We called it.
Posted by bcopple on May 9, 2009
Back in 2001, my good friend Stephane Fitch and I spent two months working on a story about a looming housing crash. We talked to every housing and consumer-finance expert we could find, plus dozens of realtors and hundreds of homeowners, probing for signs of weakness in home sales or prices, trying to understand whether the market would or could go bust and asking what would happen to the US economy if it did.
The resulting story ran as Forbes‘ Sept. 3, 2001 cover, under the ominous headline ‘What if home prices crashed?’ On the cover: a couple from Northern California I’d found during the three weeks I spent prowling Silicon Valley, talking to home sellers who’d cut their prices (To get a list of people who cut price, I convince a realtor to run a filter on the MLS. He gave me about 2oo names, and I called them. All of them.).
Yesterday, I learned that our story had been named to Columbia Journalism Review’s ‘List’ of 727 significant business stories published in the run-up to the economic crisis. This may not sound like a very exclusive list, but as the author, Dean Starkman, notes, “the business press produced more than a half a million news items during this period.” Only about 700 of those items saw the catastrophe coming.
Starkman’s “List” awards our story “first-place in (the) bubble-calling contest.”
So, good on us. We busted our humps reporting the story and the writing of it nearly destroyed our friendship (it may have if not for the velvet interventions of our editor, Tom Post). And as Starkman notes, we called it. We were about six years early, but when we wrote about “an ominous mix of overdevelopment, inflated home prices and rising consumer debt,” we had identified most of the ingredients in the Molotov cocktail that has since been heaved at the American economy.
We didn’t write about the massive overextension of the mortgage-backed securities market. But we did report the stress cracks that would eventually destroy that market, and the global finance system: a huge increase of mortgate debt vs. household income, and a steady decline of equity as a percentage of home value. I remember talking to a couple of rogue banking analysts who were convinced that the mortgage/credit market was a house of cards. One of them, Charles Peabody, is quoted in the story. Knowing what we know now, his statement is flat-out chilling: “Leverage against an asset that can deflate in value is a recipe for disaster.” Indeed.
One final memory of that story. On the spread inside the magazine was a wonderful illustration of a house that had crashed down to earth, crushing a girl in ruby slippers. Seeing that, I wrote the headline ‘Goodbye Yellow-Brick Road.’ Forbes‘ editor, Bill Baldwin, overrode that in favor of the more literal ‘What if Housing Crashed?’ Mine was better.