Banker’s lament: ‘Nobody foresaw what would happen’

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News item from today’s L.A. Times: Small banks that backed homebuilders and developers are suffering the repercussions of bad loans: ‘... as foreclosures rise and home prices fall, many smaller banks and thrifts that backed residential developers and home builders are watching black ink turn red and are spending uncomfortable amounts of time with regulators. The financial institutions also are enduring jabs from critics who say they tossed lending standards out the window.’

Here’s the money quote: ‘PFF Chief Executive Kevin McCarthy said in an interview that his bank started pulling back on land loans two years ago, anticipating a downturn like ‘the normal economic cycles we’ve always had out here.’

‘But nobody foresaw what would happen to the housing market, or that sub-prime mortgages would collapse so completely,’ he said.

Sound familiar? Here’s Countrywide Chairman Angelo Mozilo back in March: ‘The problem that we face today was unanticipated and is much more severe than any cycle in the past.... It bears noting that no one predicted the severity and force of the housing downturn that followed.’

With all due respect to the money men, it bears repeating that many did predict an epic housing bust. Angelo and Kevin clearly were not listening, but this bust was predicted on blogs like housing panic and www.patrick.net and by bearish economists such as Christopher Thornberg. Biggest boom leads to biggest bust. Biggest bubble leads to biggest bubble popping. What goes up must come down. Etc.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com