I just did what I saw everyone else doing. And so Mike Garner in Nevada noticed that every month the guidelines were getting a little looser. I didn't know anything about the mortgage business. No, no, no. And it might be just because we're reporters, and you want to make us think you're good guys, but you're really cold-hearted. You basically borrowed $540,000 from the bank, and they didn't check your income? Transcript of This American Life program examining the origins of the current financial crisis. You might have heard about problems in student lending. Then the next one came along, and it was no income, verified asset. He's a granddaddy of our industry. People would close on a house, sign all the papers, and then default on their very first payment. No loss of a job, no medical emergency, they were under water before they even started. There is twice as much money looking for investments, but there are not twice as many good investments. And in late 2006 early 2007-- as prices began their plunge and alarm was spreading across mortgage-backed securities desks all over Wall Street-- the people on Wall Street, like Mike Francis, started backing away from some of the riskiest mortgages that they would accept. And he knew in his gut that they were bad loans, like these NINA loans. This American Life Ep isod e Transcript Prog ram # 355 The Giant Pool of Money [Ambient sound of p iano p laying and One of my regulars, he actually hired me from the bar. But they don't have to-- they don't say what you make. Jim Finkel runs this CDO shop, Dynamic Credit. Like, can you pay all your bills now? And we're going to get more market share this way. My wife asked me where to put things, and I said, well, it was there when I was growing up, so let's put it there. It's Pazarbasioglu, Ceyla Pazarbasioglu. So for Mike Francis to satisfy this demand and take his quite hefty fee from the global pool of money, he needed to buy up as many mortgages as possible. Yeah, I don't know why the bank did it. It's hard to believe. These guys are giving each other awards for doing that? If you liked today's program, check out their thrice-weekly podcast-- you're going to be getting this three times a week-- and their blog at www.npr.org/money. Go somewhere else. So you're scrambling to sell them. Jim Finkel was doing this math while we were sitting there, and he was estimating how much money had been lost by the people in that room right there. Right. That wasn't the situation. A mortgage-backed security, you remember, is a pool of thousands of different mortgages. I mean, I know guys who are criminals that wouldn't lend me that money, and they'd break your kneecaps. Can you play that tape again? They'd take any risk for a bit of return. And to do that, he called a guy one link below him on this mortgage-backed security chain, a guy named Mike Garner, who worked at the largest private mortgage bank in Nevada, called Silver State Mortgage. The owners and the production staff were just raking it in. Davidson through an interview with Finkel describes the nature and creation of CDOs. They were buying the lower rated stuff, the high risk stuff. Let's go back all the way to the other end of this mortgage chain and meet one of those people in one of these poorly underwritten mortgages that Tonko Gast just referred to, that the global pool of money was eagerly buying up. I'm picturing an alternative Glen, the Glen from the world where there was no bubble bursting, where the Glen who's still making $100,000 a month, who still has that lifestyle. That's right. This is Glen Pizzolorusso, who was an area sales manager at an outfit called WMC Mortgage in Upstate New York. You start to see what a crazy web of confusing interconnections this whole process is. Alex Blumberg produced today's show with Jane Feltes, Sarah Koenig, Lisa Pollak, Robyn Semien, Alissa Shipp, and Nancy Updike. Now, what about the guys who made it so easy for Clarence and Richard to get into these bad mortgages, the guys who took those mortgages and lots of other mortgages like them, packaged them up, and sold them to the giant pool of money? Now, they're terrified. The goal today is to figure out how big a mortgage payment Richard can actually afford to pay. So that's the good news. Well, because, how do I explain this, other than that Glen was about Glen. And then once I got a hit, then I called the other peoples back and say, listen, Bear Stearns is buying this loan, and I would like to give you the opportunity to buy these loans, too. Three of them would show up at your door first thing in the morning and say, I lost ten deals last week to Meridias Bank. They put you in a situation where, after a while, you're going to fail. Now that I've learned the code, now that you've taught me the code, I see it. There was talk of a new, Great Depression. Act One. The Giant Pool of Money NPR Transcript - Free download as PDF File (.pdf), Text File (.txt) or read online for free. I'm driving a car that has no payment on it. It was unbelievable. That is so crazy that they're giving each other awards for this. We already knew the economy was heading downward. Right. And Alex Blumberg will kick things off. I know you're not buying them anymore, but you've got to. Their irresponsibility is costing you money and work. That really hurt, because I was saving up money for his college. To you, it's not that shocking? That's what it was like. Something about that transaction feels very wrong. This number doubled since 2000. But we're not going to actually verify it? And so basically, Adam, a CDO is a financial alchemy, right? And he fought the owners and the sales force, tooth and neck, about these guidelines. And I used to think, how can people live on that? After describing that area of