Risk returns with a vengeance (Wall Street reaps what it sowed.)

http://money.cnn.com/2007/08/17/markets/risk_returns.fortune/index.htm?postversion=2007082005 ^ | 8-20-07 | Shawn Tully

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(Fortune Magazine) -- For the past five years risk has been the invisible man on Wall Street. Banks, hedge funds, and lenders behaved as if home prices always rise, borrowers never miss a payment, and companies never blunder into bankruptcy.

Now a crisis of confidence that began with subprime mortgage defaults is sweeping the Street, and risk is invisible no more. Banks are wobbling, markets are quaking, and ordinary investors are wondering how badly they'll be hurt. Risk, as always, will exact its revenge.

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The Usual Suspects Behind the latest blowups are some of the same faces that headlined past subprime crises. -- Katie Benner No Faith Kevin Race was running HomeSide Lending, a subsidiary of National Australia Bank, in 2001 when NAB was forced to take more than $3 billion in write-downs. (Missteps included allowing borrowers to refinance with no penalty when rates fell and making errors in interest rate assumptions.) This time around Race was at the helm at faith-based lender HomeBanc, which filed for Chapter 11 in August. (Calls to HomeBanc were not returned.) IPO Woes In 1997, Rick Thompson had planned to take the REIT business of mortgage lender Aegis public, but those plans were scrapped during the REIT and mortgage troubles that led to the S&L crisis. He stuck it out at Aegis till this October, when he was ousted as CEO. The company was hit hard by subprime woes and filed for bankruptcy in August. Now Thompson is suing the company's private equity backer, Cerberus, saying its incompetence kept Aegis from launching an IPO. (Neither party would comment on the record.) Lender Beware

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