Tells the story of the credit bubble that caused the financial crash of…
We All Fall Down
- Description
- Reviews
- Citation
- Cataloging
- Transcript
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This timely and informative documentary chronicles the history of America's mortgage finance system, from its origins in the 1930s, when the federal government first made available long-term, fixed-rate loans to new American homeowners, to its current state of crisis, after an excess of risky mortgage financing led to the system's collapse, which in turn triggered a wider economic recession.
WE ALL FALL DOWN features dozens of interviews and commentary from a wide variety of industry experts and Wall Street insiders-including mortgage brokers, appraisers, bankers, lawyers, analysts, sellers and buyers, and economics scholars-who explain in terms clearly understandable to the lay viewer such concepts as the 'subprime' mortgage market, the financial alchemy of 'securitization' whereby Wall Street banks packaged and resold mortgage loans as securities that could be bought and sold like stocks, and how the mortgage crisis led to a sudden halt to other types of lending to individuals and businesses.
Among the many authorities interviewed in the film are Paul Muolo, publisher of National Mortgage News and author of Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis; Nouriel Roubini, NYU Professor of Economics and International Business; Mark Wiseman, Director of Foreclosure Prevention; Til Schuermann of the Federal Reserve Bank of NY; Guy Cecala, President of Inside Mortage Finance; and Richard Sylla, NYU professor of the History of Financial Institutions and Markets.
Filmed over a twelve-month period, from Rochester, NY and Cleveland, to Seattle, Los Angeles and San Diego, WE ALL FALL DOWN also shows how an out-of-control 'mortgage machine' has today led to home foreclosures nationwide, featuring interviews with families who have been devastated, as loan defaults and evictions spread from the poor to middle-class sectors of the populace, in turn creating millions of abandoned and disintegrating properties in neighborhoods and cities throughout the U.S. Their emotionally moving stories reveal the all-too-real personal consequences for Americans caught up in this financial spiral.
WE ALL FALL DOWN concludes with an analysis of the economic and political impact of the collapse of the mortgage finance system on American society, now and likely for decades to come. America today is truly at a crossroads and the question is how and whether it will be able to rebuild a devastated economy.
Narrated by Paul Sorvino
'Timely... an informative primer... Offering a clear, concise, and at times emotionally wrenching explanation of a national tragedy, this is recommended.' -F. Swietek, Video Librarian
'A concise documentary portrait... Illustrated with graphs, charts and archival footage, the film is a steal for educational purposes.' -Rob Nelson, Variety
'Stands out as one of the clearest and most in-depth examinations of the financial crisis to date, providing a historical and insider perspective that has been absent from most media reports. It is invaluable for anyone who wants to truly understand how we got into this mess. Highly recommended.' -Kristin Aguilera, Editor, Financial History Magazine
'Damning in [its] criticism of the financial industry and the lack of government regulation, showing scene after scene of the carnage wrought by defaults and evictions on once-proud neighborhoods... accessible to wide audiences... highly recommended for all libraries.' -Library Journal
'Excellent... provides the background to understand how the financial crisis became a world-wide economic crisis... More significantly, its shows the 'human dimension' of the crisis... a very useful documentary.' -Leonardo On-Line Reviews
'Timely as front-page news... This eye-opening documentary helps clarify the current crisis.' -Booklist
'This film is for everyone who saw their retirement funds and their home values drop but don't understand how such a massive meltdown could have happened. This film takes you on the trip down the rabbit hole to see all the pieces of the puzzle, broken down into 10 chapters, allowing for discussion in between... Highly Recommended.' -Educational Media Reviews Online
Citation
Main credits
Gasgarth, Gary (film director)
Stocklin, Kevin (film producer)
Stocklin, Kevin (screenwriter)
Sorvino, Paul (narrator)
Other credits
Cinematography, Brian Fass; editor, Kevin Stocklin; original music, Barney McAll.
Distributor subjects
American Studies; Banking; Business; Comparative Government; Economic Sociology; Economics; History (U.S.); Politics; US and Canadian Broadcast RightsKeywords
WEBVTT
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[MUSIC PLAYING]
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Ownership, wealth through
ownership, is fundamental to a
00:00:48.240 --> 00:00:50.410 align:middle line:90%
capital democracy.
00:00:50.410 --> 00:00:56.040 align:middle line:84%
If you\'re not an owner, if
you\'re not creating capital
00:00:56.040 --> 00:01:00.130 align:middle line:84%
for yourself in a capital
democracy, you are completely
00:01:00.130 --> 00:01:03.150 align:middle line:84%
lost or not a part
of the system.
00:01:03.150 --> 00:01:07.030 align:middle line:84%
Normally, the first thing that
an individual can own of any
00:01:07.030 --> 00:01:09.980 align:middle line:90%
substantial value is a home.
00:01:09.980 --> 00:01:13.320 align:middle line:84%
We felt like we really meant
something in the world to own
00:01:13.320 --> 00:01:16.420 align:middle line:84%
our own house, to be so young
and to own our own house, like
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we were really making progress
in the world.
00:01:18.630 --> 00:01:20.930 align:middle line:84%
The old cliche is that if you
could fog a mirror, you could
00:01:20.930 --> 00:01:21.620 align:middle line:90%
get a loan.
00:01:21.620 --> 00:01:24.680 align:middle line:84%
In this case, it was almost as
if, if you knew somebody who
00:01:24.680 --> 00:01:26.890 align:middle line:84%
could fog a mirror you
could get a loan.
00:01:26.890 --> 00:01:27.940 align:middle line:90%
The money was available.
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Developers bought land and
started building more homes.
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And they just keep building,
and building, and building,
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figuring that it would
never come to an end.
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There was so much
money out there.
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And they wanted to get as much
of it as they could.
00:01:40.690 --> 00:01:43.870 align:middle line:84%
So you had this dichotomy of
some people, particularly
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people in the industry, talking
about this is just a
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minor blip, everything\'s
going to be fine.
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At the same time, what they
were doing was writing
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mortgages that were really
just a catastrophe.
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And the system was sort
of imploding.
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As fast as they wanted to loan
us that money, they were that
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quick to want to foreclose the
home and get us out of there.
00:02:04.415 --> 00:02:07.890 align:middle line:84%
I think to the people who made
money on the subprime lending
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industry, they don\'t really
care whether or not this
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neighborhood goes to hell, or
whether these people lose
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their houses and lose their
credit, because
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they\'re making money.
00:02:15.660 --> 00:02:16.880 align:middle line:90%
And they\'re so far removed.
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It\'s just money to them.
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It\'s not living, breathing
people.
00:02:19.620 --> 00:02:22.480 align:middle line:84%
There are not enough jails in
this country to put people
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away who were part of these
schemes over the past seven,
00:02:25.720 --> 00:02:26.690 align:middle line:90%
eight years.
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I mean, how are you going to
jail tens of thousands of
00:02:29.260 --> 00:02:31.800 align:middle line:84%
mortgage brokers, and tens of
thousands of appraisers, and
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tens of thousands of bankers,
tens of thousands of
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fraudulent sellers and buyers?
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It\'s unlike anything
I\'ve ever seen.
00:02:40.020 --> 00:02:43.430 align:middle line:84%
In the fall of 2008, the United
States awoke to the
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collapse of the largest pyramid
scheme in its history.
00:02:47.910 --> 00:02:51.000 align:middle line:84%
America\'s home mortgage finance
system, created nearly
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a century ago to fulfill the
dream of home ownership, saw
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its foundations corroded by
greed and corruption while the
00:02:58.200 --> 00:03:01.460 align:middle line:90%
government turned a blind eye.
00:03:01.460 --> 00:03:04.730 align:middle line:84%
As foreclosures spread at a
record pace, more than two
00:03:04.730 --> 00:03:07.950 align:middle line:84%
million Americans received
notice that their homes would
00:03:07.950 --> 00:03:10.740 align:middle line:90%
be repossessed.
00:03:10.740 --> 00:03:15.030 align:middle line:84%
In September of 2008, America
saw the failure and
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nationalization of its largest
mortgage lenders, Fannie Mae
00:03:19.060 --> 00:03:22.080 align:middle line:84%
and Freddie Mac, and the
government rescue of the
00:03:22.080 --> 00:03:26.230 align:middle line:84%
nation\'s largest insurance
company, AIG.
00:03:26.230 --> 00:03:30.520 align:middle line:84%
On the same day, Lehman
Brothers-- a 158-year-old Wall
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Street bank-- collapsed, setting
off a chain reaction
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of bank failures that included
many of the nation\'s largest
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and best known institutions,
Merrill Lynch, Wachovia, and
00:03:41.310 --> 00:03:43.970 align:middle line:84%
Washington Mutual, the
biggest single bank
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failure in US history.
00:03:46.330 --> 00:03:51.350 align:middle line:84%
By the end of 2008, the entire
financial system was staring
00:03:51.350 --> 00:03:53.120 align:middle line:90%
into the abyss.
00:03:53.120 --> 00:03:55.280 align:middle line:84%
The actions of the US government
to prevent the
00:03:55.280 --> 00:03:58.530 align:middle line:84%
system-wide meltdown became
increasingly desperate.
00:03:58.530 --> 00:04:02.560 align:middle line:84%
And by the end of the year, a
series of nationalizations and
00:04:02.560 --> 00:04:09.140 align:middle line:84%
bailouts would exceed $1
trillion with no end in sight.
00:04:09.140 --> 00:04:12.450 align:middle line:84%
The mortgage industry for 100
and some odd years has a
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success rate of 99-plus
percent.
00:04:15.200 --> 00:04:19.730 align:middle line:84%
Less than 1% of mortgage loans
typically go into foreclosure,
00:04:19.730 --> 00:04:21.430 align:middle line:90%
historically.
00:04:21.430 --> 00:04:24.390 align:middle line:90%
How did it happen?
00:04:24.390 --> 00:04:30.680 align:middle line:84%
How did we go from
that to this?
00:04:30.680 --> 00:04:33.060 align:middle line:84%
This is a crime where many
people\'s fingerprints were on
00:04:33.060 --> 00:04:34.670 align:middle line:90%
the weapon.
00:04:34.670 --> 00:04:36.400 align:middle line:84%
And they never thought the
bubble would burst.
00:04:36.400 --> 00:04:39.420 align:middle line:84%
But as we know, bubbles
always burst.
00:04:39.420 --> 00:04:43.310 align:middle line:84%
And when it did, the
consequences were really
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cataclysmic.
00:04:44.560 --> 00:04:49.600 align:middle line:90%
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For nearly a century, the United
States government has
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worked to make it possible for
Americans to own the houses
00:04:56.040 --> 00:04:57.540 align:middle line:90%
they live in.
00:04:57.540 --> 00:05:00.230 align:middle line:84%
The ability to own a home
is the essence of
00:05:00.230 --> 00:05:01.610 align:middle line:90%
the American dream.
00:05:01.610 --> 00:05:04.360 align:middle line:84%
What has made this country
healthy and strong is that
00:05:04.360 --> 00:05:08.290 align:middle line:84%
people own their own homes, more
so, probably, than any
00:05:08.290 --> 00:05:09.500 align:middle line:90%
other country in world.
00:05:09.500 --> 00:05:12.960 align:middle line:84%
It gives people a sense of
entitlement, of ownership.
00:05:12.960 --> 00:05:17.480 align:middle line:84%
It gives them a source
of equity.
00:05:17.480 --> 00:05:20.540 align:middle line:84%
How many people have been able
to retire well because their
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homes appreciated in value and
they were able to sell them in
00:05:24.320 --> 00:05:25.450 align:middle line:90%
a strong market?
00:05:25.450 --> 00:05:29.780 align:middle line:84%
People came to America because
it had so much land.
00:05:29.780 --> 00:05:33.410 align:middle line:84%
Back in the old countries of
Europe, land was scarce and
00:05:33.410 --> 00:05:34.240 align:middle line:90%
there were a lot of people.
00:05:34.240 --> 00:05:38.440 align:middle line:84%
When they came to America,
they could get buy land.
00:05:38.440 --> 00:05:39.720 align:middle line:90%
And land was cheap.
00:05:39.720 --> 00:05:44.800 align:middle line:84%
As we became an urban society,
the interest in owning land
00:05:44.800 --> 00:05:47.470 align:middle line:84%
was kind of transferred
to owning a home.
00:05:47.470 --> 00:05:51.760 align:middle line:84%
But I would say it\'s as old as
America to have houses on
00:05:51.760 --> 00:05:53.670 align:middle line:84%
plots of land and feel
like you own it.
00:05:53.670 --> 00:05:57.000 align:middle line:84%
And it\'s sort of part of the
national ethos that home
00:05:57.000 --> 00:05:58.160 align:middle line:90%
ownership is a good thing.
00:05:58.160 --> 00:06:00.890 align:middle line:84%
You know, people who have a
stake in society by owning a
00:06:00.890 --> 00:06:03.530 align:middle line:84%
piece of property will
be better citizens.
00:06:03.530 --> 00:06:05.920 align:middle line:84%
We bought this house right
after we married.
00:06:05.920 --> 00:06:07.260 align:middle line:90%
It was really exciting for us.
00:06:07.260 --> 00:06:09.120 align:middle line:84%
We didn\'t know that we
could afford to buy
00:06:09.120 --> 00:06:09.890 align:middle line:90%
a house right away.
00:06:09.890 --> 00:06:12.990 align:middle line:84%
But we are encouraged
to check it out.
00:06:12.990 --> 00:06:18.560 align:middle line:84%
And we were so excited to
be young and homeowners.
00:06:18.560 --> 00:06:21.030 align:middle line:84%
Within a couple years, our first
child was born, and then
00:06:21.030 --> 00:06:23.505 align:middle line:84%
our second, and then
our third.
00:06:23.505 --> 00:06:27.390 align:middle line:84%
And that has been an exciting
time for us, to raise this
00:06:27.390 --> 00:06:29.480 align:middle line:84%
little family, and
improve our s.
00:06:29.480 --> 00:06:33.310 align:middle line:84%
And really feel like
we were grown-ups.
00:06:33.310 --> 00:06:37.250 align:middle line:84%
Normally the first thing that
an individual can own of any
00:06:37.250 --> 00:06:40.370 align:middle line:90%
substantial value is a home.
00:06:40.370 --> 00:06:44.990 align:middle line:84%
That sets the stage for
individuals to be able to
00:06:44.990 --> 00:06:48.590 align:middle line:84%
borrow against their home, to
send their kids to college,
00:06:48.590 --> 00:06:53.150 align:middle line:84%
and show stability in order
to borrow for a business.
00:06:53.150 --> 00:06:57.640 align:middle line:84%
And it moves on to the
second generation.
00:06:57.640 --> 00:07:02.710 align:middle line:84%
The inheritance for the most
individuals are the result of
00:07:02.710 --> 00:07:07.310 align:middle line:84%
the equity that Mom and
Dad had in their home.
00:07:07.310 --> 00:07:11.500 align:middle line:84%
If you don\'t have that in
society, in a capital
00:07:11.500 --> 00:07:15.410 align:middle line:84%
democracy, it is difficult to
move up the economic ladder.
00:07:15.410 --> 00:07:19.270 align:middle line:84%
You can\'t get anywhere in life
if you\'re throwing way all
00:07:19.270 --> 00:07:19.630 align:middle line:90%
that money.
00:07:19.630 --> 00:07:20.380 align:middle line:90%
You have a home.
