It was for a CDO he created. This is totally different. People are sensing some positive motion in the equities markets, and people are starting to realize a lot of these problems have been put behind us already. This is Clarence Nathan. So all Mike cared about was whether or not his customers, the Wall Street investment banks, would buy those mortgages from him. And just to repeat, he said $75,000 to a $100,000 a month. Blumberg and Davidson end with a prognosis of the financial system. It's almost like you pass a guy in the street and say, will you loan me $540,000? By the time I talked to him, Clarence hadn't made a payment in almost a year, and his house was in the process of foreclosure. You saw that, that there is this long chain of people that starts with these Wall Street guys and ends with people who stand to lose their houses. If it was just Clarence in trouble, the bank would probably have taken his house by now. Prologue. And to give you a sense of how fast this business was growing, Mike Garner got into the mortgage business straight from his previous job as a bartender. He just said he needed some guys, and if I was interested in working for him. We don't think they're well underwritten, and we think if we do CDO of those, that's going to blow up completely. And here are these homeowners paying 5%, 9% to borrow money from some bank. And it was awesome. Anyone under, say, 45 probably doesn't remember that 1970s malaise too well. Suddenly, those US government treasury bonds-- still near the historic lows of 1% and 2%-- are beautifully attractive because they're safe. 16 million loans? So that's the good news. The IMF had underestimated how much money there is and how fast it had grown. To you, it's not that shocking? This is Glen Pizzolorusso, who was an area sales manager at an outfit called WMC Mortgage in Upstate New York. I qualify for that plan. And by the way, before you finance enthusiasts start writing any letters, we do know that $70 trillion technically refers to that subset of global savings called fixed income securities. All you have to do is state that you have a certain amount of money in your bank account. But they don't have to-- they don't say what you make. One, investors pulled money out of stock markets all around the world and added it to the giant pool of money. Return To The Giant Pool of Money - This American Life I wish. 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. You know what I mean? The small bank sells the mortgage to a guy like Mike at a big investment firm on Wall Street. To start with, every CDO has its own name. For most of the history of banking, bankers wouldn't have loaned Clarence their money, either. And when he came back from Iraq a few years ago, he bought a house with one of those fancy new mortgages with an adjustable rate. It got to the point where my son had $7,000 in a CD, and I had to break it. He, like more than 4 million Americans at this point, is fighting to keep his home. It's a no income verification loan. They're so high-risk, they're toxic. I don't remember. All of his living expenses he says, are paid with money he gets from his mom, who is on public assistance, his girlfriend, and his brother. So they had not done any amenities to this place? And just to explain, investment managers like Jim are subcontractors to the investment banks on Wall Street. Track down the people who were in your original story-- now, I guess a year and a half later-- to find out, how did the crisis that they helped bring on, how did it change them? In 2005-- and they used my 2005 taxes-- I was making $37,000 a year. And over time, they could continue to take cash out of it, if they needed to, to pay the bill. Then he came back. And he knew in his gut that they were bad loans, like these NINA loans. They miss the tree, they're looking at things so closely. And finally, you'd find out who was actually buying them, and they would say, yes. You ever see that movie? That's what it was like. They call these lower rated tranches, toxic waste. You basically borrowed $540,000 from the bank, and they didn't check your income? And I mean that really hurt, because I was saving that money for his college. I'm going to show you. And let me just turn things over to the two of you, Alex Blumberg and Adam Davidson. The thing that took this problem and turned it into a crisis was something else that was new, something called a collateralized debt obligation, a CDO. Christina Aguilera was doing whatever, like, I'm Christina Aguilera, and I'm going to get up and sing. Did he keep his house? It's crazy. At this time, I'd like to ask all of our stars to please assemble over here on the left side of the stage. Mike sat at a desk with six computer screens connected to millions of dollars worth of fancy analytic software designed by brilliant Ivy League graduates hired by his firm. So bear with us. Believe me, that's what he said. He's this big guy, over six feet tall. At least that's what people thought. It has gone up by more than $2,000 a month. And it has all sorts of information like how much the house sold for, what the interest rate is. And then it went down to $10,000. Those white boys from New Haven, going to flip that kitchen. Glen had five cars, a $1.5 million vacation house in Connecticut, and a penthouse that he rented in Manhattan. Everybody. A shorter companion version of this story appeared on NPR's All Things Considered. The thing that got me interested in all this was something called a NINA loan. I hope you feel better. Their irresponsibility is costing you money and work. He beat me. And so