A client of mine told me this story about an interaction he had with an employee of Lehman Brothers in 2003.

My client was approached a few years ago by a man from Lehman Brothers who wanted him to invest in a deal.  Houses were being built for low income families in two cities around Dallas.  Lehman Brothers was looking for individuals to buy the houses in quantities of ten.  The deal was that for the first year, tenants would pay back the investors through rent and that the difference would be made up through someone else.  After the year was up, the government would buy the houses.  Here was the sticky part.  The builders and appraisers were working together and so the houses were appraised at $125,000.  Lehman Brothers would lend the tenants $90,000 for the house.  The other $35,000 was “air money,” money the builders claimed to have received but never did.  Of the $90,000, $15,000 went straight to Lehman Brothers and their cohorts.  However, when the government came to buy the houses, they were being sold at the initial appraisal price of $125,000.  Thus, Lehman made off with undeserved profit and cheated the government.

What do you think of the bailout?