the chain, they moved on to a CDO investment management firm run by Jim Finkel of Dynamic Credit, LLC. Well, I had better get those out the door, because within a week of when one street firm says we're not going to buy these loans, you can pretty much expect to see the same email from all them. House prices are booming. Silver State would use this borrowed money to buy up a bunch of loans and then pay back the big bank once it sold the loans to Wall Street. Well, I think you have to distinguish between the investment banks and the capital markets people and the investment managers. And loans to dead people. There's worlds apart from the reality and what's on a lot of these documents. And for Jim personally, his company, before the crisis started, was managing more than $5 billion in investments. A shorter companion version of this story appeared on NPR's All Things Considered. How are we going to get this one funded? And over just the last few weeks, Adam Davidson and Alex Blumberg have been checking in with various people in that story to see what has happened to them, what has changed for them in the last 18 months. They wanted more mortgage-backed securities. Believe me, that's what he said. The first was an awards dinner for finance professionals who created the mortgage-based financial instruments that nearly . We explain it all to you. And his appetite's massive. Remember, he was the guy who used to party with B-list celebrities like Tara Reid, with all the cars and houses. In 2005, right-- are they using my 2005 taxes?-- I was making $37,000 a year. In 2005-- and they used my 2005 taxes-- I was making $37,000 a year. a housing crisis. I ain't got a job. It's a huge monthly stream of money, which is expected to come in for the next 30 years, the life of a mortgage. They just see each other through a computer screen. The trading room is like a factory floor for CDOs. And they sold so many of these mortgages that there came a point in 2003 where just about everybody who wanted a mortgage and was qualified to get one, had gotten one. There is this question people would ask, will things get like the 1930s or the 1970s? Because I saw how quickly the banks turned on their customers, including how the banks have turned on us. And he hated those loans. Finkel loves his country house in the Berkshires, so he always names CDOs after towns in western Mass, like Monterey. And in the beginning, he'd only buy mortgages that were pretty standard and pretty safe. President Biden announced over $42 billion in federal funding for expanding high-speed internet access on Monday, touting the money as a major step forward in the administration's push to close . Essentially, that's the process. It was not black tie. Something is really turning around bad here. And the world was not ready for all this new money. Is there any way we can do this? Right. But it's like you can't have a future. So you just start flipping out, and say, wait a second. All those factors, when you look at all the pieces and parts, and you say, well, a 90% no income loan three years ago is performing amazingly well. And it's not a client-driven business. So you don't have to state anything. And occasionally, those guys would hear about some loan that some other mortgage company offered that they weren't allowed to offer. It was a mess. So Silver State Mortgage will be closing our doors today. His job was a lot like Mike Garner's. People who heard our original story singled him out as someone to blame. He said there were lots of loans like this, where the bank didn't actually check your income, which I found confusing. Coming up, we travel in time from May 2008, when this was all recorded, to the present, to answer what happened to Richard? It was after they did the first giant pool of money broadcast that our show and NPR News decided that lots of economics reporting like this might be a good idea as we headed into tough economic times. He described the pressures and motivations faced by mortgage salesmen. Today's show, a special co-production with NPR News, a step-by-step look at what exactly happened during the sub-prime mortgage crisis. It was the triumph of data over common sense. Businesses can't convince anyone to lend them money to build new factories. We said that we just don't believe that those BBB RMBS assets are money-good. But for the average person it could feel the same. Then people starting grabbing their computers and their copy machines and rolling them out of the building. Well, two years ago, there wasn't anything in the world they wouldn't throw money at. It's Pazarbasioglu, Ceyla Pazarbasioglu. It's hard. He shows us on a computer screen. Those shares are called mortgage-backed securities. Some mortgage pools today are expected to go beyond 50% foreclosure rates. Alex is going to kick things off. That's the head of capital market research at the International Monetary Fund, the place to go if you want to figure out how much money is in the world. Silver State Mortgage's nearly 600 employees were out of work quite suddenly. And the email went out and said, unfortunately, we were not able to work anything out. I mean it's almost like you pass a guy in the street, and you say, will you lend me $540,000? Well, I lived there till I was nine years old. But here's the context. It was the coolest thing ever, just cubicle, cubicle, cubicle for 150,000 square feet. Nobody trains you for this type of stress, no one. And that sends a message to every investor in the world: You are not going to make any money at all on US treasury bonds for a very long time. So the bank and I are partners in this deal. And t hey explain that a lot of it has to do with the giant global pool of money.
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