The collapse of the “real estate bubble” has caused the financial devastation of personal wealth, not only in this country, but around the world. Its effects are still with us as world economies try to grow and return to normalcy in late 2014. It is critical that we understand the events that led to the bubble, and the legal and ethical standards that were violated allowing it to become so inflated. Those that don’t know history are doomed to repeat its mistakes, as it is often said. Investors didn’t learn that from the DOTCOM bubble burst in 2000, and it took just a few short years after that bubble popped to repeat mistakes behind that bubble. There were two primary causes of the boom/bust in real estate. The first was the necessary condition and the second were the sufficient conditions that came into play once the necessary condition was in place. The necessary condition was the repeal of the Glass Steagall Act of 1933. The sufficient conditions were many. They included fraud in the origination of mortgages, fraudulent real estate appraisals, the use of ARM and Option ARM contracts deceptively sold to naïve investors, the proliferation of exotic mortgage products, the securitization food chain designed in some cases to hide the risk of packages of mortgages, biased bond ratings by Moody’s and Standard & Poor’s, the abject failure of regulators and the Securities and Exchange Commission (SEC) to intervene, overleverage by home buyers and my investment banks, and the immoral use of drugs and sex on Wall Street. This paper will examine these conditions in detail