Mike Garner in Nevada noticed that every month the guidelines were getting a little looser. Do you have any anger when you look at this? [1], The show featured Adam Davidson, a business correspondent for National Public Radio and Alex Blumberg, a producer for the show, interviewing and reporting on the financial crisis. So the bank and I are partners in this deal. The Giant Pool of Money A special program about the housing crisis produced in a special collaboration with NPR News. So all Mike cared about was whether or not his customers, the Wall Street investment banks, would buy those mortgages from him. For starters, he became a villain on the internet. [6][7] In 2014, Slate ranked the episode on its list of "The 25 Best Podcast Episodes Ever" at number 2. It felt very wrong way back when. I didn't do anything that I can really be proud of with it. The broker sells the mortgage to a small bank. Retired U.S. Navy submarine Capt. No, no, no. Right. A mortgage-backed security, remember, is a pool of thousands of different mortgages. This is not a joke. How's it going? We're going to offer it too. And we started this project, Planet Money. So, this is what we're devoting our program to today. Like here, he was on time for a bunch of months. How are we going to get this one funded? 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, to help explain what happened, here's my partner for the hour, Adam Davidson. He's kind of nervous, because he's up for CDO of the year for the CDO he created, Monterey. Mortgage brokers were walking around east Flatbush knocking on doors, telling just about anybody, hey, we can get you a house. Jim takes this toxic stuff, these low-rated, high-risk tranches, puts them all together, re-tranches them, and presto, he has a CDO whose top tranche is rated triple-A, rock-solid, good as money. Some mortgage pools today are expected to go beyond 50% foreclosure rates. But the problem with that is that there were all these new kinds of mortgages given out to people who never would have gotten them before. To understand how the . And he was working with NACA, a housing advocacy group, to see if they could convince the bank to lower his mortgage payments. Yeah. Finkel loves his country house in the Berkshires, so he always names CDOs after towns in western Mass, like Monterey. This imprudent partnership is new, and it's at the heart of the current housing crisis. Most people don't think about it, but there's this huge pool of money out there which is basically all the money the world is saving now: insurance companies saving for a catastrophe, pension funds saving money for retirement, the Central Bank of England saving for whatever central banks save for, all the world savings. The Giant Pool of Money -- the hour-long This American Life episode that explained the housing bust and gave rise to Planet Money -- was just named . And they've got this loan. Loans we were doing, we looked at loans, these people didn't have a pot to piss in. Tears started coming to my eyes when he said, we're going to go from 11 and 1/4 down to 3%. 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. This was a new era. And so let me turn the show over to the two of you, which is great for me, because I've pretty much lost my voice anyway. He's a marine. So picture the whole chain. The six to nine month plan didn't work, so I'm stuck. Three of them would show up at your door first thing in the morning, and say, I lost 10 deals last week to Meritius Bank. They bring it out. Let's translate some of that. Now, the CDO, that's what we're talking about. And if you don't have anything saved, you can't do anything. Finally, on June 5, 2009, "The Watchmen"[12] aired and examined the role of Congress and regulators since the creation of the American financial system in the 1930s. Transcript; Host Ira Glass talks with an NPR business and economics correspondent about two gatherings he attendedone at the Ritz Carlton and one at a community college in Brooklyn. (4 minutes), Hard Times by The Sex-o-Rama Soundtrack, If you enjoyed this episode, you may like these. All the data that we had to review, to look at, on loans that were in production that were years old, was positive. I put $2,000 back, but-- it was like you can't have a future. It was the coolest thing ever, just cubicle, cubicle, cubicle for 150,000 square feet. In other words, both of the guys in our story who got home loans that they couldn't pay back, Richard and Clarence, they're still living in their houses. Now, if this seems too good to be true to you, you're in good company. An interesting fact here. And then Wall Street would sell them on to the global pool of money. You might not believe me, but that little statement, that is central banker's speak for, hey, global pool of money, screw you. Not to say the original broker didn't have a process. But there comes a point where-- well, there came a point where, basically, all of them just said, we're not buying anything. Guys like billionaire investor Warren Buffett said the very logic was ridiculous. But what is a CDO? Tell us what you're trying to do. He doesn't want to leave his house. Looked at one way, this hasn't gone so badly for Clarence. The elevator had this big graffiti painting on it that was awesome. And for Jim personally, his company, before the crisis started, was managing more than $5 billion in investments. So many Mikes. A graffiti painting, meaning like, that had been there since before you guys moved in? The Giant Pool of Money NPR Transcript | PDF | Collateralized Debt It is. There are lots of things that happen. 