I am reading “The financial Crisis Inquiry Report”.
No I did not kick a puppy or make fun of Jesus’s hair. I am doing research for a book project I’ve got in the cooker.
This report from The Financial Crisis Inquiry Commission is 633 pages long with its own website full of supporting documentation, graphs, charts and transcribed interviews. I could probably just skim it, but I have decided to read the whole goddammed thing. Why? Because it’s important to know. Also I’m crazy. And I’m a giant nerd, and this is just what we nerds do for fun, so back off okay and stop looking at me like that, it is highly disconcerting!!!
Anywho, here is what I’m going to do. After I read each chapter of this ol’ document, I’m going to summarize it in my blog. But I’m going to try really, really hard to make it interesting. I am going to try to explain things as accurately as humanly possible. If you are an econ expert or you know a ton about this stuff, please, by all means, use the comments to correct me and enlighten us. If, however, you have a political agenda and what I say doesn’t jive with your worldview, then shut up and go to Facebook.
Okay, so here we go.
Chapter 1: Before Our Very Eyes
Do you remember the early 2000’s? Man, it was great, “Rockin’ and rollin’ and whatnot.” People were re-financing left and right. They were going on cruises and buying nice cars. They were installing granite countertops, putting in wood floors and re-doing their backyards. Personally, this was when my husband and I bought a dumpy condo by Lake Merritt and renovated the whole thing. I remember watching a lot of DIY shows.
We were all floating in the rainbow hued glow of the housing bubble, an experience my buddy Warren Buffet called “a mass delusion” shared by “300 million Americans”.
Why a mass delusion?
For a variety of reasons that I won’t pretend to understand, interest rates were very low in the early 2000s. This encouraged people to buy houses. Anyone who was a sentient human being at that time remembers what happened- the prices of houses went up, houses sold more quickly, which led to prices going higher, which led to people snatching up houses even more quickly, which led to prices going higher, and so on and so forth. The best part about the strong housing market was that even though wages were stagnant, everyone was making money- construction workers, Realtors, mortgage brokers, landscapers, bond salesmen, bankers, international investors who bought the loans. Basically, in the early 2000s you would take a dollar bill, plant it in the back yard and the next day you would have a money tree sprouting $100 bills.
In 2004 as prices soared and people were getting priced out of the market, two things started happening. One was that in impacted areas such as California, people started drifting inland where the weather was hotter and the houses were cheaper. And in old-school ag towns like Bakersfield and Fresno, orchards and farmland were transformed into walled-off tract housing with winding streets and pastel stucco. (I am writing this dispatch right now from one of those former fields.)
The second thing happened in the walled-off and winding cubicles on Wall Street. By 2004 homeownership reached a record 69.2%. With so many people already holding mortgages, how were banks going to get more money? Enter the zaney, crazy, super-fun frat boy mortgage! Boring old grandpa mortgage that required 20% down and a fixed 30 year rate was a total snore-fest. Sigma Phi Epsilon mortgage knew how to party! Interest only! Low-Doc! No-Doc! Subprime! Exploding ARMs! NINJA! It was all keg stands and “I’m going streaking in the park! Who’s with me?”
Then the banks blitzed consumers with advertising and a lot of people who either wanted to live beyond their means or were trying desperately to get a toe-hold in the market signed up for these bogus and dangerous loans. Some people got these crap loans with the specific purpose of scamming the market, flipping homes and skimming equity, but other people got the loans with the intention of refinancing into something more reasonable once they had some equity in their house.
The banks created a toxic product. Then they created the demand for it.
The banks knew these loans were crap. So they packaged the screwy mortgages into securities that were sold, re-packaged and resold again until the mortgage on a Central Valley Lennar home might become part of dozens of securities owned by hundreds of investors. Here is a graphic to illustrate the point:
When the proverbial crap loans hit the proverbial fan and the economy crashed and burned the captains of finance and government leaders were like, “OMG, what the hell is happening?!?!?! Everything was going so great and now things are like, super lame! You guys, this is totally shocking to all of us!”
The fact is they had been warned for years by consumer advocates, attorneys general, employees within the banks and coalitions of real estate appraisers. The people bearing these warnings were ignored, patronized or treated like they were wearing tin-foil hats.
Where were our policy makers and regulators, you may ask. Well, from 1998 to 2008 the financial sector spent $2.7 billion in lobbying expenses on top of $1 billion in campaign contributions. So I think it’s safe to say that the regulators couldn’t see what was going on because their eyes, ears and mouths were stuffed with money.
That is the gist of chapter 1. On a personal note, living in the Central Valley, the fallout of this madness is a part of my everyday life. The school where I worked lost several good teachers when electives were cut across the board, my kids’ classrooms are filled to bursting, all around town are half-built and abandoned housing developments and 21% of residents in Kern County are food insecure, meaning they don’t know where their next meal is coming from.
I’d venture to guess that Angelo Mozilo, the ex-head of Countrywide Financial knows exactly where his next meal is coming from.
 That’s the commission’s name for the chapter, not mine. I have to hand it to the writers of this document, they tried to make it interesting.
 10 points if you can name who I quoted.
 Fine. That didn’t happen, but people did refinance, which was kind of the same thing, but with a lot more paperwork.
 I did not make those names up. Those are actual names of the mortgages, I swear. Page 6 of The Financial Crisis Inquiry Report.
 Again, points for naming who said that.
 Making it virtually impossible for the people who own those homes to get any assistance whatsoever.