00:07:20.380 --> 00:07:21.070 align:middle line:90%
You have equity.
00:07:21.070 --> 00:07:23.280 align:middle line:84%
You have something
to stand on.
00:07:23.280 --> 00:07:26.190 align:middle line:84%
And you have something
that\'s yours.
00:07:26.190 --> 00:07:30.420 align:middle line:84%
In this country, having a home,
it\'s really everything.
00:07:30.420 --> 00:07:35.470 align:middle line:84%
I love having a home and coming
home and knowing that
00:07:35.470 --> 00:07:37.170 align:middle line:90%
everything is mine.
00:07:37.170 --> 00:07:39.860 align:middle line:90%
That I feel like an adult.
00:07:39.860 --> 00:07:42.840 align:middle line:84%
That I have responsibilities
and have
00:07:42.840 --> 00:07:44.300 align:middle line:90%
responsibilities for my kids.
00:07:44.300 --> 00:07:46.200 align:middle line:84%
Usually a house is what
we call a big
00:07:46.200 --> 00:07:47.860 align:middle line:90%
ticket item in economics.
00:07:47.860 --> 00:07:52.590 align:middle line:84%
And you can\'t buy it, usually,
by opening up your wallet and
00:07:52.590 --> 00:07:53.670 align:middle line:90%
just paying for it.
00:07:53.670 --> 00:07:55.170 align:middle line:90%
You have to borrow some money.
00:07:55.170 --> 00:07:59.460 align:middle line:84%
Well, the traditional home
mortgage lender was the
00:07:59.460 --> 00:08:02.660 align:middle line:84%
savings and loan and the
community banks.
00:08:02.660 --> 00:08:06.070 align:middle line:84%
And they lent money to people
in the community.
00:08:06.070 --> 00:08:10.540 align:middle line:84%
And it was very much a one
on one relationship.
00:08:10.540 --> 00:08:13.290 align:middle line:84%
The old system, the one I
understood, there was a local
00:08:13.290 --> 00:08:15.160 align:middle line:90%
bank and there was a borrower.
00:08:15.160 --> 00:08:17.450 align:middle line:90%
And that local bank had money.
00:08:17.450 --> 00:08:20.160 align:middle line:84%
Typically, the money that was
the money of the community,
00:08:20.160 --> 00:08:22.570 align:middle line:84%
the depositors, people
who invested money
00:08:22.570 --> 00:08:23.490 align:middle line:90%
in that local bank.
00:08:23.490 --> 00:08:25.060 align:middle line:84%
So they were very cautious
as to how that
00:08:25.060 --> 00:08:25.960 align:middle line:90%
money was loaned out.
00:08:25.960 --> 00:08:27.150 align:middle line:90%
It\'s loaned out to a borrower.
00:08:27.150 --> 00:08:29.410 align:middle line:84%
But they made sure that the
income was good, they had a
00:08:29.410 --> 00:08:30.840 align:middle line:90%
decent credit history.
00:08:30.840 --> 00:08:32.950 align:middle line:84%
And if that loan did go bad,
they could work with that
00:08:32.950 --> 00:08:34.260 align:middle line:90%
borrower directly.
00:08:34.260 --> 00:08:37.049 align:middle line:84%
There were flaws in
the old system.
00:08:37.049 --> 00:08:40.375 align:middle line:84%
The amount of loans the banks
could make was limited by the
00:08:40.375 --> 00:08:43.980 align:middle line:84%
capital they could raise and the
deposits they received in
00:08:43.980 --> 00:08:46.220 align:middle line:90%
their local communities.
00:08:46.220 --> 00:08:49.420 align:middle line:84%
Depositors could ask for their
money back at any time.
00:08:49.420 --> 00:08:53.830 align:middle line:84%
This made it difficult for banks
to make long-term loans.
00:08:53.830 --> 00:08:56.360 align:middle line:84%
Banks were tied to a
single community.
00:08:56.360 --> 00:08:59.300 align:middle line:84%
If this community fell
on hard times, local
00:08:59.300 --> 00:09:00.970 align:middle line:90%
banks often went under.
00:09:00.970 --> 00:09:04.520 align:middle line:84%
Starting in the 20th century,
governments progressively got
00:09:04.520 --> 00:09:06.990 align:middle line:84%
more interested in aiding
home ownership.
00:09:06.990 --> 00:09:11.940 align:middle line:84%
And a key event was the Great
Depression of the 1930s, when
00:09:11.940 --> 00:09:14.980 align:middle line:84%
the private lending system
sort of broke down.
00:09:14.980 --> 00:09:18.030 align:middle line:84%
Responding to an epidemic of
bank failures during the Great
00:09:18.030 --> 00:09:20.900 align:middle line:84%
Depression, the federal
government passed a series of
00:09:20.900 --> 00:09:23.090 align:middle line:84%
laws and regulations
to rescue the
00:09:23.090 --> 00:09:25.380 align:middle line:90%
crumbling financial system.
00:09:25.380 --> 00:09:29.700 align:middle line:84%
In 1938, the Federal National
Mortgage Association, known as
00:09:29.700 --> 00:09:33.380 align:middle line:84%
Fannie Mae, was created to
restore the mortgage market
00:09:33.380 --> 00:09:36.450 align:middle line:84%
and make long-term, fixed-rate
home loans available for
00:09:36.450 --> 00:09:38.180 align:middle line:90%
millions of Americans.
00:09:38.180 --> 00:09:41.290 align:middle line:84%
Backed by the support of the
US government, Fannie Mae
00:09:41.290 --> 00:09:44.570 align:middle line:84%
bought mortgage loans
from banks.
00:09:44.570 --> 00:09:47.850 align:middle line:84%
Banks took the cash they got and
lent it out again to new
00:09:47.850 --> 00:09:53.860 align:middle line:84%
home buyers, recycling money
into more and more home loans.
00:09:53.860 --> 00:09:58.090 align:middle line:84%
Mortgage lending became safer
and more profitable.
00:09:58.090 --> 00:10:01.050 align:middle line:84%
New banks entered the market,
increasing the supply of
00:10:01.050 --> 00:10:04.570 align:middle line:84%
credit until it became almost a
birthright for Americans to
00:10:04.570 --> 00:10:06.290 align:middle line:90%
buy a home.
00:10:06.290 --> 00:10:10.360 align:middle line:84%
In 1970, believing that Fannie
needed competition, the
00:10:10.360 --> 00:10:14.000 align:middle line:84%
government created a brother
company, the Federal Home Loan
00:10:14.000 --> 00:10:17.420 align:middle line:84%
Mortgage Corporation known
as Freddie Mac.
00:10:17.420 --> 00:10:21.400 align:middle line:84%
By the year 2000, these
government sponsored companies
00:10:21.400 --> 00:10:25.860 align:middle line:84%
owned or guaranteed $2 and 1/2
trillion dollars in home
00:10:25.860 --> 00:10:29.640 align:middle line:84%
loans, more than half of all
mortgages in America.
00:10:29.640 --> 00:10:32.350 align:middle line:84%
Oh, there\'s no doubt that Fannie
Mae and, later on,
00:10:32.350 --> 00:10:38.160 align:middle line:84%
Freddie Mac made the mortgage
market, made the terms better.
00:10:38.160 --> 00:10:41.150 align:middle line:84%
It meant that more and more
people could get these 20 or
00:10:41.150 --> 00:10:43.180 align:middle line:84%
30-year mortgage loans,
as opposed to the
00:10:43.180 --> 00:10:44.750 align:middle line:90%
old five-year loan.
00:10:44.750 --> 00:10:47.490 align:middle line:84%
And the rates were better
because the government would
00:10:47.490 --> 00:10:50.000 align:middle line:84%
sort of guarantee
the mortgages.
00:10:50.000 --> 00:10:51.540 align:middle line:84%
Standards were very
regimented.
00:10:51.540 --> 00:10:54.100 align:middle line:90%
And they were very tough.
00:10:54.100 --> 00:10:57.570 align:middle line:84%
Fannie Mae and Freddie Mac
became known as having the
00:10:57.570 --> 00:10:59.670 align:middle line:84%
toughness underwriting
standards.
00:10:59.670 --> 00:11:03.190 align:middle line:84%
They were, essentially, the
super prime market as far as
00:11:03.190 --> 00:11:04.700 align:middle line:90%
borrowers were concerned.
00:11:04.700 --> 00:11:07.260 align:middle line:84%
The prime for users was known
as what we call a paper
00:11:07.260 --> 00:11:10.370 align:middle line:84%
pristine credit mortgage, people
who weren\'t late on
00:11:10.370 --> 00:11:12.630 align:middle line:84%
their credit cards, who never
had a history of being late on
00:11:12.630 --> 00:11:13.220 align:middle line:90%
their mortgages.
00:11:13.220 --> 00:11:15.060 align:middle line:90%
They were the best credit.
00:11:15.060 --> 00:11:22.180 align:middle line:90%
00:11:22.180 --> 00:11:24.440 align:middle line:84%
Fannie and Freddie needed
money to buy
00:11:24.440 --> 00:11:26.070 align:middle line:90%
home loans from banks.
00:11:26.070 --> 00:11:29.720 align:middle line:84%
And to get it, they went
to Wall Street.
00:11:29.720 --> 00:11:33.150 align:middle line:84%
Wall Street banks sold bonds for
Fannie Mae and Freddie Mac
00:11:33.150 --> 00:11:35.860 align:middle line:84%
to raise the money they needed
to buy home loans from
00:11:35.860 --> 00:11:38.100 align:middle line:90%
community banks.
00:11:38.100 --> 00:11:41.170 align:middle line:84%
Fannie and Freddie collected
thousands of mortgages into
00:11:41.170 --> 00:11:43.740 align:middle line:84%
pools called passthrough
trusts.
00:11:43.740 --> 00:11:47.570 align:middle line:84%
And with the help of Wall Street
banks, sold off stakes
00:11:47.570 --> 00:11:49.990 align:middle line:90%
in these trusts for cash.
00:11:49.990 --> 00:11:53.120 align:middle line:84%
Investors all over the world
were suddenly able to invest
00:11:53.120 --> 00:11:56.290 align:middle line:84%
in US real estate without
making loans in local
00:11:56.290 --> 00:11:57.600 align:middle line:90%
communities.
00:11:57.600 --> 00:12:01.250 align:middle line:84%
They actively courted
foreign investors.
00:12:01.250 --> 00:12:03.330 align:middle line:84%
Representatives from their
companies went all over the
00:12:03.330 --> 00:12:06.250 align:middle line:84%
world trying to talk them into
buying, [? Jenny, ?]
00:12:06.250 --> 00:12:08.650 align:middle line:84%
Fannie, and Freddie
securities.
00:12:08.650 --> 00:12:11.550 align:middle line:84%
What I think of as the second
generation of that was when
00:12:11.550 --> 00:12:16.450 align:middle line:84%
Wall Street kind of took that
to the next level and took
00:12:16.450 --> 00:12:19.470 align:middle line:84%
mortgage passthrough securities
and re-tranche
00:12:19.470 --> 00:12:23.840 align:middle line:84%
those into collateralized
mortgage obligation CMOs.
00:12:23.840 --> 00:12:27.710 align:middle line:84%
The primary thing that CMOs
did was created a time
00:12:27.710 --> 00:12:31.510 align:middle line:84%
priority tranching of those cash
flows so that there were
00:12:31.510 --> 00:12:34.610 align:middle line:84%
relatively short maturity
securities, and then very long
00:12:34.610 --> 00:12:38.860 align:middle line:84%
maturity securities that were
created out of a single pool.
00:12:38.860 --> 00:12:42.170 align:middle line:84%
Some are very senior
in structure.
00:12:42.170 --> 00:12:44.150 align:middle line:90%
They get paid off first.
00:12:44.150 --> 00:12:45.920 align:middle line:84%
And some are much more junior
in the structure.
00:12:45.920 --> 00:12:48.440 align:middle line:90%
They get paid off last.
00:12:48.440 --> 00:12:50.830 align:middle line:84%
And different investors are
going to be interested in
00:12:50.830 --> 00:12:54.610 align:middle line:84%
different parts of that
capital structure.
00:12:54.610 --> 00:12:56.590 align:middle line:84%
You can imagine that pension
funds, for instance, might be
00:12:56.590 --> 00:12:59.450 align:middle line:84%
interested in the more senior
part of that capital
00:12:59.450 --> 00:13:01.970 align:middle line:84%
structure, the more highly-rated
instruments.
00:13:01.970 --> 00:13:04.860 align:middle line:84%
And hedge funds might be
interested in the more junior
00:13:04.860 --> 00:13:06.790 align:middle line:84%
part of that capital
structure.
00:13:06.790 --> 00:13:08.840 align:middle line:84%
In part because they\'re more
willing to take the risk.
00:13:08.840 --> 00:13:10.440 align:middle line:84%
And they get a higher reward
for them as well.
00:13:10.440 --> 00:13:14.865 align:middle line:84%
Now some investors weren\'t able
to buy these bonds unless
00:13:14.865 --> 00:13:16.290 align:middle line:90%
they were rated.
00:13:16.290 --> 00:13:19.590 align:middle line:84%
And that\'s where your rating
agencies came into play.
00:13:19.590 --> 00:13:23.460 align:middle line:84%
For example, some of your
government employee pension
00:13:23.460 --> 00:13:26.510 align:middle line:84%
funds can only buy
rated bonds.
00:13:26.510 --> 00:13:29.990 align:middle line:84%
So now you\'ve got your rating
agencies being called upon to
00:13:29.990 --> 00:13:33.260 align:middle line:84%
rate these mortgage
backed bonds.
00:13:33.260 --> 00:13:37.100 align:middle line:84%
The ratings, what they really
meant was like grades that you
00:13:37.100 --> 00:13:38.790 align:middle line:90%
get in school.
00:13:38.790 --> 00:13:40.730 align:middle line:90%
The A students are very good.
00:13:40.730 --> 00:13:42.180 align:middle line:84%
The B students are
pretty good.
00:13:42.180 --> 00:13:44.260 align:middle line:84%
The C students are
just average.
00:13:44.260 --> 00:13:49.100 align:middle line:84%
And when you put that same sort
of grade on a security,
00:13:49.100 --> 00:13:53.720 align:middle line:84%
like a bond, basically it means,
how confident can you
00:13:53.720 --> 00:13:55.980 align:middle line:84%
be that you\'ll get
your money back?
00:13:55.980 --> 00:14:00.170 align:middle line:84%
And if you have a AAA rating,
that means that the ratings
00:14:00.170 --> 00:14:03.650 align:middle line:84%
agency is telling you, you have
a really good chance of
00:14:03.650 --> 00:14:06.640 align:middle line:84%
getting your money back,
interest and principal.
00:14:06.640 --> 00:14:09.230 align:middle line:90%
It was financial alchemy.
00:14:09.230 --> 00:14:12.150 align:middle line:84%
Wall Street banks bought
mortgage loans and converted
00:14:12.150 --> 00:14:15.970 align:middle line:84%
them into a menu of securities
that could be bought, sold,
00:14:15.970 --> 00:14:18.530 align:middle line:90%
and traded just like stocks.
00:14:18.530 --> 00:14:23.110 align:middle line:84%
And a new term was coined,
securitization.
