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Behind the Housing Crash: Confessions from an Insider
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17 of 20 people found the following review helpful
This book should be all over the place. Aaron Clarey should be doing interviews on Bill O'Reilly and CNBC. If there's justice in this world, Aaron Clarey will find himself sipping some tropical fruit drink on a sandy beach in Hawaii, living off the dividends to well timed investments made possible through his bestseller booksales.

This book is the greatest triumph of a trillion dollar "I Told You So." Some of us, in our day to day lives, will successfully predict some mundane event. A friend keeps dating the wrong girl and getting his heart broken, a Democrat proposes to raise taxes, Spike Lee produces another movie no one watches.

Few of us will ever get the honor of seeing an entire industry fail simply because they didn't take our advice. Aaron Clarey, for the rest of his life, will be able to say "I was there when banks were about to crash, and I warned them."

As an analyst for several banks and credit unions in the Twins Cities leading up to the housing bubble, Clarey was the one who would run the numbers on housing loan proposals. It was here Clarey learned of and warned about the coming housing crash, much to the chagrin of his superiors.

In his book, Clarey creates a narrative of his career in the banking industry as he moves from job to job in search of common sense. Idiot managers, thoughtless MBAs, creepy developers, greedy bankers, fraudulent brokers, all get in his way. In the end, Clarey shows how the fundamentals of banking were ignored at every level throughout the entire economy and how taxpayers ended up footing a $1 trillion bill.

The book is filled with graphs and charts showing exactly how the bubble was formed and how it burst. At times the book reads quickly as a novel, an entertaining one. At other times, it reads like an econ textbook and some might find it a bit dry. Luckily, the dry parts account for only about 10% of the book.

Something else the reader should understand, the book was self published. The typography is not professionally done nor did Clarey receive the benefit of having three or four editors to make changes to improve readability. Readers shouldn't let any of these aesthetic issues fool them, this is a great book.

If you really want to know what happened in those banks across America which lead to a trillion dollars of inflation and tax increases and which is leading the greatest country in the world on the road towards a recession, you need to read this book.
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8 of 11 people found the following review helpful
on September 22, 2008
This book provides a unique view of the problems created by local banks that lead to the housing crash. From simply bad business practices, to almost criminal negligence, you'll be amazed by Mr. Clarey's insight into the banking world. The author does an excellent job of explaining more technical terms to the lay reader, and his use of humor and writing skill makes this book a fast read. At times the author seems to harp a bit much on the idiocy of his employers, but this is understandable, in that working for nine years in multiple lending instutitions, and still seeing the same problems again and again would frustrate anyone. This book also provides some excellent anecdotes on poor leadership influencing the workplace. From tales of incompetent management that wastes valuable time, to micro-management that shatters innovation, any leader would do well to take heed and remember the basics of leadership and management that are re-illuminted in this book.
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4 of 6 people found the following review helpful
on January 21, 2009
_Behind the Housing Crash: Confessions from an Insider_ describes the causes, symptoms and some immediate consequences of the overly optimistic bank lending policies which were common for the last eight or nine years at most U.S. banks. It is a fascinating book which I would recommend to most readers, and especially to anyone thinking of buying a house or who is entering the corporate world for the first time.

The author, Aaron Clarey, is an economics and finance consultant and teacher who worked for nine years at various banks and credit unions in the Minneapolis / St. Paul area of Minnesota. While he cites a large number of facts and figures regarding general trends in lending, home ownership, and home finances, he also writes about his own personal experiences while working in that field. This creates a very readable balance between general theory and personal anecdote. His writing style is conversational with more than a bit of humor. In the book, Clarey discusses some of the historical foundations for the current housing and banking problems, the sociological factors, historical trends, and how all those played out on a large and small scale in the banking, home-building and home-buying industries.

But there are two things which make the book a standout (and one that I will likely recommend to a number of friends and have already decided to give to one friend as a very late Christmas gift):

1) There is an amazing amount of very useful detail about the inner workings of the banking system, or at least how it is supposed to work. For instance, while I see a lot of credit unions around and know that they are somehow different than a bank, I was not aware there is a functional hierarchy, with credit unions usually getting the smaller and/or riskier loan applicants who had been passed over by the bigger banks. I knew that car salesman will sometimes bring along repeat customers with them as they change employers, but I was unaware this frequently happened with bankers too. Clarey also gives a lot of in-depth information about why and how to use such tools as absorption studies, price-to-rent and price-to-income ratios, and LTV ratios when considering whether to buy or sell a house.

2) _Behind the Housing Crash_ is also a series of case studies on bad management practices and what signs to watch for when you are wondering if it is time to leave a particular boss, company or industry. There is a discussion of how important morale is to productivity and how simple things like a pleasant atmosphere, consistent procedures and supportive supervisors can vastly improve morale -- or destroy morale and productivity if those things are missing. There is a discussion on how promoting people based not on qualifications but based on family relations (nepotism) or who their friends are (cronyism) ultimately destroys a company's potential. There is also a discussion on why it is a bad sign when a boss is profligate with their subordinates' time and energy because the boss hopes if this subordinate will "write it up anyway" enough times, somehow the loan will suddenly seem profitable. All of these behaviors and many others described by Clarey are common in white-collar settings and usually point to some level of management getting so concerned with appearances or fads they lose sight of the underlying purpose of the business -- in the case of the banks and credit unions Clarey worked for, they lost sight of the fact they were in business to make money and you don't make money on loans unless you loan to people you know will pay you back with interest.

Clarey's entire discussion of the "Thin-Skinned Economy" is well worth reading too.

