Federal commission meets experts, public in Las Vegas to examine causes of Great Recession

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Panel examining recession’s causes meets in Vegas

LAS VEGAS — Nevada had unrealistic growth expectations before the nation’s financial meltdown battered the state’s tourism industry and erased billions of dollars in real estate equity, an economist told a federal commission examining the causes of the Great Recession.

“The state was overbuilt and some 100,000 jobs were predicated on a level of growth and consumer spending that seemed to evaporate almost overnight,” Jeremy Aguero, an economist for Applied Analysis, told representatives of the 10-member Financial Crisis Inquiry Commission on Wednesday.

The group questioned bank executives, analysts and public officials during a daylong hearing at the University of Nevada, Las Vegas, as part of a series of public hearings to gather testimony for a formal report due Dec. 15.

Vice Chairman Bill Thomas, a Republican former congressman from California, said the commission created by Congress was seeking testimony to deliver to Wall Street bankers and others “who have no real on the ground knowledge of the suffering that goes on in a number of areas.”

“Laying the record is very important,” Thomas said.

The expert panels included sworn testimony from U.S. Attorney Daniel Bogden and others with expertise in the Silver State, where foreclosures, bankruptcy and joblessness pace ahead of every other state in the country.

When asked by commissioners why prosecuting mortgage fraud wasn’t a bigger priority in Nevada, Bogden’s answer echoed the sentiments of many who have struggled during this recession.

“We’ve tried to do the best we can with the resources we’ve got,” he said.

Aguero said Nevadans have lost billions in real estate equity, with home prices down to roughly the same levels as they were in 2000. He said there are 40,000 to 60,000 excess homes on the market today with no demand to buy.

“I think that signs existed, and certainly I missed it,” Aguero said. “There is little doubt whatsoever that this community got out in front of its skis.”

Phil Satre, chairman of both slot machine maker International Game Technology and utility NV Energy Inc., said he thinks Nevada is at the “bottom of the food chain” in terms of financial recovery, depending on other states like California to drive tourism spending in Las Vegas and other destinations.

“I’m not very sanguine about the prospects of recovery in the near term,” Satre said. “In my view, we have a giant umbilical cord to California.”

Satre was on a panel of business leaders who spoke about diversifying the industries in the state, which Thomas repeatedly referred to as “maturing” Nevada’s economy.

Steve Hill, founder of Silver State Materials Corp., said Nevada needs three or four more industries to provide future growth for the state.

But William Martin, chief executive of Service 1st Bank of Nevada, said people have tried to diversify Nevada’s economy for decades but the number of jobs created in other industries have paled in comparison with casino openings.

In one exchange with a commissioner, Martin said Nevada has problems with its work force because of education issues.

“When a third of our graduates go to college and take remedial English, you’ve got a problem,” he said.

“That’s quite a handicap for your state, I would assume,” Commissioner Brooksley Born replied, noting that half of Nevada’s children don’t graduate high school.

“It’s a tragedy,” Martin said.

Sometimes confrontational, the commission was toughest on a former regional sales manager for Fremont Investment & Loan, a company that was one of the top originators of subprime mortgages. Its parent, Fremont General Corp., was a $7 billion financial services company before it filed for bankruptcy protection in 2008. It emerged from bankruptcy in June.

Jay Jeffries, who said he oversaw account executives in Arizona, California, Nevada and New Mexico, told the panel his salespeople each made $175,000 to $200,000 per year at the peak of the subprime lending market in 2004 and 2005.

But he said that while he knew lending guidelines, a separate audit department was responsible for determining whether loan terms were OK for borrowers.

“You were placing, hundreds, thousands of loans to homeowners, and you never thought about whether they could pay them off?” Born asked.

“That was not my job. My job was sales,” Jeffries testified. “I did not underwrite loans. It’s not my job to comment on whether the underwriting guidelines are too stringent or too soft.”

Born said, “It’s like you were selling Chinese toys with lead-based paint and you never thought ‘were these good for children.”

The commission was also expected to hear from the public at the meeting.