00:14:23.110 --> 00:14:27.460 align:middle line:84%
Up until the point where
securitization occurred, real
00:14:27.460 --> 00:14:30.040 align:middle line:84%
estate wasn\'t something that you
could buy and sell on the
00:14:30.040 --> 00:14:30.870 align:middle line:90%
stock market.
00:14:30.870 --> 00:14:34.590 align:middle line:84%
With the advent of
securitization, the banks were
00:14:34.590 --> 00:14:38.720 align:middle line:84%
then able to take these
individual home loans, package
00:14:38.720 --> 00:14:43.680 align:middle line:84%
them into packages of, let\'s
say, 10,000 mortgages and sell
00:14:43.680 --> 00:14:45.860 align:middle line:84%
them on Wall Street
for hundreds
00:14:45.860 --> 00:14:47.000 align:middle line:90%
of millions of dollars.
00:14:47.000 --> 00:14:50.720 align:middle line:84%
And at first, the system worked
perfectly and produced
00:14:50.720 --> 00:14:54.220 align:middle line:84%
a lot of money to finance
the ownership and
00:14:54.220 --> 00:14:57.370 align:middle line:90%
development of homes.
00:14:57.370 --> 00:15:00.580 align:middle line:84%
In the new world of
securitization, making home
00:15:00.580 --> 00:15:03.630 align:middle line:84%
loans would be faster, cheaper,
and the market could
00:15:03.630 --> 00:15:06.010 align:middle line:90%
grow almost without limits.
00:15:06.010 --> 00:15:06.900 align:middle line:90%
It was a machine.
00:15:06.900 --> 00:15:10.650 align:middle line:84%
It was akin to an auto factory,
where the product was
00:15:10.650 --> 00:15:12.420 align:middle line:84%
a mortgage and a
mortgage bond.
00:15:12.420 --> 00:15:14.980 align:middle line:84%
And the mortgage went through
the factory, went from the
00:15:14.980 --> 00:15:20.650 align:middle line:84%
loan broker, to a wholesaler,
to Wall Street, into a bond,
00:15:20.650 --> 00:15:21.560 align:middle line:90%
and sold overseas.
00:15:21.560 --> 00:15:22.780 align:middle line:90%
It was a factory.
00:15:22.780 --> 00:15:25.590 align:middle line:84%
The new lending machine
delivered trillions of dollars
00:15:25.590 --> 00:15:28.600 align:middle line:84%
to the American real estate
market and made the community
00:15:28.600 --> 00:15:30.780 align:middle line:90%
bank obsolete.
00:15:30.780 --> 00:15:34.370 align:middle line:84%
Local banks were replaced by a
myriad of specialist companies
00:15:34.370 --> 00:15:37.140 align:middle line:84%
who had no relationship
with borrowers.
00:15:37.140 --> 00:15:40.460 align:middle line:84%
Mortgage brokers met with
borrowers and wrote the loans.
00:15:40.460 --> 00:15:43.750 align:middle line:84%
Home appraisers calculated
property values.
00:15:43.750 --> 00:15:46.530 align:middle line:84%
Servicing companies collected
mortgage payments from
00:15:46.530 --> 00:15:49.650 align:middle line:84%
homeowners and passed them
on to the trusts.
00:15:49.650 --> 00:15:53.470 align:middle line:84%
And rating agencies provided a
stamp of approval about the
00:15:53.470 --> 00:15:55.910 align:middle line:84%
quality of the loans
in the trust.
00:15:55.910 --> 00:15:58.890 align:middle line:84%
And all of them made their
money from fees.
00:15:58.890 --> 00:16:01.885 align:middle line:84%
The more loans they created,
the more fees they earned.
00:16:01.885 --> 00:16:07.680 align:middle line:90%
00:16:07.680 --> 00:16:10.680 align:middle line:84%
At the beginning of this decade,
two events drove this
00:16:10.680 --> 00:16:12.430 align:middle line:90%
machine into high gear--
00:16:12.430 --> 00:16:16.760 align:middle line:84%
the crash of the dot com stock
market in the year 2000 and
00:16:16.760 --> 00:16:22.860 align:middle line:84%
the terrorist attacks on
September 11, 2001.
00:16:22.860 --> 00:16:26.810 align:middle line:84%
Fearing a financial meltdown,
the Federal Reserve stepped in
00:16:26.810 --> 00:16:28.660 align:middle line:84%
and cut interest rates
to calm the
00:16:28.660 --> 00:16:30.610 align:middle line:90%
nerves of panicked investors.
00:16:30.610 --> 00:16:32.610 align:middle line:90%
Suddenly, money was cheap.
00:16:32.610 --> 00:16:34.830 align:middle line:84%
And people went in search
of new places to
00:16:34.830 --> 00:16:36.540 align:middle line:90%
invest their cash.
00:16:36.540 --> 00:16:39.420 align:middle line:84%
They found it in
US real estate.
00:16:39.420 --> 00:16:43.940 align:middle line:84%
Keep in mind, we\'re coming out
of 2000, where the tech bust
00:16:43.940 --> 00:16:46.780 align:middle line:84%
convinced everyone that
stocks were too risky.
00:16:46.780 --> 00:16:48.250 align:middle line:90%
What else was out there?
00:16:48.250 --> 00:16:50.990 align:middle line:84%
The most agreeable and
readily available
00:16:50.990 --> 00:16:52.910 align:middle line:90%
investment was real estate.
00:16:52.910 --> 00:16:54.940 align:middle line:84%
Well, you know, when the feds
started reducing interest
00:16:54.940 --> 00:16:59.480 align:middle line:84%
rates after the dot com meltdown
and post-9/11, it had
00:16:59.480 --> 00:17:01.580 align:middle line:84%
the effect a sort of creating
a feeding frenzy in the
00:17:01.580 --> 00:17:02.840 align:middle line:90%
mortgage industry.
00:17:02.840 --> 00:17:05.520 align:middle line:84%
And two things happened
fundamentally that shifted how
00:17:05.520 --> 00:17:08.240 align:middle line:90%
consumers looked at houses.
00:17:08.240 --> 00:17:10.880 align:middle line:84%
First, they started looking at
houses not as a place to park
00:17:10.880 --> 00:17:13.130 align:middle line:84%
your car but as a place
to park your money.
00:17:13.130 --> 00:17:16.100 align:middle line:84%
They started treating purchasing
a house as though
00:17:16.100 --> 00:17:18.530 align:middle line:84%
they were purchasing a stock,
with all the risky behavior
00:17:18.530 --> 00:17:19.770 align:middle line:90%
that goes with that.
00:17:19.770 --> 00:17:22.150 align:middle line:84%
And the second is that the
people stopped, for the first
00:17:22.150 --> 00:17:24.540 align:middle line:84%
time, really thinking about
whether they could afford a
00:17:24.540 --> 00:17:27.859 align:middle line:84%
house and started thinking
about whether or not they
00:17:27.859 --> 00:17:29.840 align:middle line:84%
could afford a short-term
monthly payment.
00:17:29.840 --> 00:17:33.040 align:middle line:84%
Like the tech boom, you suddenly
felt if you were
00:17:33.040 --> 00:17:38.600 align:middle line:84%
getting 20% yield on your
stocks, you were somehow
00:17:38.600 --> 00:17:39.240 align:middle line:90%
getting gypped.
00:17:39.240 --> 00:17:41.380 align:middle line:84%
The same thing happened
in the housing market.
00:17:41.380 --> 00:17:44.160 align:middle line:84%
If you didn\'t have one or
two properties that were
00:17:44.160 --> 00:17:47.220 align:middle line:84%
appreciating rapidly, you
felt you weren\'t really
00:17:47.220 --> 00:17:49.240 align:middle line:84%
capitalizing enough
on the market.
00:17:49.240 --> 00:17:52.170 align:middle line:84%
All that created an environment
where housing was
00:17:52.170 --> 00:17:56.220 align:middle line:84%
no longer a place to live
but an investment.
00:17:56.220 --> 00:18:01.510 align:middle line:84%
In 2003, the mortgage machine
created a record $4 trillion
00:18:01.510 --> 00:18:03.330 align:middle line:90%
in new home loans.
00:18:03.330 --> 00:18:06.650 align:middle line:84%
Money flowed into the lending
machine as new investors from
00:18:06.650 --> 00:18:10.010 align:middle line:84%
all over the world lined up
to buy mortgage bonds.
00:18:10.010 --> 00:18:14.680 align:middle line:84%
Pension funds, insurance
companies, hedge funds, even
00:18:14.680 --> 00:18:19.050 align:middle line:84%
banks themselves, an entire
industry fed on the cash
00:18:19.050 --> 00:18:21.410 align:middle line:84%
produced by this lending
machine.
00:18:21.410 --> 00:18:25.020 align:middle line:84%
A parade of home construction
companies, real estate agents,
00:18:25.020 --> 00:18:26.720 align:middle line:90%
and appraisers.
00:18:26.720 --> 00:18:30.270 align:middle line:84%
New mortgage lending companies
grew and multiplied.
00:18:30.270 --> 00:18:33.743 align:middle line:84%
But just as the machine shifted
into high gear, it hit
00:18:33.743 --> 00:18:35.280 align:middle line:90%
a speed bump.
00:18:35.280 --> 00:18:38.270 align:middle line:84%
There were only so many prime
borrowers from home
00:18:38.270 --> 00:18:39.760 align:middle line:90%
loans in the US.
00:18:39.760 --> 00:18:41.630 align:middle line:84%
Every year that interest
rates dropped,
00:18:41.630 --> 00:18:43.710 align:middle line:90%
people refinanced mortgages.
00:18:43.710 --> 00:18:48.650 align:middle line:84%
By 2003, effectively everybody
who could refinance a mortgage
00:18:48.650 --> 00:18:49.520 align:middle line:90%
did do that.
00:18:49.520 --> 00:18:52.290 align:middle line:84%
What that presented the mortgage
industry with is the
00:18:52.290 --> 00:18:57.180 align:middle line:84%
prospect that the volume would
drop significantly in 2004.
00:18:57.180 --> 00:19:01.120 align:middle line:84%
Everybody was going to be in
for a huge drop in volume,
00:19:01.120 --> 00:19:02.730 align:middle line:90%
revenue, everything else.
00:19:02.730 --> 00:19:07.320 align:middle line:84%
Mortgages and housing is a huge,
huge financial business
00:19:07.320 --> 00:19:08.540 align:middle line:90%
in this country.
00:19:08.540 --> 00:19:11.420 align:middle line:84%
And they have big lobbyists in
Washington, the National
00:19:11.420 --> 00:19:13.700 align:middle line:84%
Association of Home Builders,
probably one of the most
00:19:13.700 --> 00:19:15.500 align:middle line:90%
powerful lobbies in the world.
00:19:15.500 --> 00:19:17.410 align:middle line:84%
You know, they pour a lot of
money into the coffers of
00:19:17.410 --> 00:19:19.610 align:middle line:84%
politicians, along with the
National Association of
00:19:19.610 --> 00:19:23.150 align:middle line:84%
Realtors, the Mortgage Bankers
Association, the National
00:19:23.150 --> 00:19:26.310 align:middle line:84%
Association of Mortgage Brokers,
the American Bankers
00:19:26.310 --> 00:19:26.840 align:middle line:90%
Association.
00:19:26.840 --> 00:19:30.190 align:middle line:84%
I mean, they all put money in
the coffers of politicians.
00:19:30.190 --> 00:19:32.630 align:middle line:84%
The mortgage market in the
industry was very interested
00:19:32.630 --> 00:19:35.980 align:middle line:84%
in finding a way to keep people
refinancing mortgages
00:19:35.980 --> 00:19:37.420 align:middle line:90%
and buying homes.
00:19:37.420 --> 00:19:40.720 align:middle line:84%
And the federal government
was there to help.
00:19:40.720 --> 00:19:44.430 align:middle line:84%
Thanks to our policies, home
ownership in America is at an
00:19:44.430 --> 00:19:45.680 align:middle line:90%
all-time high.
00:19:45.680 --> 00:19:50.110 align:middle line:90%
00:19:50.110 --> 00:19:52.310 align:middle line:90%
Tonight we set a new goal.
00:19:52.310 --> 00:19:56.050 align:middle line:84%
Seven million more affordable
homes in the next 10 years, so
00:19:56.050 --> 00:19:59.520 align:middle line:84%
more American families will be
able to open the door and say,
00:19:59.520 --> 00:20:01.435 align:middle line:90%
welcome to my home.
00:20:01.435 --> 00:20:12.110 align:middle line:90%
[CROWD CHEERING]
00:20:12.110 --> 00:20:15.980 align:middle line:84%
Congress for the last,
basically, two decades has
00:20:15.980 --> 00:20:19.670 align:middle line:84%
been pushing this concept
of home ownership.
00:20:19.670 --> 00:20:25.710 align:middle line:84%
Congress puts pressure on the
big banks by enacting the
00:20:25.710 --> 00:20:29.350 align:middle line:84%
Community Reinvestment Act,
which required that banks
00:20:29.350 --> 00:20:33.860 align:middle line:84%
reinvest money in communities,
basically in low income
00:20:33.860 --> 00:20:36.930 align:middle line:84%
neighborhoods and the
communities they serve.
00:20:36.930 --> 00:20:40.600 align:middle line:84%
And so to some degree, it was
the regulators who were saying
00:20:40.600 --> 00:20:43.830 align:middle line:84%
to these banks, you have to make
more loans in secondary
00:20:43.830 --> 00:20:45.180 align:middle line:90%
neighborhoods.
00:20:45.180 --> 00:20:47.750 align:middle line:90%
And not just the best loans.
00:20:47.750 --> 00:20:51.250 align:middle line:84%
A policy of actively supporting
housing in United
00:20:51.250 --> 00:20:55.070 align:middle line:84%
States has been going
on for decades now.
00:20:55.070 --> 00:20:59.310 align:middle line:84%
And certainly, the Community
Reinvestment Act also led to
00:20:59.310 --> 00:21:01.790 align:middle line:84%
some loosening of credit
standards.
00:21:01.790 --> 00:21:05.950 align:middle line:84%
But it was only in the last
eight years that this turned
00:21:05.950 --> 00:21:07.830 align:middle line:90%
out into a massive bubble.
00:21:07.830 --> 00:21:10.360 align:middle line:84%
Because in the last eight
years, the philosophy in
00:21:10.360 --> 00:21:14.200 align:middle line:84%
Washington and that
administration was one of free
00:21:14.200 --> 00:21:16.450 align:middle line:84%
market laissez faire
without even
00:21:16.450 --> 00:21:19.540 align:middle line:90%
prudential regulations provision.
00:21:19.540 --> 00:21:23.060 align:middle line:84%
The government, Democrat and
Republican alike, wanted home
00:21:23.060 --> 00:21:26.980 align:middle line:84%
ownership for all and wanted to
keep the prosperity going.
00:21:26.980 --> 00:21:29.950 align:middle line:84%
The housing industry needed more
people who could borrow
00:21:29.950 --> 00:21:31.030 align:middle line:90%
and buy homes.
00:21:31.030 --> 00:21:34.900 align:middle line:84%
Their interests came together
in an obscure market outside
00:21:34.900 --> 00:21:37.995 align:middle line:84%
of the prime mortgage market,
the subprime market.
00:21:37.995 --> 00:21:42.670 align:middle line:90%
00:21:42.670 --> 00:21:45.810 align:middle line:84%
Subprime was actually sort
of invented in the 1960s.