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. I should've helped people when I was making that money. Kerry shows Richard the loan documents filled out when he bought the house by his original broker. Now that I've learned the code, now that you've taught me the code, I see it. 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. OK. Each line is one loan. 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? From 2000 to 2007 the median household income stayed flat. He's the same link in the chain. And we think if we do a CDO of those, that's going to blow up completely. And occasionally those guys would hear about some loan that some other mortgage company offered that they weren't allowed to offer. China, India, Abu Dhabi, Saudi Arabia made a lot of money and banked it. The Giant Pool of Money Analysis Every individual in the United States wishes to be a homeowner because owning a home is considered as the ultimate achievement by majority of the population and is a symbol of successful and fulfilling life (Grant, Rick). 390: Return To The Giant Pool of Money - This American Life Full episode Transcript 390: Return To The Giant Pool of Money Note: This American Life is produced for the ear and designed to be heard. Individual mortgages are too big a hassle for the global pool of money. Like, can you pay all your bills now? When I talk about it now, I still get that warm and fuzzy. The ceilings were probably 25-, 30-feet ceilings. You remember him. It just had nothing to do with reality. He worked three part-time, not very steady jobs, and made a total of $45,000 a year, roughly. They want to beat that miserable 1% interest Greenspan is offering them. Transcript: Why Saudi Arabia's Spending Millions on Soccer Stars They performed very well. Tranche is just French for slice. Or if you're more of a Wall Street Journal editorial page type, an innocent mortgage banker who was duped by a lying, greedy homeowner. This American Life: The Giant Pool of Money (May 9, 2008) w/ transcript - YouTube Using the fusion of radio storytelling and radio journalism that marks Ira Glass' 'This American Life',. Businesses can't convince anyone to lend them money to build new factories. The same team of producers have created three follow-up episodes to "The Giant Pool of Money" as "Your Guide to the Meltdown". 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. It is. And I mean, loan officers would have an accountant that they could call up and say, can you write a statement saying that a truck driver can make this much money, or whatever. But back in 2005, 2006, the global pool of money, they couldn't get enough of these things. Thank you. All right. Either they would find out who they were selling it to, or I'd get on the phone and start calling all these street firms or Countrywide and say, would you buy this loan? We're working with the bank to try to avoid foreclosure. Oh, that's outrageous. That is less than $70 trillion, less than the global pool of money. His job was a lot like Mike Garner's. It's harder to borrow money to buy a house, or build a factory, or bring your country boldly into the 21st century. Lots of people in the mortgage industry had this faith that housing prices in the US simply never go down. The low numbers from Freddie Mac and Fannie Mae are consistent with past housing busts, like the ones that occurred in Texas in the 1980s and in the Northeast and California in the early 1990s. The email went out and said, Silver State Mortgage might be going out of business, but-- It was something along these lines-- might be going out of business, but we think we can work something out. How are we going to get this one funded? The dust had not settled. [3] In February 2009, Adam Davidson and Alex Blumberg were awarded the Polk Award for the episode. It was unbelievable. Well, because, how do I explain this, other than that Glen was about Glen. Everyone seemed to be trying their hardest. Prologue Host Ira Glass talks with NPR correspondent Adam Davidson about a black tie event he attended in the spring of 2008. And because of that, they've totally changed their thinking. So is this the Matrix, where the guy's looking at the green digits passing. And it was an official loan product, like you could walk into a mortgage broker's office and they would say, well, we can give you a 30 year fixed rate, or we could put you in a NINA. The process we're doing right now, how does this compare to when you bought the house? Everybody was working, thinking everything's great, chugging along. One of the hottest items out there right now, one-month treasury bills, paying effectively 0% interest. Individual mortgages are too big a hassle for the global pool of money. He gets a mortgage from a broker. And I'm not trying to absolve myself of anything. Right. Yeah, I don't know why the bank did it. It turns out, there's just not enough government in the world to replace the lending the giant pool of money used to do. Mike Garner's job-- the guy in Nevada-- was to buy up individual mortgages, mainly from brokers, bundle 200 or 300 of them together, and then sell them up the chain to Wall Street, to guys like Mike Francis. When he said that 18 months ago, that didn't turn out to be true? And then Wall Street would sell them on to the global pool of money. I was there for my job. His job was a lot like Mike Garner's. I'm Ira Glass. It was people on the opposite side of the mortgage crisis, people facing foreclosure, trying to figure out how to keep their homes. You can't just say that you're not going to buy this with no notice. Those guys took a lot of upfront