NPR’s story and interview of a insider from the mortgage lending world provides a chilling glimpse into how we got here. Tracy Warren worked as a loan auditor reviewing mortgage loans that were being sold to Wall Street investment banks, like Bear Stearns.

The radio story makes for a great listen, as Ms. Warren comes across as straightforward and direct. She explains how she routinely saw loans for $500,000 homes in California. The borrowers were hotel workers who claimed to be making $15,000 a month.  Ms. Warren provides a compelling account of how her supervisors routinely overrode her reviews that sought to cull out bad loans before selling them on to Wall Street investment firms.

Sounds like the auditing firm that she worked for, Watterson-Prime, may have been eating at the trough. It would be interesting to see whether her supervisors were paid based on the numbers of loans approved or whether Watterson-Prime had a piece of the action of loans that moved on to Wall Street.

I can’t wait to hear Wall Street banks like Bear Stearns point the finger back at the auditors.  You know we’re in trouble when the smartest guys and gals in our financial system claim that they were duped. And of course, no one has the will to stand up and talk about the naked emperor here. When you insist on deregulating financial markets and transactions, greed will out. And no, unchecked greed is not a good thing.

The other thing is that I imagine we’ll hear similar stories coming out of what appears to be an impending  student loan system collapse.  But of course, it’s early yet.

David Sugerman