We kept hearing about this woman named Karen Weaver (left), a top Wall Street analyst, who correctly sounded the alarm three years ago about the subprime mortgage crisis that has shaken the global economy (PDF) to its core. If only Wall Street and the banking industry had listened.
Today, Weaver is a Managing Director and the Global Head of Securitization Research, responsible for Deutsche Bank's research on securitized fixed-income products. She also manages Deutsche Bank Research-Americas, which has 300 professionals covering economics, debt and equity markets. Weaver joined Deutsche Bank from Credit Suisse First Boston in 2000. Prior to joining CSFB, she was a portfolio manager active in the ABS and MBS markets.
We asked Weaver -- who everybody listens to now -- for her thoughts on the economy and the future:
WVFC: You were sounding the alarm bell on the subprime crisis three years ago. What signs did you see then that there would be problems, and why were those signs seemingly ignored?
Weaver: As a research analyst, I spent time visiting the operations of mortgage lenders, where I was able to meet with the employees who were underwriting mortgages. Often these mid-level employees are more direct and less guarded then the senior management of their companies. In my visits, I was able to see that many of the mortgage loans being made were very, very risky.
I think the signs were ignored largely because home prices had been rising for so long in so many areas of the country, so that even very risky loans did not create losses for mortgage lenders. Borrowers who could not make their payments could always just sell the home -– at a profit. What too many people failed to see is that home prices were rising because mortgages were so easy to get, and that fed on itself. Now it is operating in reverse -- mortgages are harder to get, and so there are less potential buyers, and home prices are falling....MORE
HT: 24/7 Wall Street