fees of those deals, and they took bonuses out of those upfront fees. You might have heard about problems in student lending. If you could stop there for one second, it's just so funny that instead of just asking the people to prove what they make, there is this sort of theater in place of like, you have to find an accountant to say, yes this person who is sitting right in front of me, and who could very easily provide a W-2 form-- but we're not asking for a W2 form-- but we do want this accountant to say that, yeah, that person, what they're saying is possible in some universe. I mean, I know guys who are criminals that wouldn't lend me that money, and they'd break your kneecaps. So give me your situation now. And they started telling me the terms. But for the average person it could feel the same. So, first off, how do we pronounce your name? After describing these market players, the show goes on to discuss the nature of the speculative bubble, highlighting real estate TV shows that sprung up during the bubble, such as A&E's Flip This House. And among the many things they put their money into, there was this one thing that they fell in love with. Richard Campbell, the Marine we spoke to, a year and a half ago, he wasn't sure if he was going to keep his house. They put you in a situation where, after a while, you're going to fail. They call these lower-rated tranches "toxic waste." In other words, the giant pool of money would probably have shrunk by a good amount, except the world's governments and the world's central banks have been pumping out trillions of dollars to keep the world economy from complete collapse. They don't do that. They just say, it's possible that he could make that. Kerry Campbell, who's helping Richard today, is a counselor here. Like, OK, I've still got $10 million of these. He got a new and better job. I'm Ira Glass. And so basically, Adam, a CDO is a financial alchemy, right? For all of our deals, how many loans, individual mortgage loans? Fabian [? And I wanted to talk to him about, what now? Everybody is like, whoa, who's the cool guys? [SILENCE]. But Mike had other help in rationalizing what he was doing, technological help. From there, the show describes "another Mike", Mike Garner, who worked down the chain, at Silver State Mortgage. They just say, it's possible that he could make that. And they often feature an innocent homeowner who was duped by a lying, greedy mortgage banker. Back in 2007, that number really should have been almost $80 trillion. I speak central banker. They hold the bottles over their head. Everything's going to be good. You have Clarence. I would be able to live on it so comfortably. There's probably like 10 of them in existence. Yeah. So then you basically state what you make, and then you state what's in your bank account. There is fire crackers and sparklers. 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. And why is everyone talking so much about the 1930s? That's right. Did you call your fiance, or how did you--. From our standpoint, it's like, there's a guy out there with a lot of money. And they'd complain to Mike. Because there were two banks coming to us saying, why don't you do a deal with us of triple-B securities, and you get paid a million bucks in management fees per year? The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance. And he fought the owners and the sales force tooth and neck about these guidelines, and we got the same answer every time: Nope, other people are offering it, and we're going to offer it, too. Wait, Alex, I want step in here, because this is a very important piece of tape. And this set of events did convince me that people on Wall Street generally are bad, and that the customer does not come first. There are lots of technical differences between this crisis and Jimmy Carter's malaise. Yeah, there has been a very sharp increase. Everybody's like, whoa, who's the cool guys? By late 2006, the average home cost nearly four times what the average family made. I had a situation, and I thought that I could do this and then get out of it within six to nine months. January, maybe. As more people defaulted, more houses came on the market. 'Giant Pool Of Money' Named To Decade Top 10 List - NPR That wasn't the situation. All you have to do is state that you have a certain amount of money in your bank account. Silver State Mortgage's nearly 600 employees were out of work quite suddenly. And the company was just rolling in the cash. Were you ever thinking to yourself like, what are you guys doing? Some mortgage pools today are expected to go beyond 50% foreclosure rates. Act One - This American Life We order probably three or four bottles of Cristal at $1,000 a bottle. China, for example, has over a $1 trillion in its central bank. What he's technically saying is he's going to keep the fed funds rate-- that's when you hear the fed interest rate-- at the absurdly low level of 1%. 