00:21:45.810 --> 00:21:47.675 align:middle line:84%
It was a very small part
of the business.
00:21:47.675 --> 00:21:50.730 align:middle line:84%
It was people with bad credit
who were ignored by banks and
00:21:50.730 --> 00:21:52.650 align:middle line:84%
SNLs, your traditional
lenders.
00:21:52.650 --> 00:21:56.240 align:middle line:84%
And even though they targeted
people with bad credit, it was
00:21:56.240 --> 00:21:57.860 align:middle line:90%
run very professionally.
00:21:57.860 --> 00:21:59.430 align:middle line:90%
They were tough on people.
00:21:59.430 --> 00:22:00.890 align:middle line:84%
But they had low
delinquencies.
00:22:00.890 --> 00:22:03.350 align:middle line:84%
And they only lent to people
who had equity in their
00:22:03.350 --> 00:22:04.940 align:middle line:84%
houses, who might be able
to pay it back.
00:22:04.940 --> 00:22:07.140 align:middle line:84%
They didn\'t securitize
that stuff.
00:22:07.140 --> 00:22:11.700 align:middle line:84%
Subprime was never securitized
until the late 1990s, really.
00:22:11.700 --> 00:22:14.940 align:middle line:84%
But now the machine was
desperate for new loans.
00:22:14.940 --> 00:22:17.750 align:middle line:84%
And it was willing to buy
virtually any loan that was
00:22:17.750 --> 00:22:19.370 align:middle line:90%
attached to a home.
00:22:19.370 --> 00:22:22.060 align:middle line:84%
When banks started securitizing
very risky
00:22:22.060 --> 00:22:25.710 align:middle line:84%
mortgages, it became a complete
game changer.
00:22:25.710 --> 00:22:28.320 align:middle line:84%
It was a game changer because
you could take a lot of credit
00:22:28.320 --> 00:22:30.590 align:middle line:84%
that you might not have
wanted to hold.
00:22:30.590 --> 00:22:33.080 align:middle line:84%
And suddenly, you could
sell it to investors
00:22:33.080 --> 00:22:34.340 align:middle line:90%
from around the world.
00:22:34.340 --> 00:22:38.630 align:middle line:84%
If you were just a prime lender
in 2003, you woke up in
00:22:38.630 --> 00:22:42.570 align:middle line:84%
2004 and said, how am I going
to sustain my volume?
00:22:42.570 --> 00:22:44.980 align:middle line:84%
That\'s exactly what happened
with Countrywide.
00:22:44.980 --> 00:22:47.950 align:middle line:84%
Countrywide didn\'t invent
the subprime market.
00:22:47.950 --> 00:22:50.960 align:middle line:84%
But they became the largest
lender in subprime.
00:22:50.960 --> 00:22:55.560 align:middle line:84%
It got so that in 2005 there was
no serious mortgage market
00:22:55.560 --> 00:22:58.550 align:middle line:84%
player who wanted to be a
national lender and increase
00:22:58.550 --> 00:23:01.930 align:middle line:84%
their volume who wasn\'t in
the subprime market.
00:23:01.930 --> 00:23:04.460 align:middle line:84%
Under government pressure
going as far back as the
00:23:04.460 --> 00:23:07.810 align:middle line:84%
Clinton administration, Fannie
and Freddie lowered their
00:23:07.810 --> 00:23:11.820 align:middle line:84%
standards and began investing
in subprime as well.
00:23:11.820 --> 00:23:16.920 align:middle line:84%
In 2005, for the first time,
non-prime mortgages overtook
00:23:16.920 --> 00:23:18.340 align:middle line:90%
prime loans.
00:23:18.340 --> 00:23:22.410 align:middle line:84%
And the traditional prime
mortgage became the exception
00:23:22.410 --> 00:23:24.860 align:middle line:90%
rather than the rule.
00:23:24.860 --> 00:23:27.930 align:middle line:90%
Success breeds success.
00:23:27.930 --> 00:23:32.730 align:middle line:84%
And now you\'ve got a ton of
money coming into the market
00:23:32.730 --> 00:23:35.926 align:middle line:84%
looking for mortgage
backed bonds.
00:23:35.926 --> 00:23:39.400 align:middle line:84%
Well the poorer investment
banking firms, I mean, there\'s
00:23:39.400 --> 00:23:42.650 align:middle line:84%
just so many of these good
mortgages around.
00:23:42.650 --> 00:23:47.830 align:middle line:84%
So they started to encourage
private mortgage companies to
00:23:47.830 --> 00:23:50.270 align:middle line:84%
go out there and originate
mortgages.
00:23:50.270 --> 00:23:54.690 align:middle line:84%
So you had this flush of money
coming into the market.
00:23:54.690 --> 00:23:59.060 align:middle line:84%
Mortgage brokers are sprouting
like weeds.
00:23:59.060 --> 00:24:02.580 align:middle line:84%
And they were going wherever
they had to go
00:24:02.580 --> 00:24:04.440 align:middle line:90%
to originate mortgages.
00:24:04.440 --> 00:24:07.060 align:middle line:84%
Most of these loans were
actually originated by
00:24:07.060 --> 00:24:09.770 align:middle line:84%
mortgage brokers, because
you didn\'t need a bank.
00:24:09.770 --> 00:24:10.880 align:middle line:90%
You didn\'t need deposits.
00:24:10.880 --> 00:24:12.700 align:middle line:90%
You didn\'t need a big office.
00:24:12.700 --> 00:24:14.070 align:middle line:84%
In fact, you didn\'t
need an office.
00:24:14.070 --> 00:24:16.460 align:middle line:84%
All you needed was an
internet address.
00:24:16.460 --> 00:24:19.540 align:middle line:84%
And people could click on your
website, call you on the
00:24:19.540 --> 00:24:21.120 align:middle line:90%
phone, get a mortgage.
00:24:21.120 --> 00:24:22.480 align:middle line:90%
You never had to meet them.
00:24:22.480 --> 00:24:24.690 align:middle line:84%
You never had any idea who they
were, whether they were
00:24:24.690 --> 00:24:27.590 align:middle line:84%
good loans or bad, loans,
whether they lived at a good
00:24:27.590 --> 00:24:31.000 align:middle line:84%
part of town or a bad part of
town, whether there was a jail
00:24:31.000 --> 00:24:32.770 align:middle line:90%
in the next block.
00:24:32.770 --> 00:24:35.500 align:middle line:84%
Mortgage brokers popped up
on every street corner.
00:24:35.500 --> 00:24:39.630 align:middle line:84%
And it was relatively easy for
them to fund two or three
00:24:39.630 --> 00:24:42.420 align:middle line:84%
mortgages at a time, or 5 or
10 mortgages at a time, and
00:24:42.420 --> 00:24:44.640 align:middle line:84%
then sell them to
a major lender.
00:24:44.640 --> 00:24:47.340 align:middle line:84%
So you\'d go to Mom and Pop
mortgage broker on the corner,
00:24:47.340 --> 00:24:50.050 align:middle line:84%
get your loan, get
in your house.
00:24:50.050 --> 00:24:52.170 align:middle line:84%
And before you made your first
payment to that mortgage
00:24:52.170 --> 00:24:56.370 align:middle line:84%
broker, the mortgage broker
would sell that mortgage to a
00:24:56.370 --> 00:24:57.460 align:middle line:90%
major lender.
00:24:57.460 --> 00:25:00.690 align:middle line:84%
And to make sure their supply
of home loans was not
00:25:00.690 --> 00:25:03.400 align:middle line:84%
interrupted, Wall Street
banks began to
00:25:03.400 --> 00:25:04.720 align:middle line:90%
buy up mortgage companies.
00:25:04.720 --> 00:25:19.130 align:middle line:90%
00:25:19.130 --> 00:25:22.760 align:middle line:84%
I\'ve been in the Army
for 11 years.
00:25:22.760 --> 00:25:24.570 align:middle line:90%
Two tours in Iraq.
00:25:24.570 --> 00:25:26.870 align:middle line:90%
One year in Korea.
00:25:26.870 --> 00:25:29.320 align:middle line:84%
And me and my wife finally
decided to buy a house.
00:25:29.320 --> 00:25:32.720 align:middle line:84%
So while I was on my first
tour of Iraq, I started
00:25:32.720 --> 00:25:35.510 align:middle line:84%
looking online trying to
find a nice house.
00:25:35.510 --> 00:25:37.840 align:middle line:84%
And found the one that
we eventually bought.
00:25:37.840 --> 00:25:43.220 align:middle line:84%
I flew in on my mid-tour leave
and signed all the papers, got
00:25:43.220 --> 00:25:44.250 align:middle line:84%
to stay in it for
about a week.
00:25:44.250 --> 00:25:47.270 align:middle line:84%
And then flew back to Iraq
to finish up my tour.
00:25:47.270 --> 00:25:49.590 align:middle line:84%
When we first bought the house,
it was just me, my
00:25:49.590 --> 00:25:51.960 align:middle line:90%
wife, and my oldest son Alex.
00:25:51.960 --> 00:25:55.290 align:middle line:90%
And it wasn\'t a big house.
00:25:55.290 --> 00:25:58.060 align:middle line:84%
But it was big enough
for three of us.
00:25:58.060 --> 00:26:00.050 align:middle line:90%
And it was a fixer-upper.
00:26:00.050 --> 00:26:01.210 align:middle line:90%
The price was great.
00:26:01.210 --> 00:26:03.140 align:middle line:90%
It was in a great area.
00:26:03.140 --> 00:26:05.910 align:middle line:84%
When we got married, it wasn\'t
anything that we thought we
00:26:05.910 --> 00:26:07.440 align:middle line:84%
were ever going to
be able to do.
00:26:07.440 --> 00:26:09.930 align:middle line:84%
And then when all these loans
start coming up and you see
00:26:09.930 --> 00:26:12.880 align:middle line:84%
them on TV every day and on
the radio and in the media
00:26:12.880 --> 00:26:15.010 align:middle line:84%
about, oh, these zero
down loans.
00:26:15.010 --> 00:26:17.960 align:middle line:84%
Because on what he was making at
the time, there was no way
00:26:17.960 --> 00:26:21.170 align:middle line:90%
to save aside $10,000, $15,000,
00:26:21.170 --> 00:26:22.990 align:middle line:90%
$20,000 for a down payment.
00:26:22.990 --> 00:26:25.310 align:middle line:84%
So when they come up with these
zero down loans, we were
00:26:25.310 --> 00:26:26.730 align:middle line:90%
like, well, this is perfect.
00:26:26.730 --> 00:26:28.470 align:middle line:84%
The buttons on my shirt
were popping off.
00:26:28.470 --> 00:26:29.340 align:middle line:90%
I was so proud.
00:26:29.340 --> 00:26:31.800 align:middle line:84%
I just couldn\'t believe finally
I was a homeowner.
00:26:31.800 --> 00:26:35.760 align:middle line:84%
It was like a pinnacle of
achievement for me.
00:26:35.760 --> 00:26:37.100 align:middle line:90%
They brush through it.
00:26:37.100 --> 00:26:38.930 align:middle line:84%
And they say, well, this is
what we\'re going to do.
00:26:38.930 --> 00:26:39.800 align:middle line:90%
We\'re going to do this.
00:26:39.800 --> 00:26:41.290 align:middle line:90%
It\'s called an 80/20 loan.
00:26:41.290 --> 00:26:43.430 align:middle line:84%
It was pretty much a sign
here kind of deal.
00:26:43.430 --> 00:26:46.030 align:middle line:84%
They sat this big phone book
down in front of us.
00:26:46.030 --> 00:26:47.530 align:middle line:84%
And we went through
and signed.
00:26:47.530 --> 00:26:49.360 align:middle line:84%
They\'d just say, this
means this.
00:26:49.360 --> 00:26:50.290 align:middle line:90%
This means this.
00:26:50.290 --> 00:26:52.630 align:middle line:84%
If you need to, you\'re not
going to have any problem
00:26:52.630 --> 00:26:56.040 align:middle line:90%
refinancing the loan.
00:26:56.040 --> 00:26:57.000 align:middle line:90%
Everything will be great.
00:26:57.000 --> 00:26:58.290 align:middle line:90%
Just get into the house.
00:26:58.290 --> 00:26:59.500 align:middle line:90%
That\'s what the main goal is.
00:26:59.500 --> 00:27:00.590 align:middle line:84%
We need to get you
into the house.
00:27:00.590 --> 00:27:03.370 align:middle line:84%
And I just kept thinking,
where\'s the catch?
00:27:03.370 --> 00:27:08.560 align:middle line:84%
Well, I had a lot of questions
for the loan officer.
00:27:08.560 --> 00:27:11.330 align:middle line:84%
They give you the manuals
to read when
00:27:11.330 --> 00:27:12.100 align:middle line:90%
you\'re getting a loan.
00:27:12.100 --> 00:27:14.150 align:middle line:90%
And I actually read them.
00:27:14.150 --> 00:27:16.970 align:middle line:84%
And I\'m like, well, in section
blah, blah, blah.
00:27:16.970 --> 00:27:19.600 align:middle line:84%
And so they really didn\'t want
to talk to me too much.
00:27:19.600 --> 00:27:21.290 align:middle line:84%
They wanted to talk
to my husband.
00:27:21.290 --> 00:27:26.680 align:middle line:84%
They were very happy, upbeat
type mentality at that time.
00:27:26.680 --> 00:27:31.580 align:middle line:84%
And they just kept saying,
you\'ll have money now to
00:27:31.580 --> 00:27:34.450 align:middle line:84%
travel, take care of yourself,
get yourself
00:27:34.450 --> 00:27:35.420 align:middle line:90%
back on your feet.
00:27:35.420 --> 00:27:41.230 align:middle line:84%
I bought a house in August
2003 for $205,000.
00:27:41.230 --> 00:27:43.670 align:middle line:84%
I mean, a house is a lot
of responsibility
00:27:43.670 --> 00:27:45.810 align:middle line:90%
and a lot of work.
00:27:45.810 --> 00:27:49.900 align:middle line:84%
But I do enjoy in the morning
going outside, having my cup
00:27:49.900 --> 00:27:54.200 align:middle line:84%
of coffee before I go
to work, and re-pot
00:27:54.200 --> 00:27:57.390 align:middle line:90%
the flowers and plants.
00:27:57.390 --> 00:28:00.330 align:middle line:84%
So this is kind of
my children.
00:28:00.330 --> 00:28:01.760 align:middle line:90%
I enjoy it.
00:28:01.760 --> 00:28:03.250 align:middle line:90%
It\'s my relaxation.
00:28:03.250 --> 00:28:04.610 align:middle line:90%
We were talking about it.
00:28:04.610 --> 00:28:08.670 align:middle line:84%
If I do my mortgage payment in
time, in two years we can
00:28:08.670 --> 00:28:15.810 align:middle line:84%
refinance for any interest
rate what pleases me.
00:28:15.810 --> 00:28:17.810 align:middle line:84%
And I kind of fell
into trouble.
00:28:17.810 --> 00:28:18.780 align:middle line:90%
I should have never.
00:28:18.780 --> 00:28:19.850 align:middle line:90%
But I did.
00:28:19.850 --> 00:28:21.770 align:middle line:84%
We\'ve owned it for
about four years.
00:28:21.770 --> 00:28:25.720 align:middle line:84%
And not a single room in the
house hasn\'t been touched.