Clarey's conclusions are well argued and he backs up his arguments with a large array of facts, figures, and information on historical trends. While I don't always agree with his pessimism about how this will all play out in the long run, I thoroughly enjoyed his book and happily give it five stars.
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on September 8, 2014
Behind the Housing Crash is a great read if you are looking for a boots-on-the-ground perspective of the housing crash. There is a glut of books and blogs on the macros of the crash (most notably "The Real Crash" by Peter Schiff) but this is a great read for its unusual perspective.

Aaron tackles some of the more technical aspects of the economy he dealt with as an analyst during the boom, and it is interspersed with horrifying/hilarious anecdotes. These tales mostly pertain to the reckless and unaccountable greed practiced by bankers and real estate developers.

Reading a macro-heavy book about the Housing Crash is worth your time, but if you're reading this review you probably already have your fill... reading Aaron Clarey's book on it will give you a great idea of the insanity he was nearly driven to as he was bucked, bullied and ignored for simply saying that a man under investigation by the FBI shouldn't be granted a loan, or that, with four times the houses as buyers on the market, that his bank ought not finance any more.

Highly recommended.
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5 of 8 people found the following review helpful
on January 24, 2009
Mr. Clarey's book is best described by what's on it's cover: an insider's confession of the factors behind the housing crash. The photograph shows a bewildered bank analyst wondering who will buy all the empty McMansions before him.

Aaron Clarey worked in the financial sector analyzing loan proposals. His humorous anecdotes of bogus business deals lacking even rudimentary plans and credit documentation would be hysterical if the results weren't so tragic.

Mr. Clarey describes not only the inept management and slick lies of failing businessmen trying to get loans for their boondoggles, but also how bankers fall all over themselves to close these deals for the sake of goodwill or good commissions. He explains how bank employees who protected banks from risk only risked their jobs.

Mr. Clarey familiarizes the layman with the methods used to compile a rotten loan: bogus appraisals, cherry-picked comparables, falsified or nonexistent income statements, artist conceptions, and compounded leveraging.

This woeful tale is told by a skilled storyteller, not an English major, so forgive the grammatical errors and improper use of semi-colons. I found the insights far more enjoyable and enlightening than any book I read in English class. This book is to banking what Upton Sinclair's book The Jungle was to meat packing, except with far more humor and far less haughty vocabulary.

If you take each anecdote and multiply it by 10 million, you'll have a pretty good idea why we are in the economic mess we're in. The culprits begin with our National Housing Policy to encourage "affordable housing", the Government Sponsored Enterprises which facilitated these goals, securitization of mortgage backed assets spreading contagion through the financial sector, and commission structures which encouraged bad loans.

The book spares few people from blame, including hapless borrowers who willingly bit off more than they could chew, to arrogant and stupid developers, to greedy bankers.

The book is well worth the asking price and it's a quick and enjoyable weekend reading. If you or a family member is trying to figure out what went wrong but can't understand the lofty papers of Economics Ph.D.s in their ivory towers, Mr. Clarey was an eyewitness who brings the story down to Earth in ways anyone can understand.
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2 of 3 people found the following review helpful
on November 11, 2008
How does a book about economics become such a page turner? Somehow Mr. Clarey pulls it off. A very engrossing read told in a humorous, educational, and insightful manner. I highly recommend this book as it provides glimpses into the many angles of the current financial crisis.
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on December 21, 2012
The book was an excellent portrayal of the crazy actions by the middle ranking banks in the run up to the crash. I would have liked a few more facts and figures but I know now that real estate developers are lower than a snake's belly in a ditch.
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4 of 7 people found the following review helpful
on January 9, 2012
Aaron Clarey writes in a style that is very accessible. This is geared to probably a 10th grade level - and that is good, in that anyone should be able to follow and understand his points. I got the book this morning and read the whole thing in one sitting. That's how easy and fast you can follow this material. I've been involved in the Mortgage Banking industry for over 10 years, but mostly from the wholesale residential origination / secondary marketing side. His experience focuses very heavily on his main experience on commercial lending and takes a lot of shots at RE developers and is thorough about the conflicts of interest in the commission-based compensation structures for brokers and bankers. The book is repetitive, and skilled editing could have reduced the size of the book by 30% easily. It is not an academic treatment of mortgage banking at all. For that, I'd recommend the books by Frank Fabozzi, who writes some of definitive tomes on these subjects. There is a lot that Clarey either doesn't mention at all (like Yield Spread Premium, credit rapid rescores, AU, Alt-A, FNMA/FRE 'community' products, CRA, buybacks, and some of the political forces behind the lowering of agency guidelines) He focuses mainly on RE Developers, their cozy relationships with Banking management who ignored credit-risk practices. Just the slightest swipe on MBS/CDO repackaging. He makes a lot of hay about oversupply of units, since his main experience seems to have been underwriting / credit analysis on commercial developments. This is a large part of the story, but there are huge areas he misses, or only mentions in passing. Still, a pretty good book for someone unfamiliar with how all this happened - but there are more comprehensive books on the history and development of mortgage banking out there. This is vintage 2008, so a new edition would be warranted.
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3 of 5 people found the following review helpful
on September 23, 2008
I'm only half way through this book and I can't put it down! Great read, very informative. Love it! Hope the author continues to write more books!
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2 of 4 people found the following review helpful
on October 25, 2008
The economy is in the tank, and this book, finished about 8 months before the bailouts and meltdowns of the market - accurately predicts it all while explaining the underlying issues. The current political campaigns have badly distorted the basics to conform to 30 second ads. This book sets the record straight, and puts us on the proper footing to move forward with solutions that actually address the problems. Bravo!
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