When David Crisp was only 25 years old, the Bakersfield, Calif., real estate star tooled around town in a $560,000 Mercedes-Benz McLaren sports car, along with a cohort of "black-suited bodyguards." He sported a $50,000 Chanel watch and Armani suits. His company, Crisp & Cole, leased Gulfstream jets to fly prospective investors into Bakersfield and Las Vegas and fronted money to its team of agents so they could sport their own luxury cars and designer clothes. In 2005, he started building a mansion in the Bakersfield gated community of Seven Oaks, breathlessly described in the local press as likely to include an escalator, an NBA-size indoor basketball court and a movie room. "The young hot shot of Bakersfield real estate" modeled himself on Las Vegas mogul Steve Wynn and planned to be a billionaire by age 35.
In October 2005, the Sacramento Bee proved unintentionally prophetic:
Crisp personifies the California housing boom at its most extreme -- a boom so powerful that it's turning even places like Bakersfield into hotbeds of high-end homes and gated communities. In this city of long-standing economic stagnation and a cowtown reputation, the median home price has nearly tripled in four years to $293,765.
In those same four years, Crisp has gone from waiting tables and loading UPS trucks to co-owning a firm that figures to sell $300 million in real estate in 2005. He's building a $5 million mansion in Bakersfield's ritziest development and planning a high-rise condominium-retail tower.
On Monday, Crisp's mansion was put up for auction with a starting bid of $1.8 million. Nobody bit, and the home was repossessed by the lender. According to the Bakersfield Californian, more than 100 defaulted and foreclosed-upon properties can be traced to associates of Crisp & Cole. (Thanks to the Housing Bubble blog for the tip.)
It gets better. In September, the California Department of Real Estate filed a formal complaint against the company alleging multiple instances of fraud and the FBI raided the company's offices. Bakersfield's contingent of housing bubble bloggers (every decent-size town's got one!) are drowning in schadenfreude, and the drooling newspaper profiles have been replaced by a relentless series of case studies in housing boom excess. (Much of the credit for originally reporting the Crisp & Cole story should go to Bakersfield Californian reporters Gretchen Wenner and Vanessa Gregory.)
The Department of Real Estate accuses Crisp & Cole of paying employees to sign loan applications for homes they never intended to live in, falsifying income and employment information, and deceiving mortgage lenders, although one suspects that in the California housing market, a fair number of lenders had a pretty good idea of exactly what kind of activities they were aiding and abetting. Family members, including Crisp's mother, mother-in-law and wife, were frequently employed as dummy buyers.
Here's how one scam worked, as reported by the Bakersfield Californian. On July 12, 2006, Crisp & Cole sales agent Jeriel Salinas bought a Bakersfield home for $620,000. The deal was "fully financed" -- meaning Salinas put no money down. On Aug. 21, Salinas granted -- for no apparent compensation -- a 99 percent interest in the home to Aiden, Logan & Associates Inc., another company affiliated with Crisp & Cole. The very next day, on Aug. 22, Aiden, Logan sold the home to David Crisp's mother, Tu Crisp, for $959,000 -- a 55 percent markup in just one month. Again, the deal was fully financed. Both the Salinas and the Tu Crisp transactions were notarized by Crisp & Cole employees.
On May 10, 2007, Tu Crisp's loan defaulted. On Sept. 17, the lender foreclosed.
The rise and fall of David Crisp is quite a saga, and How the World Works looks forward to the TV movie adaptation. The handsome slick son of a Vietnamese immigrant in his Armani duds and flanked by a cohort of black-suited bodyguards who planned to rebuild Bakersfield in his own image! It simply can't miss, even if Buck Owens is undoubtedly spinning in his grave.
But what does it all mean? How many other David Crisps ran wild in the great housing boom of the early 21st century? How many of the collateralized debt obligations made out of repackaged subprime mortgage securities were built from loans made to similar scammers? Certainly, there are details to Crisp's story that can safely be dismissed as "extreme." But as he told the Bakersfield Californian in 2006, as a real estate agent just starting out he bought a Corvette he couldn't afford and hired an assistant he didn't need because his strategy was to fake it until he made it. And there's something emblematically American about that credo, which holds just as true for hedge funds and investment banks as it does for Bakersfield real estate agents. We love the former waiter who transforms himself, à la Horatio Alger, into a mogul. But we also love stomping all over him when he screws up.
Obviously, David Crisp's family should be at the top of the list of people who should not be bailed out by the homeowner rescue plan to be announced by President Bush on Thursday. But what makes the whole housing saga of such enduring fascination is that the mess partially caused by Crisp and a million other small-time flippers got big enough to threaten the health of the entire economy. You could argue that every single would-be homeowner who misstated their income or took on a loan that they knew they couldn't pay or simply mistakenly believed that they would be able to refinance before the bill arrived should be left to twist slowly in the wind. But if the consequences of doing that grease the overall economy's slide into recession, who ends up really paying the price? Them, or all of us?
Fake it until you make it, it's the American way. Whether you're David Crisp, or Citigroup. And when you stumble, somebody will be there to lend a hand, because as Benjamin Franklin once noted, if we don't all hang together, we will most assuredly all hang separately.