00:28:25.720 --> 00:28:29.900 align:middle line:84%
We\'ve remodeled the kitchen, the
living room, the bedrooms.
00:28:29.900 --> 00:28:31.860 align:middle line:84%
The upstairs we just
got finished with.
00:28:31.860 --> 00:28:34.140 align:middle line:84%
And right now there\'s an
addition, like a sun room,
00:28:34.140 --> 00:28:36.610 align:middle line:84%
that\'s attached to the back that
we\'re in the process of
00:28:36.610 --> 00:28:37.540 align:middle line:90%
remodeling.
00:28:37.540 --> 00:28:41.450 align:middle line:84%
The credit created a situation
where the price of homes
00:28:41.450 --> 00:28:44.230 align:middle line:90%
started to accelerate.
00:28:44.230 --> 00:28:48.430 align:middle line:84%
And as the prices accelerated,
people became concerned that
00:28:48.430 --> 00:28:51.860 align:middle line:84%
they would lose the ability
to be able to buy a home.
00:28:51.860 --> 00:28:53.680 align:middle line:90%
So they overextended themselves
00:28:53.680 --> 00:28:54.850 align:middle line:90%
borrowing more money.
00:28:54.850 --> 00:28:57.210 align:middle line:84%
The demand for homes
increased.
00:28:57.210 --> 00:29:00.500 align:middle line:84%
Which of course, caused
home prices to go up.
00:29:00.500 --> 00:29:06.070 align:middle line:84%
And in certain markets, the home
prices doubled, tripled,
00:29:06.070 --> 00:29:09.710 align:middle line:84%
because it was so easy
to get financed.
00:29:09.710 --> 00:29:13.220 align:middle line:84%
This wave of debt fueled
an economic boom.
00:29:13.220 --> 00:29:16.580 align:middle line:84%
Jobs were created in home
construction and everything
00:29:16.580 --> 00:29:19.010 align:middle line:84%
that had to do with
home construction.
00:29:19.010 --> 00:29:23.130 align:middle line:84%
Building materials, hardware
stores, furniture stores,
00:29:23.130 --> 00:29:24.360 align:middle line:90%
appliance makers.
00:29:24.360 --> 00:29:26.640 align:middle line:84%
We\'d built at such a tremendous
rate, you couldn\'t
00:29:26.640 --> 00:29:29.290 align:middle line:84%
get plans through the
development process fast
00:29:29.290 --> 00:29:32.230 align:middle line:84%
enough. these homes would sell,
you know, an entire
00:29:32.230 --> 00:29:34.510 align:middle line:84%
section or phase of a
development would sell out the
00:29:34.510 --> 00:29:36.530 align:middle line:90%
first day it was optioned.
00:29:36.530 --> 00:29:38.490 align:middle line:84%
And by the time they were
building the second or third
00:29:38.490 --> 00:29:41.630 align:middle line:84%
phase, that first phase was for
sale again at a profit of
00:29:41.630 --> 00:29:45.160 align:middle line:84%
$20,000, $50,000, $70,000 more
than these folks had paid for
00:29:45.160 --> 00:29:46.620 align:middle line:84%
it six or eight months
earlier.
00:29:46.620 --> 00:29:50.560 align:middle line:84%
And there was a lot of folks
who made a lot of money.
00:29:50.560 --> 00:29:53.380 align:middle line:84%
Real estate agents and brokers,
real estate lenders,
00:29:53.380 --> 00:29:55.280 align:middle line:84%
mortgage brokers, appraisers,
they were
00:29:55.280 --> 00:29:56.080 align:middle line:90%
making a lot of money.
00:29:56.080 --> 00:30:01.660 align:middle line:84%
Because they were selling
houses at a record rate.
00:30:01.660 --> 00:30:05.890 align:middle line:84%
In 2006, the amount of US
mortgages outstanding reached
00:30:05.890 --> 00:30:09.790 align:middle line:90%
a colossal $10 trillion.
00:30:09.790 --> 00:30:11.670 align:middle line:90%
All across America, the housing
00:30:11.670 --> 00:30:13.130 align:middle line:90%
party was in full swing.
00:30:13.130 --> 00:30:25.420 align:middle line:90%
00:30:25.420 --> 00:30:28.400 align:middle line:84%
The more money that became
available in the loan pool,
00:30:28.400 --> 00:30:31.610 align:middle line:84%
the more reckless,
unfortunately, everybody up
00:30:31.610 --> 00:30:34.730 align:middle line:84%
and down the food chain got with
how they treated these
00:30:34.730 --> 00:30:36.390 align:middle line:90%
loans and loan products.
00:30:36.390 --> 00:30:41.450 align:middle line:84%
They came in with an independent
appraiser that
00:30:41.450 --> 00:30:44.960 align:middle line:84%
just comes whipping in the
driveway, walks around the
00:30:44.960 --> 00:30:47.390 align:middle line:84%
house, takes a couple
of quick pictures.
00:30:47.390 --> 00:30:49.860 align:middle line:84%
I mean, they were in and
out of there in,
00:30:49.860 --> 00:30:53.310 align:middle line:90%
like, 10, 15 minutes.
00:30:53.310 --> 00:30:59.260 align:middle line:84%
And how do you go through three
floors in a home with a
00:30:59.260 --> 00:31:03.560 align:middle line:84%
sun room and walk around out in
the property and all over
00:31:03.560 --> 00:31:07.100 align:middle line:84%
the place in 15 minutes and say,
yep, OK, we\'re going to
00:31:07.100 --> 00:31:10.240 align:middle line:90%
appraise this at $250,000?
00:31:10.240 --> 00:31:12.720 align:middle line:84%
She knew the number
she had to get.
00:31:12.720 --> 00:31:16.340 align:middle line:84%
She pencil-whipped that to what
they needed to meet the
00:31:16.340 --> 00:31:18.510 align:middle line:84%
guidelines to loan
us that money.
00:31:18.510 --> 00:31:23.110 align:middle line:84%
The problem is, once a
neighborhood has 10% bogus
00:31:23.110 --> 00:31:25.580 align:middle line:84%
appraisals or 20% bogus
appraisals, then everybody has
00:31:25.580 --> 00:31:28.050 align:middle line:84%
a comp that\'s based on
a bogus appraisal.
00:31:28.050 --> 00:31:30.360 align:middle line:84%
And nothing\'s there to
check appraisals.
00:31:30.360 --> 00:31:33.570 align:middle line:84%
Couple that with the fact it in
Ohio, until January 1st of
00:31:33.570 --> 00:31:37.270 align:middle line:84%
2007, appraisals didn\'t
need a license.
00:31:37.270 --> 00:31:40.750 align:middle line:84%
So there were no tests,
no controls.
00:31:40.750 --> 00:31:42.440 align:middle line:84%
I could walk out of
jail on Monday.
00:31:42.440 --> 00:31:45.440 align:middle line:84%
On a Tuesday, I could start
working as an appraiser.
00:31:45.440 --> 00:31:50.430 align:middle line:84%
The underwriting standards
started to decrease because of
00:31:50.430 --> 00:31:51.380 align:middle line:90%
competition.
00:31:51.380 --> 00:31:53.540 align:middle line:84%
They would go to two or three
mortgage brokers.
00:31:53.540 --> 00:31:56.140 align:middle line:84%
And the one with the most
attractive terms would be the
00:31:56.140 --> 00:31:58.460 align:middle line:84%
ones that they would present
to their client.
00:31:58.460 --> 00:32:01.290 align:middle line:84%
For those people with no savings
and little income,
00:32:01.290 --> 00:32:03.710 align:middle line:84%
they offered new types
of loans with low
00:32:03.710 --> 00:32:05.810 align:middle line:90%
introductory rates.
00:32:05.810 --> 00:32:08.520 align:middle line:84%
Interest only loans
started to appear,
00:32:08.520 --> 00:32:10.130 align:middle line:90%
loans with teaser rates.
00:32:10.130 --> 00:32:14.770 align:middle line:84%
Adjustable rate loans, more
loans with flexible payments.
00:32:14.770 --> 00:32:15.800 align:middle line:90%
No-doc loans.
00:32:15.800 --> 00:32:16.800 align:middle line:90%
Payment option ARM.
00:32:16.800 --> 00:32:18.120 align:middle line:90%
Negative amortization loan.
00:32:18.120 --> 00:32:19.330 align:middle line:90%
NINJA loans.
00:32:19.330 --> 00:32:21.980 align:middle line:84%
Because there was no income,
no job, or no asset
00:32:21.980 --> 00:32:24.440 align:middle line:84%
verification in the
documentation.
00:32:24.440 --> 00:32:27.260 align:middle line:84%
What they\'re saying is, we don\'t
care whether this person
00:32:27.260 --> 00:32:27.840 align:middle line:90%
can repay the loan.
00:32:27.840 --> 00:32:30.510 align:middle line:84%
We just want to write the
loan in the first place.
00:32:30.510 --> 00:32:33.120 align:middle line:84%
And once that becomes the
name of the game,
00:32:33.120 --> 00:32:34.320 align:middle line:90%
then it\'s open season.
00:32:34.320 --> 00:32:36.250 align:middle line:84%
Then anybody can
buy 10 houses.
00:32:36.250 --> 00:32:38.750 align:middle line:84%
And it doesn\'t really
matter whether they
00:32:38.750 --> 00:32:39.980 align:middle line:90%
can pay them back.
00:32:39.980 --> 00:32:43.640 align:middle line:84%
You had lenders that would be
lending to investors and
00:32:43.640 --> 00:32:45.600 align:middle line:90%
speculators.
00:32:45.600 --> 00:32:47.330 align:middle line:84%
They didn\'t care who
they lent money to.
00:32:47.330 --> 00:32:50.070 align:middle line:84%
They just wanted to generate
the loans.
00:32:50.070 --> 00:32:53.170 align:middle line:84%
Everybody in the securitization
chain--
00:32:53.170 --> 00:32:56.570 align:middle line:84%
from the mortgage broker, to
the bank originating the
00:32:56.570 --> 00:33:01.450 align:middle line:84%
mortgage, to the investment
bank, to the rating agencies--
00:33:01.450 --> 00:33:05.000 align:middle line:84%
everybody was making a fee and
transferring the credit risk
00:33:05.000 --> 00:33:06.380 align:middle line:90%
to somebody else.
00:33:06.380 --> 00:33:08.930 align:middle line:84%
You kept moving the
risk along.
00:33:08.930 --> 00:33:11.812 align:middle line:84%
So the people who misbehaved
at the local level--
00:33:11.812 --> 00:33:15.310 align:middle line:84%
I\'m talking about irresponsible
appraisers,
00:33:15.310 --> 00:33:19.060 align:middle line:84%
irresponsible mortgage brokers,
irresponsible
00:33:19.060 --> 00:33:20.460 align:middle line:90%
intermediate banks--
00:33:20.460 --> 00:33:22.930 align:middle line:84%
they really never felt any
sense of concern or
00:33:22.930 --> 00:33:25.950 align:middle line:84%
responsibility because they were
moving these loans along
00:33:25.950 --> 00:33:26.890 align:middle line:90%
to somebody else.
00:33:26.890 --> 00:33:32.220 align:middle line:84%
I heard a pastor on a radio
show say one time, folks,
00:33:32.220 --> 00:33:35.050 align:middle line:84%
creative financing means
you can\'t afford
00:33:35.050 --> 00:33:36.540 align:middle line:90%
a house right now.
00:33:36.540 --> 00:33:39.060 align:middle line:84%
If you have a steady income and
your income is $35,000,
00:33:39.060 --> 00:33:42.540 align:middle line:84%
$40,000 a year, that\'s the
house you can afford.
00:33:42.540 --> 00:33:46.650 align:middle line:84%
If you live in San Diego on
$35,000 or $40,000 a year,
00:33:46.650 --> 00:33:49.990 align:middle line:84%
you\'re not going to be able
to afford a house.
00:33:49.990 --> 00:33:51.390 align:middle line:84%
In a lot of areas, you\'re
not going to be
00:33:51.390 --> 00:33:53.360 align:middle line:90%
able to afford a condo.
00:33:53.360 --> 00:33:55.990 align:middle line:84%
And these folks who have
$35,0000, $40,000 a year were
00:33:55.990 --> 00:34:00.450 align:middle line:84%
buying $600,000, $650,000,
$700,000 homes.
00:34:00.450 --> 00:34:03.400 align:middle line:84%
If I was to say what the flaw
is, there\'s a group
00:34:03.400 --> 00:34:04.270 align:middle line:90%
that holds the money.
00:34:04.270 --> 00:34:05.310 align:middle line:90%
And that\'s the lenders.
00:34:05.310 --> 00:34:07.610 align:middle line:84%
And they were just lending it
to anyone who would sign.
00:34:07.610 --> 00:34:12.360 align:middle line:90%
00:34:12.360 --> 00:34:16.280 align:middle line:84%
We had incidences where we had
an individual who was living
00:34:16.280 --> 00:34:19.989 align:middle line:84%
in an apartment building, who
was not even legally living
00:34:19.989 --> 00:34:24.070 align:middle line:84%
there because he wasn\'t on the
lease, suddenly has the
00:34:24.070 --> 00:34:28.590 align:middle line:84%
wherewithal to buy
a $340,000 house.
00:34:28.590 --> 00:34:34.090 align:middle line:84%
And the very next day buy
another house for 400 and some
00:34:34.090 --> 00:34:34.830 align:middle line:90%
odd dollars.
00:34:34.830 --> 00:34:39.489 align:middle line:84%
Again, no money down, 100%
financing with no background.
00:34:39.489 --> 00:34:42.909 align:middle line:84%
The largest indicator that we
focus upon is our suspicious
00:34:42.909 --> 00:34:45.590 align:middle line:84%
activity reports that we receive
through the financial
00:34:45.590 --> 00:34:47.010 align:middle line:90%
institutions.
00:34:47.010 --> 00:34:50.020 align:middle line:84%
And those reports, specifically
to mortgage
00:34:50.020 --> 00:34:52.790 align:middle line:84%
fraud, are an interesting
indicator in and of
00:34:52.790 --> 00:34:53.489 align:middle line:90%
themselves.
00:34:53.489 --> 00:34:56.750 align:middle line:84%
In 2003, we had approximately
7,000.
00:34:56.750 --> 00:34:59.740 align:middle line:90%
2008, the number is projected.
00:34:59.740 --> 00:35:03.500 align:middle line:84%
And we anticipate to hit
the 76,000 plus mark.
00:35:03.500 --> 00:35:06.530 align:middle line:84%
So we see that every two years,
the number doubles.
00:35:06.530 --> 00:35:09.430 align:middle line:84%
We had people who were buying
single family houses.
00:35:09.430 --> 00:35:12.220 align:middle line:84%
Again, adjustable rate
mortgages, no
00:35:12.220 --> 00:35:14.240 align:middle line:90%
money down, 100% financing.
00:35:14.240 --> 00:35:17.340 align:middle line:84%
They would put an illegal
apartment in the basement.
00:35:17.340 --> 00:35:19.560 align:middle line:84%
They would charge the
individual in
00:35:19.560 --> 00:35:20.500 align:middle line:90%
the basement rent.
00:35:20.500 --> 00:35:23.520 align:middle line:84%
Of course, that would pay
the finance charge.
