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I was in Las Vegas, a few months ago, for the Strategic Equity conference.  Three days of mortgage speakers and some Vegas living had me ready to get home to my wife and daughter, on Friday afternoon.  I  blew off the last speaker , jumped in a cab, and headed for Mc Carron Airport.  I rushed to the gate to see if I might make it back to San Diego on an earlier flight.; I missed it by five minutes.  "No problem", said I, "Can I check in for my originally scheduled flight?"

That flight was cancelled; I was pushed to the next flight, three hours later.  That flight arrived late, and when it did arrive, the crew had surpassed their FAA allowed flight time for the day.  I was quickly offered a flight through Phoenix, to San Diego.  I ran to the Phoenix gate and missed that boarding time by five minutes.  Breathless, I arrived back at the San Diego gate to find out that I just made the new flight to San Diego with a fresh flight crew.

This is what it feels like in the real estate markets today.  Everything seems to be falling apart.  The underwriting models, conceived by the rocket scientists in the Wall Street research departments, created loans that banked on steadily increasing home prices, like we are experiencing in Seattle and Dallas today.  What the Buck Rogers types didn't expect was a jerky ride in certain "boom towns" like Vegas, Phoenix, and Southern California.   That erratic appreciation, in certain markets, allowed borrowers to get loans based on a steadily increasing market.  Lending is a national market.  Loans, designed for the gently increasing Dallas market, offered more lax underwriting standards.  San Diegans, took advantage of those lax guidelines and sucked the equity out of their homes.

Certain components of the model (rapidly appreciating cities) got ahead of the "flight plan" and screwed everything up.  Market participants react to market forces so you can't blame the San Diegans for borrowing the money.  San Diegans, in 2005, were borrowing dollars that were earmarked for Houstonians.  Houstonians were waiting for the flight to arrive.  The Buck Rogers types were building a machine that ran on nytro-glycerin; they didn't know that it could break the sound barrier.