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. The elevator had this big graffiti painting on it that was awesome. He's lived in a house for free for nearly three years. Music help from Jessica Hopper. What happened? Cities can't borrow money to build schools and hospitals. My name is Mike Francis. And she was like, what's going on? Now they're seen as too risky. They performed very well. They all wanted the same thing, a nice, low-risk investment that paid some return. When we caught up with him last week, he wasn't so eager to call attention to his situation. This American Life is distributed by Public Radio International. You could take a pool of thousands of risky mortgages and create a security that was called, money good, as safe as any investment out there. So you think it would be easy for both sides to come together and modify Richard's mortgage, figure out something he can afford. They looked around for some low-risk, high-return investment. It's pretty bad, actually, unless you're comparing it to the 1930s. I'm trying to figure out if it makes sense for me to just walk away from the house. You don't have to tell the people what you do for work. Believe it or not, yeah. I'm going to bring Adam in here to help me to, since I've never done this before. It's brand new to me. Today, we return to the giant pool of money. Everything's going to be good. And today, two years later, we talked to the very same person, Ceyla Pazarbasioglu. Thanks also to Mary Ann Casavant, Anna Chai, Kevin Byers, the fantastic housing blog, Calculated Risk, Alexis Grenell, Stephanie Cohen Glass, Sanjeev Handa, Charlie Ledley, James Scurlock, Chris Turpin, Elaine Glick, Mark [? Glen was just out of college. Give me my table. I'm serious. And we'll get to that later in today's program. There were other ones-- Property Ladder, Designed to Sell. So it took several hundred years for the world to get to 36 trillion, and then it took six years to get another 36 trillion? Gifts for family, how much would you say on average? Reply #69: This American Life Episode Transcript Program #355 The Giant Pool of Money Printer-friendly format Email this thread to a friend Bookmark this thread This topic is archived. Yeah. And so Richard has spent a year and a half battling his mortgage servicing companies, waiting on hold, getting transferred to different supervisors. Investment managers, they don't want to lose a penny of that. And they'd complain to Mike. He's in Nevada. I'm going to get up and sing. House prices are booming. You don't have to tell the people what you do for work. For Glen Pizzolorusso, the mortgage sales manager who-- not to dwell on this detail-- was living the life of a B-list celebrity, the end came a little more slowly. So from the bank's perspective, even if the worst happens and someone defaults, the bank would then own a house, which is now worth even more than what they gave out in the loan. You fought in Iraq as a Marine, and this was more stressful? But the problem with that is that there were all these new kinds of mortgages given out to people who never would have gotten them before. I made an imprudent loan. I was as green as you could be. So let's just keep doing billions of dollars of deals, and that'll rack up the tens and twenties of millions of dollars in fees. The bank made an imprudent loan. But when I bought my house it was just your credit score and can I pull a credit report? 390: Return To The Giant Pool of Money - This American Life We replay sections from the original "Giant Pool of Money," in which This American Life producer Alex Blumberg teams up with NPR's Adam Davidson to tell the story of how the U.S. got itself into a housing crisis. They wanted more mortgage-backed securities. Well, not everybody, but a lot of people did. A year ago, it was easy for them to borrow billions. Just cubicle, cubicle, cubicle for 150,000 square feet. Thanks today to Ellen Weiss at NPR who made this collaboration happen this week between the news division at NPR, where I work, All Things Considered, and This American Life. And I think that was the problem. He's the same link in the chain. And that's all most investors look at that, that letter grade. And when he came back from Iraq a few years ago, he bought one of these fancy new mortgages with an adjustable rate. It was costing the world a lot of money. Actually, in 2005 already, we had an internal debate here, because there were two banks coming to us saying, why don't you do a deal with us, BBB securities, and you get paid $1 million in management fees per year? Mike Garner's job, the guy in Nevada, was to buy up individual mortgages, mainly from brokers, bundle 200 or 300 of them together, and then sell them up the chain to Wall Street, to guys like Mike Francis. There are problems. But we're not going to actually verify it? So in this whole process, what's the first time someone looked at your finances? The world has never seen anything on this scale. Jimmy used the word "tranche." You'd be wrong. And it's at the heart of the current housing crisis. You could buy a house with no money down, turn around and sell it a year later for-- in some areas-- double what you paid. He's a granddaddy of our industry. At the height, I was making between 75 and 100 grand a month. And we've had to completely rebuild. One of my regulars, he actually hired me from the bar. This guy's name is Richard, and we met him at a foreclosure prevention conference in Brooklyn. And it's taken its toll. They all wanted the same thing: a nice, low-risk investment that paid some return. And so from WBEZ Chicago, it's This American Life distributed by Public Radio International. A graffiti painting that had been there since before you guys moved in? It was not black tie. They're now calling it a credit crisis. Because I saw how quickly the banks turned on their customers, including how the banks have turned on us. And at this time, that didn't cover my expenses. Tonko Gast estimates that most of the AAA rated mortgage-backed CDOs that the industry created since 2006 are now worth less than half their value. The increased demand for houses caused the prices to increase. And not just in housing and banking, but for the economy as a whole.
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