00:35:23.520 --> 00:35:26.820 align:middle line:84%
At the end of two years, when
the balloon payment was due on
00:35:26.820 --> 00:35:31.000 align:middle line:84%
the mortgage, they would make a
deal with the person who was
00:35:31.000 --> 00:35:33.440 align:middle line:84%
living in the basement
to flip the house.
00:35:33.440 --> 00:35:36.350 align:middle line:84%
Let\'s say they bought the
house for $350,000.
00:35:36.350 --> 00:35:38.080 align:middle line:84%
Now they\'re going to sell it
to their friend in the
00:35:38.080 --> 00:35:41.000 align:middle line:90%
basement for $425,000.
00:35:41.000 --> 00:35:44.040 align:middle line:84%
They\'re taking the difference,
splitting it, or making some
00:35:44.040 --> 00:35:45.610 align:middle line:90%
sort of an agreement.
00:35:45.610 --> 00:35:48.560 align:middle line:84%
The new person gets the
same kind of a deal.
00:35:48.560 --> 00:35:50.820 align:middle line:84%
Because it doesn\'t really make
any difference how much money
00:35:50.820 --> 00:35:53.100 align:middle line:84%
your mortgage is if you\'re
not going to pay it.
00:35:53.100 --> 00:35:54.850 align:middle line:84%
You might as well have
a large one.
00:35:54.850 --> 00:36:01.360 align:middle line:84%
Back in 2007, I was contacted by
a major mortgage company to
00:36:01.360 --> 00:36:06.430 align:middle line:84%
investigate wrong doing by
mortgage brokers in Maryland.
00:36:06.430 --> 00:36:11.010 align:middle line:84%
I had an investigation
on a 27-year-old
00:36:11.010 --> 00:36:13.290 align:middle line:90%
individual from Brazil.
00:36:13.290 --> 00:36:15.155 align:middle line:90%
And I went to see him.
00:36:15.155 --> 00:36:17.140 align:middle line:84%
And I had all the papers
that he filled out.
00:36:17.140 --> 00:36:19.950 align:middle line:84%
And I said, tell me, how
did you end up with
00:36:19.950 --> 00:36:24.170 align:middle line:90%
this house for $337,000?
00:36:24.170 --> 00:36:27.330 align:middle line:84%
And he told me that he had a
friend who said to him, you
00:36:27.330 --> 00:36:29.950 align:middle line:84%
know, I know a guy that can
get mortgage money.
00:36:29.950 --> 00:36:31.430 align:middle line:90%
Why don\'t you find a house?
00:36:31.430 --> 00:36:34.340 align:middle line:84%
And once you find it, we\'ll
give him a call.
00:36:34.340 --> 00:36:35.720 align:middle line:90%
Well, he did find a house.
00:36:35.720 --> 00:36:38.910 align:middle line:90%
And it was $337,000.
00:36:38.910 --> 00:36:42.360 align:middle line:84%
So they called the guy,
this mortgage broker.
00:36:42.360 --> 00:36:44.050 align:middle line:84%
And he asked him, where
do you work?
00:36:44.050 --> 00:36:48.620 align:middle line:84%
He says, well, I work at a body
shop, a car repair shop.
00:36:48.620 --> 00:36:50.830 align:middle line:90%
And I make $20,000 a year.
00:36:50.830 --> 00:36:56.940 align:middle line:84%
I said, did you tell him you
had a checking account with
00:36:56.940 --> 00:36:58.800 align:middle line:90%
$15,000 in it?
00:36:58.800 --> 00:37:03.380 align:middle line:84%
Did you tell him that you had a
savings account with $30,000
00:37:03.380 --> 00:37:04.650 align:middle line:90%
at such and such a bank?
00:37:04.650 --> 00:37:06.270 align:middle line:90%
He says, no.
00:37:06.270 --> 00:37:10.320 align:middle line:84%
Did you tell him that you were
a partner where you work?
00:37:10.320 --> 00:37:10.930 align:middle line:90%
He says, no.
00:37:10.930 --> 00:37:14.690 align:middle line:90%
I told him I was a repairman.
00:37:14.690 --> 00:37:16.800 align:middle line:84%
But you signed all
these things?
00:37:16.800 --> 00:37:20.710 align:middle line:84%
He says, well, the guy said he
was going to give me a house.
00:37:20.710 --> 00:37:25.840 align:middle line:84%
An additional $20,000 loan was
approved for him for the
00:37:25.840 --> 00:37:27.850 align:middle line:90%
closing costs.
00:37:27.850 --> 00:37:32.430 align:middle line:84%
So after they took out for the
taxes, and things like that,
00:37:32.430 --> 00:37:37.670 align:middle line:84%
and the closing cost, there
was $2,100 left.
00:37:37.670 --> 00:37:40.730 align:middle line:84%
So they gave them a
check for $2,100.
00:37:40.730 --> 00:37:44.680 align:middle line:84%
He says, God, America\'s the
land of the opportunity.
00:37:44.680 --> 00:37:48.880 align:middle line:84%
He says, I went in there, I
walked out with a house and
00:37:48.880 --> 00:37:51.230 align:middle line:90%
$2,100 in my pocket.
00:37:51.230 --> 00:37:53.490 align:middle line:84%
He says, so I moved
into the house.
00:37:53.490 --> 00:37:56.300 align:middle line:84%
And I paid the first month\'s
mortgage with the
00:37:56.300 --> 00:37:57.640 align:middle line:90%
money they gave me.
00:37:57.640 --> 00:38:00.150 align:middle line:84%
And then I couldn\'t afford
it after the first month.
00:38:00.150 --> 00:38:03.540 align:middle line:84%
So after about three or four
months, they kicked me out.
00:38:03.540 --> 00:38:06.360 align:middle line:90%
00:38:06.360 --> 00:38:11.370 align:middle line:84%
By 2006, the mortgage industry
had grown rotten.
00:38:11.370 --> 00:38:14.850 align:middle line:84%
But for a while longer,
Americans had money to spend.
00:38:14.850 --> 00:38:17.700 align:middle line:84%
And the economy continued
to race onward.
00:38:17.700 --> 00:38:20.760 align:middle line:84%
Not wanting to spoil the party,
the government turned a
00:38:20.760 --> 00:38:24.200 align:middle line:84%
blind eye to the abuses that
were eroding the very
00:38:24.200 --> 00:38:26.320 align:middle line:90%
foundations of the system.
00:38:26.320 --> 00:38:28.240 align:middle line:84%
I mean, that\'s the
Republican thing.
00:38:28.240 --> 00:38:29.520 align:middle line:90%
Don\'t regulate.
00:38:29.520 --> 00:38:32.320 align:middle line:84%
Let the businessmen go out there
because they\'ll create
00:38:32.320 --> 00:38:34.530 align:middle line:84%
wealth, and money, and
jobs for consumers.
00:38:34.530 --> 00:38:36.900 align:middle line:84%
So that\'s the argument from
their standpoint.
00:38:36.900 --> 00:38:38.320 align:middle line:84%
But when we look back
at the financial
00:38:38.320 --> 00:38:40.070 align:middle line:90%
damage, look what happened.
00:38:40.070 --> 00:38:41.200 align:middle line:90%
There was no regulation.
00:38:41.200 --> 00:38:42.990 align:middle line:84%
Securities and Exchange
Commission was asleep at the
00:38:42.990 --> 00:38:45.970 align:middle line:90%
wheel during the Bush years.
00:38:45.970 --> 00:38:48.750 align:middle line:84%
You look back on this and
it looks like insanity.
00:38:48.750 --> 00:38:51.610 align:middle line:84%
America had created
a paper economy.
00:38:51.610 --> 00:38:55.010 align:middle line:84%
Rising property values put money
in the pockets of anyone
00:38:55.010 --> 00:38:57.030 align:middle line:90%
who owned a home.
00:38:57.030 --> 00:38:59.220 align:middle line:84%
You look at that housing boom
and you look at the real
00:38:59.220 --> 00:39:02.360 align:middle line:84%
estate boom and what it did,
it really built a false
00:39:02.360 --> 00:39:05.590 align:middle line:84%
economy, if you will, around
caching money out of your
00:39:05.590 --> 00:39:09.130 align:middle line:84%
home, or what I refer to as the
equity ATM, where folks
00:39:09.130 --> 00:39:12.040 align:middle line:84%
didn\'t necessarily understand
that equity in my home is
00:39:12.040 --> 00:39:13.660 align:middle line:90%
meant to be my retirement.
00:39:13.660 --> 00:39:15.560 align:middle line:84%
But instead it was put
into a Hummer, or a
00:39:15.560 --> 00:39:17.220 align:middle line:90%
new boat, or a vacation.
00:39:17.220 --> 00:39:21.470 align:middle line:84%
It also, it did the same thing
for the furniture market.
00:39:21.470 --> 00:39:23.850 align:middle line:84%
Everybody had money to
spend on something.
00:39:23.850 --> 00:39:26.960 align:middle line:84%
People suddenly found
that their $200,000
00:39:26.960 --> 00:39:29.190 align:middle line:90%
home was worth $400,000.
00:39:29.190 --> 00:39:30.850 align:middle line:90%
They felt rich.
00:39:30.850 --> 00:39:33.000 align:middle line:84%
So they went out, and they
bought new cars, and took
00:39:33.000 --> 00:39:36.030 align:middle line:84%
vacations, and refinanced
their mortgages because
00:39:36.030 --> 00:39:38.480 align:middle line:84%
interest rates were low,
and took on more debt.
00:39:38.480 --> 00:39:42.540 align:middle line:84%
The belief in the tooth fairy
of housing prices keep going
00:39:42.540 --> 00:39:45.520 align:middle line:84%
up and up and up each year,
that it would never end.
00:39:45.520 --> 00:39:49.610 align:middle line:84%
Mortgage lending had become
a game of musical chairs.
00:39:49.610 --> 00:39:52.560 align:middle line:84%
As long as home prices continued
to climb, everyone
00:39:52.560 --> 00:39:53.450 align:middle line:90%
could play.
00:39:53.450 --> 00:39:56.120 align:middle line:84%
And the circle went
round and round.
00:39:56.120 --> 00:39:59.020 align:middle line:84%
The loans continued to be
passed down the line.
00:39:59.020 --> 00:40:00.800 align:middle line:90%
Bad loans got refinanced.
00:40:00.800 --> 00:40:03.270 align:middle line:84%
So nobody was left
showing losses.
00:40:03.270 --> 00:40:05.530 align:middle line:90%
Money poured into US housing.
00:40:05.530 --> 00:40:08.660 align:middle line:84%
Mortgage backed securities
flowed out to investors all
00:40:08.660 --> 00:40:09.830 align:middle line:90%
over the world.
00:40:09.830 --> 00:40:13.180 align:middle line:84%
And dollars flowed into
the American economy.
00:40:13.180 --> 00:40:15.830 align:middle line:84%
But the morning after was
fast approaching.
00:40:15.830 --> 00:40:20.460 align:middle line:84%
And this new prosperity
was soon to fade.
00:40:20.460 --> 00:40:22.740 align:middle line:84%
You cannot fight the
laws of gravity.
00:40:22.740 --> 00:40:25.190 align:middle line:84%
And eventually, reality
reasserts
00:40:25.190 --> 00:40:26.390 align:middle line:90%
itself over a bubble.
00:40:26.390 --> 00:40:27.640 align:middle line:90%
And bubbles burst.
00:40:27.640 --> 00:40:30.560 align:middle line:90%
00:40:30.560 --> 00:40:35.090 align:middle line:84%
In July of 2007, Charles Prince,
the CEO of Citibank,
00:40:35.090 --> 00:40:37.740 align:middle line:84%
explained the bank\'s continuing
role in mortgage
00:40:37.740 --> 00:40:40.580 align:middle line:84%
securitization with
this phrase.
00:40:40.580 --> 00:40:43.750 align:middle line:84%
While the music playing, you
have to get up and dance.
00:40:43.750 --> 00:40:47.720 align:middle line:90%
We\'re still dancing.
00:40:47.720 --> 00:40:50.505 align:middle line:84%
One month later, the
music stopped.
00:40:50.505 --> 00:40:59.150 align:middle line:90%
00:40:59.150 --> 00:41:03.330 align:middle line:84%
At the height of summer in 2007,
word began to spread
00:41:03.330 --> 00:41:06.240 align:middle line:84%
that a wave of defaults was
about to hit America\'s
00:41:06.240 --> 00:41:07.950 align:middle line:90%
subprime market.
00:41:07.950 --> 00:41:10.530 align:middle line:84%
All at once, investors
lost their appetite
00:41:10.530 --> 00:41:12.500 align:middle line:90%
for US mortgage bonds.
00:41:12.500 --> 00:41:13.980 align:middle line:90%
The money stopped flowing.
00:41:13.980 --> 00:41:16.830 align:middle line:84%
And credit dried up
almost overnight.
00:41:16.830 --> 00:41:20.630 align:middle line:84%
No money for new loans, no
money for refinancing.
00:41:20.630 --> 00:41:26.520 align:middle line:84%
You can really point to a day
in August of last year when
00:41:26.520 --> 00:41:28.340 align:middle line:90%
the markets just locked up.
00:41:28.340 --> 00:41:31.580 align:middle line:84%
People stopped buying
mortgage securities.
00:41:31.580 --> 00:41:33.820 align:middle line:84%
Investors from around the world,
whether they were in
00:41:33.820 --> 00:41:38.030 align:middle line:84%
Mexico, Hong Kong, or Denmark
said, I\'m not
00:41:38.030 --> 00:41:40.350 align:middle line:90%
going to buy anymore.
00:41:40.350 --> 00:41:43.500 align:middle line:84%
And that happened virtually
overnight.
00:41:43.500 --> 00:41:46.350 align:middle line:84%
It\'s like somebody locked up the
brakes on an 18-wheeler.
00:41:46.350 --> 00:41:50.390 align:middle line:84%
And I mean, development permits
stopped being issued.
00:41:50.390 --> 00:41:53.100 align:middle line:84%
People stopped coming
into to submit plans
00:41:53.100 --> 00:41:56.210 align:middle line:90%
for development proposals.
00:41:56.210 --> 00:41:58.515 align:middle line:90%
Real estate sales dried up.
00:41:58.515 --> 00:42:03.140 align:middle line:84%
What happened as a result of
this fear that there was going
00:42:03.140 --> 00:42:06.290 align:middle line:84%
to be a tremendous number of
defaults in the subprime
00:42:06.290 --> 00:42:10.610 align:middle line:84%
market what that the
securitization market stopped
00:42:10.610 --> 00:42:12.220 align:middle line:90%
functioning.
00:42:12.220 --> 00:42:14.850 align:middle line:84%
You could no longer sell these
packages of loans because
00:42:14.850 --> 00:42:17.510 align:middle line:84%
there was nobody who was
interested in buying them for
00:42:17.510 --> 00:42:21.060 align:middle line:84%
fear that this market was
going to collapse.
00:42:21.060 --> 00:42:24.010 align:middle line:84%
Then the loans began
to go bad.
00:42:24.010 --> 00:42:26.680 align:middle line:84%
So we were looking at a
6.5% interest rate,
00:42:26.680 --> 00:42:27.930 align:middle line:90%
which wasn\'t bad.
00:42:27.930 --> 00:42:30.170 align:middle line:84%
But it was a three
year teaser deal.
00:42:30.170 --> 00:42:31.760 align:middle line:84%
I was supposed to come
home in June.
