn’t seem to know the forest even existed.
Bearish investors tend to act as a speed bump for a racing market, levying downward pressure by ganging up against a sector or company, and by sending a message of skepticism to those in the market. But until a group of bankers got together for a historic dinner in the winter of 2005, it was nearly impossible for investors to bet against housing or the growing pool of subprime-mortgage bonds. That was part of the reason housing was able to soar.
John Paulson, ever interested in a big score that could change his standing on Wall Street, would look to find a way to bet against the housing market. But how? Making his task even more challenging: While real estate was surging, Paulson had his hands full elsewhere.