I have been reading the Bernanke book which is a moment by moment description of events leading up to the crash on October 2008. It made me recall a lunch I had on May 9, 2007 with four other senior capital markets executives at a ULI conference. At that lunch we all were in a position to be intimately familiar with what was really happening on the ground in CMBS and the markets in general. The group unanimously agreed that the end was near, the collapse of the CMBS and other markets would begin in late July, 2007 and that the crash would be the worst we had ever known. All of those predictions were on the money. It was not that we were so smart, nor that we had some special knowledge. It was simply that we had all been around for over 25-30 years and we knew from experience that what we were witnessing with the deteriorating underwriting, covenant lite, and the way pools were being constructed and financed could not have any outcome but total collapse. What struck me in the Bernanke book is how clueless the Fed and Treasury were as to what was really happening before and as it was unfolding. The Fed was focused on housing and subprime mortgages and seemingly never even paid much attention to CMBS. In summer of 2007, they noted the housing market was deteriorating rapidly and they knew that would have negative affects on the economy, but they completely ignored what many of us knew was the complete deterioration of CMBS quality and the predicable outcome that would lead to.

What is now clear is that the Fed regional banks and the NY Fed were talking to the wrong people in the market and were getting spin. They talked to the CEO's and CFO's and other top managers at the banks and market makers. None of those people was about to tell the Fed or Treasury that what we were all doing with CMBS and CDO's and how pools were being assembled made no sense. Nobody who runs a bank or Wall St firm is about to tell regulators that what they are doing is going to lead to a crash. Yet at various conferences over the period from 2006-2007, various brave souls who had been around for a long time, stated clearly that what was going on made no sense and the markets were headed to disaster. Nobody listened to them, and nobody listened to the five of us at that lunch. Most importantly, it is clear from the book that nobody at the Fed or Treasury even seemed listen or even know what was happening. Even as late as spring of 2008, as the capital markets were collapsing, the FOMC did not seem to fully grasp the enormity of what was occurring. Bernanke seems to have eventually sensed what might happen, but even he was reluctant to do all that could have been done to possibly mitigate the collapse.