00:42:31.760 --> 00:42:34.400 align:middle line:84%
And the interest rate was
supposed to go up in August.
00:42:34.400 --> 00:42:36.610 align:middle line:84%
And that\'s when we got
extended three
00:42:36.610 --> 00:42:38.480 align:middle line:90%
months over in Iraq.
00:42:38.480 --> 00:42:40.960 align:middle line:84%
The next month, it jumped
three points.
00:42:40.960 --> 00:42:44.740 align:middle line:90%
So it went from 6.5% to 9.5%.
00:42:44.740 --> 00:42:48.070 align:middle line:84%
Then every month after that,
it just kept increasing.
00:42:48.070 --> 00:42:51.640 align:middle line:84%
The last percentage rage
it was at was 11%.
00:42:51.640 --> 00:42:55.860 align:middle line:84%
My payments went from about $800
to $1,400 in one month.
00:42:55.860 --> 00:42:58.680 align:middle line:84%
A lot of this debt was
short-term debt with low
00:42:58.680 --> 00:43:00.720 align:middle line:90%
introductory rates.
00:43:00.720 --> 00:43:04.710 align:middle line:84%
And when it came time for the
interest to be reset, it was
00:43:04.710 --> 00:43:07.010 align:middle line:84%
reset at a much higher
interest rate.
00:43:07.010 --> 00:43:09.460 align:middle line:84%
Suddenly, they can no longer
afford the debt
00:43:09.460 --> 00:43:10.740 align:middle line:90%
that they were carrying.
00:43:10.740 --> 00:43:12.890 align:middle line:84%
The market started with
a fixed rate.
00:43:12.890 --> 00:43:14.730 align:middle line:90%
It was fixed for two years.
00:43:14.730 --> 00:43:19.510 align:middle line:84%
Then we see in one year,
they raised it by $900.
00:43:19.510 --> 00:43:26.360 align:middle line:84%
They raised the interest rate
from 6.9% to 10.9%.
00:43:26.360 --> 00:43:28.130 align:middle line:84%
Some people honestly didn\'t
know what they
00:43:28.130 --> 00:43:29.630 align:middle line:90%
were signing up for.
00:43:29.630 --> 00:43:31.920 align:middle line:84%
Others knew what they were
signing up for but really
00:43:31.920 --> 00:43:34.480 align:middle line:84%
didn\'t interpret the
math correctly.
00:43:34.480 --> 00:43:38.510 align:middle line:84%
The average person looking at
a teaser rate of 4% going to
00:43:38.510 --> 00:43:41.620 align:middle line:84%
6% is likely to think, well,
that\'s only a 2% increase,
00:43:41.620 --> 00:43:43.580 align:middle line:84%
when, in fact, it\'s
a 50% increase.
00:43:43.580 --> 00:43:44.580 align:middle line:90%
I was fortunate.
00:43:44.580 --> 00:43:49.900 align:middle line:84%
And I found also a part time
job in property management.
00:43:49.900 --> 00:43:54.990 align:middle line:84%
And I still have this job part
time, three days a week.
00:43:54.990 --> 00:43:59.080 align:middle line:84%
But the money I earn with my
social security and the
00:43:59.080 --> 00:44:02.270 align:middle line:84%
earning, it\'s just
enough what they
00:44:02.270 --> 00:44:04.870 align:middle line:90%
demand on mortgage payment.
00:44:04.870 --> 00:44:06.870 align:middle line:90%
So I got behind.
00:44:06.870 --> 00:44:08.120 align:middle line:90%
And I still am.
00:44:08.120 --> 00:44:10.220 align:middle line:90%
00:44:10.220 --> 00:44:14.260 align:middle line:84%
Without credit, Americans had
no money to buy houses.
00:44:14.260 --> 00:44:17.460 align:middle line:84%
And the demand for houses
evaporated.
00:44:17.460 --> 00:44:21.310 align:middle line:84%
At the same time, a vast supply
of newly built homes
00:44:21.310 --> 00:44:23.100 align:middle line:90%
flooded the market.
00:44:23.100 --> 00:44:25.130 align:middle line:90%
Prices collapsed.
00:44:25.130 --> 00:44:28.540 align:middle line:84%
Americans couldn\'t refinance
their debt nor could they make
00:44:28.540 --> 00:44:32.350 align:middle line:84%
enough from selling their homes
to repay their loans.
00:44:32.350 --> 00:44:36.310 align:middle line:84%
They were now trapped in loans
they could no longer afford,
00:44:36.310 --> 00:44:39.450 align:middle line:84%
with no way out except
default.
00:44:39.450 --> 00:44:47.460 align:middle line:84%
Well, now that the delinquency
rate has exploded, a great
00:44:47.460 --> 00:44:51.210 align:middle line:84%
number of these mortgages
have defaulted.
00:44:51.210 --> 00:44:54.070 align:middle line:84%
And these pools are administered
by servicing
00:44:54.070 --> 00:44:58.830 align:middle line:84%
agents or trustees of trusts
that hold the mortgages.
00:44:58.830 --> 00:45:02.560 align:middle line:84%
And they\'re compelled under
their servicing contracts to
00:45:02.560 --> 00:45:08.060 align:middle line:84%
enforce the terms of these
mortgages, including bring
00:45:08.060 --> 00:45:09.310 align:middle line:90%
foreclosure actions.
00:45:09.310 --> 00:45:17.863 align:middle line:90%
00:45:17.863 --> 00:45:18.870 align:middle line:90%
Sheriff\'s department!
00:45:18.870 --> 00:45:20.120 align:middle line:90%
Anybody home?
00:45:20.120 --> 00:45:42.658 align:middle line:90%
00:45:42.658 --> 00:45:43.152 align:middle line:90%
Sheriff\'s office!
00:45:43.152 --> 00:45:45.150 align:middle line:90%
Anybody home?
00:45:45.150 --> 00:45:49.150 align:middle line:84%
To put this in perspective,
in 2006 about 700,000 US
00:45:49.150 --> 00:45:51.430 align:middle line:84%
homeowners received a
foreclosure notice.
00:45:51.430 --> 00:45:55.160 align:middle line:84%
In 2007, that number went
up to 1.2 million.
00:45:55.160 --> 00:45:58.760 align:middle line:84%
At current rates, in 2008 we\'re
expecting over 2 million
00:45:58.760 --> 00:46:02.840 align:middle line:84%
US households to receive
foreclosure notice this year.
00:46:02.840 --> 00:46:05.200 align:middle line:84%
In terms of sheer numbers,
we\'ve never seen
00:46:05.200 --> 00:46:06.600 align:middle line:90%
anything like this.
00:46:06.600 --> 00:46:10.720 align:middle line:84%
Our best guess is that by the
end of this year, 2008, over a
00:46:10.720 --> 00:46:13.330 align:middle line:84%
quarter of the inventory of
available houses will be
00:46:13.330 --> 00:46:14.550 align:middle line:90%
bank-owned homes.
00:46:14.550 --> 00:46:17.710 align:middle line:84%
We saw homes that went
from sale to default
00:46:17.710 --> 00:46:19.930 align:middle line:90%
in less than a year.
00:46:19.930 --> 00:46:23.410 align:middle line:84%
It takes three months of
delinquent payments before
00:46:23.410 --> 00:46:25.050 align:middle line:84%
they\'ll issue a notice
of default.
00:46:25.050 --> 00:46:27.150 align:middle line:84%
Three months on a notice of
default before they issue the
00:46:27.150 --> 00:46:28.150 align:middle line:90%
notice of trustee sale.
00:46:28.150 --> 00:46:30.440 align:middle line:84%
Then another month before
they can sell it.
00:46:30.440 --> 00:46:34.780 align:middle line:84%
So in the best case scenario,
from first missed payment to
00:46:34.780 --> 00:46:35.850 align:middle line:90%
sale is seven months.
00:46:35.850 --> 00:46:40.020 align:middle line:84%
And we saw homes going from
issuance of mortgage through
00:46:40.020 --> 00:46:42.000 align:middle line:84%
foreclosure in 8,
9, 10 months.
00:46:42.000 --> 00:46:44.620 align:middle line:84%
Meaning, they never made
their first payment.
00:46:44.620 --> 00:46:47.740 align:middle line:84%
And for those who did want to
stay in their homes, the first
00:46:47.740 --> 00:46:51.570 align:middle line:84%
problem was finding out who
now owned the loan.
00:46:51.570 --> 00:46:53.820 align:middle line:84%
Most of these originators
are gone.
00:46:53.820 --> 00:46:55.440 align:middle line:90%
They\'re out of business.
00:46:55.440 --> 00:46:57.310 align:middle line:90%
There\'s nobody to go against.
00:46:57.310 --> 00:47:00.250 align:middle line:84%
The original mortgage from three
four years ago, they
00:47:00.250 --> 00:47:04.130 align:middle line:84%
call that number and you get
the do-do-do, sorry, this
00:47:04.130 --> 00:47:05.880 align:middle line:90%
business is no longer here.
00:47:05.880 --> 00:47:08.095 align:middle line:84%
In the old model, remember, the
bank and the borrower, it
00:47:08.095 --> 00:47:08.760 align:middle line:90%
was simple.
00:47:08.760 --> 00:47:11.190 align:middle line:84%
You went to the bank and said,
let\'s work something out for
00:47:11.190 --> 00:47:12.370 align:middle line:90%
the borrower.
00:47:12.370 --> 00:47:14.970 align:middle line:84%
In the new model, because these
loans have been sold,
00:47:14.970 --> 00:47:17.900 align:middle line:84%
and resold, and resold, getting
to somebody in a
00:47:17.900 --> 00:47:20.290 align:middle line:84%
position of authority to do
a loan mitigation or loan
00:47:20.290 --> 00:47:23.590 align:middle line:84%
modification, to rewrite a
mortgage, is virtually
00:47:23.590 --> 00:47:24.810 align:middle line:90%
impossible.
00:47:24.810 --> 00:47:28.970 align:middle line:84%
And it\'s why we have saved 3,000
people from losing their
00:47:28.970 --> 00:47:30.150 align:middle line:90%
homes in this county.
00:47:30.150 --> 00:47:34.100 align:middle line:84%
For every one we saved, 15 new
foreclosures were filed.
00:47:34.100 --> 00:47:38.150 align:middle line:90%
00:47:38.150 --> 00:47:41.760 align:middle line:84%
There is this huge disconnect
between the people who
00:47:41.760 --> 00:47:44.460 align:middle line:84%
actually start the foreclosure
in the first place and the
00:47:44.460 --> 00:47:46.170 align:middle line:84%
people who are answering
the phone and
00:47:46.170 --> 00:47:47.260 align:middle line:90%
trying to work it out.
00:47:47.260 --> 00:47:50.250 align:middle line:84%
People answering the phone don\'t
really know who owns the
00:47:50.250 --> 00:47:52.990 align:middle line:90%
loan or how to work it out.
00:47:52.990 --> 00:47:54.890 align:middle line:84%
In the meantime, the
foreclosure\'s going at a
00:47:54.890 --> 00:47:58.810 align:middle line:84%
record pace to kick the person
out of the house.
00:47:58.810 --> 00:48:03.000 align:middle line:84%
If we could find a go-to person
at the servicer who had
00:48:03.000 --> 00:48:05.970 align:middle line:84%
the authority to make a decision
on a loan, they still
00:48:05.970 --> 00:48:09.010 align:middle line:84%
had to check with the terms of
the trust and the trustee.
00:48:09.010 --> 00:48:11.960 align:middle line:84%
And if you might imagine, you\'re
talking about a poor
00:48:11.960 --> 00:48:14.970 align:middle line:84%
guy in Cleveland, Ohio trying
to get a loan modification
00:48:14.970 --> 00:48:17.010 align:middle line:90%
worked on a $90,000 mortgage.
00:48:17.010 --> 00:48:19.640 align:middle line:90%
It was virtually impossible.
00:48:19.640 --> 00:48:24.540 align:middle line:84%
I would get up at roughly 12
o\'clock at night, go down,
00:48:24.540 --> 00:48:25.790 align:middle line:90%
wait in line for the phones.
00:48:25.790 --> 00:48:27.970 align:middle line:84%
Because everybody else knew that
if you wanted to talk to
00:48:27.970 --> 00:48:30.770 align:middle line:84%
your family during the daytime
you had to call at night.
00:48:30.770 --> 00:48:33.080 align:middle line:84%
By the time I got off the phone
and frustrated and gave
00:48:33.080 --> 00:48:36.250 align:middle line:84%
up, it was around 3:00 or
4:00 in the morning.
00:48:36.250 --> 00:48:37.890 align:middle line:84%
And I would referred
to this 800 number.
00:48:37.890 --> 00:48:39.840 align:middle line:84%
Then I would get referred
to this 800 number.
00:48:39.840 --> 00:48:44.820 align:middle line:84%
Every time I told them that I
was abroad, they basically
00:48:44.820 --> 00:48:46.060 align:middle line:84%
said thank you for
your service.
00:48:46.060 --> 00:48:48.900 align:middle line:90%
And you still need to pay us.
00:48:48.900 --> 00:48:52.730 align:middle line:90%
00:48:52.730 --> 00:48:56.380 align:middle line:84%
I heard from other people like
family and stuff that tries to
00:48:56.380 --> 00:48:59.620 align:middle line:84%
be supportive, well, if you do
have to foreclose, you have
00:48:59.620 --> 00:49:01.630 align:middle line:84%
six to nine months before
they\'re going to
00:49:01.630 --> 00:49:03.270 align:middle line:90%
actually make you leave.
00:49:03.270 --> 00:49:04.930 align:middle line:84%
And that wasn\'t the
situation either.
00:49:04.930 --> 00:49:08.110 align:middle line:84%
They were making people leave
and getting the house up for
00:49:08.110 --> 00:49:09.840 align:middle line:90%
sale within three months.
00:49:09.840 --> 00:49:11.970 align:middle line:84%
They\'re like, well, literally
we\'re just going to come and
00:49:11.970 --> 00:49:12.840 align:middle line:84%
we\'re going to take
your house.
00:49:12.840 --> 00:49:13.630 align:middle line:90%
It\'s not going to be yours.
00:49:13.630 --> 00:49:16.850 align:middle line:84%
And you look around at your
photographs, and everything,
00:49:16.850 --> 00:49:21.140 align:middle line:84%
and your furniture, and your
baby\'s crib, and all of those
00:49:21.140 --> 00:49:23.770 align:middle line:84%
things, and you think, I have
to pack all that up.
00:49:23.770 --> 00:49:28.050 align:middle line:84%
It\'s just inhumane the way
they deal with you.
00:49:28.050 --> 00:49:31.940 align:middle line:84%
We were people, not just
paper across your desk.
00:49:31.940 --> 00:49:34.720 align:middle line:90%
00:49:34.720 --> 00:49:36.390 align:middle line:84%
We weren\'t moving just
things in here.
00:49:36.390 --> 00:49:38.560 align:middle line:84%
It wasn\'t a warehouse to
store something in.
00:49:38.560 --> 00:49:40.910 align:middle line:84%
It was people moving in and
going to make a life.
00:49:40.910 --> 00:49:44.410 align:middle line:90%
00:49:44.410 --> 00:49:47.110 align:middle line:84%
The social fabric that held
these neighborhoods and these
00:49:47.110 --> 00:49:49.910 align:middle line:84%
communities together
has been torn.
