Any one who doubts the housing bubble inflated from the ground up, who thinks all the attendant greed and deception resided on Wall Street rather than Main Street, hasn't been listening to my brother-in-law the appraiser. Long before Washington Mutual and Wachovia and Lehman Brothers bit the dust, he complained, the whole system was corrupt. This was how he explained it:
A bank loan officer is paid on commission. No loan, no commission. So when somebody comes in to finance a house purchase, he wants to make the loan. But first he needs an appraisal. If the appraiser says the house isn't worth what the buyer wants to pay, he can't make that loan.
So he calls an appraiser and specifies that he wants an appraisal of, say, $400,000. The house may or may not be worth that much. If the appraiser says it's not, he knows he'll get no more business from that loan officer. If he says it is worth that much, he can be pretty sure that business will keep rolling in.
Some people refuse to play that game. But some give the loan officer exactly what he wants. The loan officer gets his commission. The appraiser gets his fee. The real estate agent gets his sale. The consumer gets his house. Everybody's happy.
But that loan was based on an inflated number. So although the financial services industry packaged the loan with many others, its "value" was illusory. The base of the pyramid is every bit as shaky as the top.