00:49:49.910 --> 00:49:52.740 align:middle line:84%
You\'ve got neighborhoods that
had been emptied out in the
00:49:52.740 --> 00:49:53.420 align:middle line:90%
city of Cleveland.
00:49:53.420 --> 00:49:56.460 align:middle line:84%
So there are thousands and
thousands of vacant properties
00:49:56.460 --> 00:49:57.600 align:middle line:90%
in these communities.
00:49:57.600 --> 00:49:59.580 align:middle line:84%
These were communities that
were stable five,
00:49:59.580 --> 00:50:01.130 align:middle line:90%
six, seven years ago.
00:50:01.130 --> 00:50:02.440 align:middle line:90%
I don\'t go to no movies.
00:50:02.440 --> 00:50:05.040 align:middle line:84%
I don\'t go on no trips
because financially I
00:50:05.040 --> 00:50:07.020 align:middle line:90%
cannot afford that.
00:50:07.020 --> 00:50:10.730 align:middle line:84%
In two weeks I\'m going
to be 73 years old.
00:50:10.730 --> 00:50:14.630 align:middle line:84%
And I just wish I had
a place to stay.
00:50:14.630 --> 00:50:18.300 align:middle line:84%
And I wish I would have a
mortgage I can afford.
00:50:18.300 --> 00:50:20.685 align:middle line:90%
I don\'t expect much.
00:50:20.685 --> 00:50:23.430 align:middle line:90%
I don\'t want much luxury.
00:50:23.430 --> 00:50:25.960 align:middle line:84%
But I would like
to have a home.
00:50:25.960 --> 00:50:28.730 align:middle line:84%
My children just did not
understand what happened.
00:50:28.730 --> 00:50:30.860 align:middle line:90%
They didn\'t understand it.
00:50:30.860 --> 00:50:35.380 align:middle line:84%
As much as I tried to explain to
them how and why, all they
00:50:35.380 --> 00:50:40.800 align:middle line:84%
could see was we\'re being
split up and separated.
00:50:40.800 --> 00:50:44.530 align:middle line:84%
And my older two had to find
their own living arrangements,
00:50:44.530 --> 00:50:47.140 align:middle line:84%
you know, get an apartment
with a friend or
00:50:47.140 --> 00:50:48.810 align:middle line:90%
move in with somebody.
00:50:48.810 --> 00:50:51.680 align:middle line:84%
And my younger two
moved with us.
00:50:51.680 --> 00:50:54.490 align:middle line:84%
Half of my family and children
won\'t even drive down.
00:50:54.490 --> 00:50:59.720 align:middle line:84%
We live only a mile from where
our home is, or was.
00:50:59.720 --> 00:51:02.690 align:middle line:84%
And they won\'t even drive
down the street to
00:51:02.690 --> 00:51:04.400 align:middle line:90%
go look at it anymore.
00:51:04.400 --> 00:51:06.760 align:middle line:84%
Because we did so much together
there as a family,
00:51:06.760 --> 00:51:09.840 align:middle line:90%
inside and out.
00:51:09.840 --> 00:51:12.310 align:middle line:84%
Everything we do is
for our kids.
00:51:12.310 --> 00:51:15.480 align:middle line:84%
And to have them have the
backyard and the dream of this
00:51:15.480 --> 00:51:17.230 align:middle line:84%
is our family, this is
where I\'m going grew
00:51:17.230 --> 00:51:18.810 align:middle line:90%
up, and to feel safe.
00:51:18.810 --> 00:51:23.270 align:middle line:84%
And to have all of that taken
away, the thought of looking
00:51:23.270 --> 00:51:27.020 align:middle line:84%
around one day and driving away
from a house that you
00:51:27.020 --> 00:51:32.300 align:middle line:84%
built and that you\'ve everything
to make it be a
00:51:32.300 --> 00:51:35.380 align:middle line:84%
home is where you look around
and you go, well,
00:51:35.380 --> 00:51:36.630 align:middle line:90%
what was it all for?
00:51:36.630 --> 00:51:44.020 align:middle line:90%
00:51:44.020 --> 00:51:47.610 align:middle line:84%
The house behind us was built
over 100 years ago.
00:51:47.610 --> 00:51:50.510 align:middle line:84%
The neighborhood was formed out
of immigrants coming over
00:51:50.510 --> 00:51:52.290 align:middle line:90%
and working in the industry.
00:51:52.290 --> 00:51:55.250 align:middle line:84%
So what we have left is a
dysfunctional house that now
00:51:55.250 --> 00:51:56.890 align:middle line:84%
is being stripped at
a remarkable rate.
00:51:56.890 --> 00:51:58.200 align:middle line:84%
So this siding is
being torn off.
00:51:58.200 --> 00:51:59.880 align:middle line:90%
The copper is been stripped.
00:51:59.880 --> 00:52:00.980 align:middle line:90%
This is what we\'re left with.
00:52:00.980 --> 00:52:03.920 align:middle line:84%
After the mortgage crisis, and
the foreclosure crisis, and
00:52:03.920 --> 00:52:06.010 align:middle line:84%
the fraud, we\'re left
with a house that
00:52:06.010 --> 00:52:07.250 align:middle line:90%
now is picked clean.
00:52:07.250 --> 00:52:08.260 align:middle line:90%
Vandals have come in.
00:52:08.260 --> 00:52:11.970 align:middle line:84%
They stripped the wiring out,
pulled out the drywall just to
00:52:11.970 --> 00:52:13.370 align:middle line:90%
get to the copper wiring.
00:52:13.370 --> 00:52:15.280 align:middle line:84%
They stripped off all
the drop ceiling.
00:52:15.280 --> 00:52:16.980 align:middle line:90%
They stripped off the furnace.
00:52:16.980 --> 00:52:19.280 align:middle line:84%
So now we\'re stuck with
a property that has a
00:52:19.280 --> 00:52:21.940 align:middle line:84%
significant mortgage on it and
is being stripped at a
00:52:21.940 --> 00:52:24.080 align:middle line:84%
remarkable rate that we
can\'t reinvest in.
00:52:24.080 --> 00:52:26.020 align:middle line:90%
The house was built in 1902.
00:52:26.020 --> 00:52:28.370 align:middle line:84%
You can see that for us to
transform this house into a
00:52:28.370 --> 00:52:30.010 align:middle line:84%
livable house today would
far exceed its value.
00:52:30.010 --> 00:52:38.500 align:middle line:90%
00:52:38.500 --> 00:52:41.270 align:middle line:84%
Frightening that they didn\'t
think this through.
00:52:41.270 --> 00:52:43.030 align:middle line:84%
You don\'t just get an
abandoned house.
00:52:43.030 --> 00:52:46.390 align:middle line:84%
It just doesn\'t get robbed of
its copper piping or whatever.
00:52:46.390 --> 00:52:49.390 align:middle line:84%
But the yard grows,
mosquitoes infest.
00:52:49.390 --> 00:52:52.560 align:middle line:90%
00:52:52.560 --> 00:52:56.350 align:middle line:84%
Part of the problem with an
abandoned house is people tend
00:52:56.350 --> 00:52:58.740 align:middle line:90%
to use it for other purposes.
00:52:58.740 --> 00:53:01.530 align:middle line:84%
Supposedly they\'re supposed
to be secured.
00:53:01.530 --> 00:53:04.340 align:middle line:84%
But when they\'re not,
squatters move in.
00:53:04.340 --> 00:53:05.720 align:middle line:90%
Kids use it for party central.
00:53:05.720 --> 00:53:07.190 align:middle line:84%
They\'re out of sight
from Mom and Dad.
00:53:07.190 --> 00:53:08.270 align:middle line:84%
They\'re out of sight
from the cops.
00:53:08.270 --> 00:53:08.810 align:middle line:90%
They go in.
00:53:08.810 --> 00:53:10.060 align:middle line:90%
They have their parties.
00:53:10.060 --> 00:53:10.860 align:middle line:90%
They\'ve got candles.
00:53:10.860 --> 00:53:11.510 align:middle line:90%
They\'re drinking.
00:53:11.510 --> 00:53:14.210 align:middle line:84%
If it\'s an abandoned building
and it catches fire, I have to
00:53:14.210 --> 00:53:16.210 align:middle line:84%
send my personnel in
to look for them.
00:53:16.210 --> 00:53:18.330 align:middle line:84%
If I had to send a crew of
firefighters up these stairs,
00:53:18.330 --> 00:53:20.140 align:middle line:90%
they\'d never make it.
00:53:20.140 --> 00:53:22.410 align:middle line:84%
Because the weight of all the
firefighters\' equipment, the
00:53:22.410 --> 00:53:25.450 align:middle line:84%
hose lines, the air packs
they\'re carrying on their
00:53:25.450 --> 00:53:26.690 align:middle line:84%
back, these stairs
would collapse.
00:53:26.690 --> 00:53:29.520 align:middle line:84%
A building marked with an X
means absolutely no interior
00:53:29.520 --> 00:53:31.010 align:middle line:90%
firefighting whatsoever.
00:53:31.010 --> 00:53:33.150 align:middle line:84%
The conditions inside
are too dangerous.
00:53:33.150 --> 00:53:34.350 align:middle line:90%
Potential firefighter killers.
00:53:34.350 --> 00:53:36.620 align:middle line:84%
One day, bulldozers
just showed up.
00:53:36.620 --> 00:53:38.940 align:middle line:84%
And they just started tearing
the house down.
00:53:38.940 --> 00:53:40.160 align:middle line:84%
Several people by
that point were
00:53:40.160 --> 00:53:41.250 align:middle line:90%
standing outside watching.
00:53:41.250 --> 00:53:43.740 align:middle line:84%
And I think everyone was pleased
to see it come down.
00:53:43.740 --> 00:53:47.070 align:middle line:84%
But at the same time, there\'s
still this grim reality behind
00:53:47.070 --> 00:53:49.040 align:middle line:84%
it, like, it could have
been our house.
00:53:49.040 --> 00:53:52.310 align:middle line:84%
But the real victim is the
individual who lives on a
00:53:52.310 --> 00:53:54.150 align:middle line:90%
street, plays by the rules.
00:53:54.150 --> 00:53:55.850 align:middle line:90%
They maintain their property.
00:53:55.850 --> 00:53:57.540 align:middle line:90%
They pay their taxes.
00:53:57.540 --> 00:53:58.970 align:middle line:84%
They do what\'s expected
of them.
00:53:58.970 --> 00:54:00.540 align:middle line:84%
They paid all their
obligations.
00:54:00.540 --> 00:54:02.785 align:middle line:84%
And they woke up one morning
and the house next door to
00:54:02.785 --> 00:54:04.000 align:middle line:90%
them got flipped.
00:54:04.000 --> 00:54:05.260 align:middle line:90%
And it\'s now abandoned.
00:54:05.260 --> 00:54:08.400 align:middle line:84%
Those people are the real
victims because, for many of
00:54:08.400 --> 00:54:11.030 align:middle line:84%
these people in the city, it
is their largest single
00:54:11.030 --> 00:54:12.340 align:middle line:90%
investment.
00:54:12.340 --> 00:54:15.270 align:middle line:84%
Their entire net worth, for many
of them, is tied up in a
00:54:15.270 --> 00:54:18.170 align:middle line:84%
property that today
may be worthless.
00:54:18.170 --> 00:54:19.880 align:middle line:84%
We had put a lot of
blood, sweat, and
00:54:19.880 --> 00:54:21.610 align:middle line:90%
tears into this place.
00:54:21.610 --> 00:54:22.780 align:middle line:90%
A lot has happened here.
00:54:22.780 --> 00:54:25.000 align:middle line:84%
We have family history
here now that
00:54:25.000 --> 00:54:27.020 align:middle line:90%
we\'ve raised kids here.
00:54:27.020 --> 00:54:30.990 align:middle line:84%
And this is the claim
we staked.
00:54:30.990 --> 00:54:34.010 align:middle line:84%
And to feel like it\'s going
down in value and it\'s not
00:54:34.010 --> 00:54:36.440 align:middle line:84%
going to be worth anything after
we\'ve put so much time
00:54:36.440 --> 00:54:39.600 align:middle line:84%
and effort and love
into it is very
00:54:39.600 --> 00:54:40.870 align:middle line:90%
concerning about our future.
00:54:40.870 --> 00:54:47.970 align:middle line:90%
00:54:47.970 --> 00:54:53.310 align:middle line:84%
The damage caused by subprime
loans ignited a wildfire that
00:54:53.310 --> 00:54:56.720 align:middle line:84%
spread across the entire global
financial system.
00:54:56.720 --> 00:55:00.460 align:middle line:84%
Prime mortgage loans were next
as the crisis swept from the
00:55:00.460 --> 00:55:03.780 align:middle line:84%
inner cities to the suburbs,
from the poor to the middle
00:55:03.780 --> 00:55:06.490 align:middle line:84%
class, and even to
the wealthy.
00:55:06.490 --> 00:55:10.410 align:middle line:84%
If it were just isolated with
subprime loans, it might be
00:55:10.410 --> 00:55:12.260 align:middle line:90%
manageable.
00:55:12.260 --> 00:55:16.210 align:middle line:84%
But it\'s infected the
entire financial
00:55:16.210 --> 00:55:18.760 align:middle line:90%
system in this country.
00:55:18.760 --> 00:55:22.900 align:middle line:84%
And it\'s having ripple
effects worldwide.
00:55:22.900 --> 00:55:26.640 align:middle line:84%
At this point in time,
everything\'s been securitized.
00:55:26.640 --> 00:55:29.840 align:middle line:84%
The car companies take all of
their car loans and package
00:55:29.840 --> 00:55:32.150 align:middle line:84%
them together and sell
them as securities.
00:55:32.150 --> 00:55:34.980 align:middle line:84%
Credit card receipts are
packaged together and sold as
00:55:34.980 --> 00:55:36.020 align:middle line:90%
securities.
00:55:36.020 --> 00:55:39.320 align:middle line:84%
People started defaulting on
the mortgage while still
00:55:39.320 --> 00:55:42.550 align:middle line:84%
paying credit card debt and
still paying car loans.
00:55:42.550 --> 00:55:44.220 align:middle line:90%
Those are quickly catching up.
00:55:44.220 --> 00:55:46.260 align:middle line:84%
And we\'re seeing a
deterioration of
00:55:46.260 --> 00:55:47.790 align:middle line:90%
all consumer credit.
00:55:47.790 --> 00:55:49.660 align:middle line:90%
It\'s all basically going down.
00:55:49.660 --> 00:55:52.460 align:middle line:90%
I\'ve never seen it this bad.
00:55:52.460 --> 00:55:54.280 align:middle line:90%
There\'s no lenders.
00:55:54.280 --> 00:55:55.950 align:middle line:90%
Nobody wants to make a loan.
00:55:55.950 --> 00:55:58.870 align:middle line:90%
There\'s no trust.
00:55:58.870 --> 00:56:02.430 align:middle line:84%
Banks and investors around the
world suddenly realized they
00:56:02.430 --> 00:56:05.340 align:middle line:84%
were holding trillions of
dollars in loans that would
00:56:05.340 --> 00:56:08.300 align:middle line:90%
never be repaid.
00:56:08.300 --> 00:56:13.330 align:middle line:84%
The impending losses seemed
beyond comprehension.
00:56:13.330 --> 00:56:16.860 align:middle line:84%
The largest banks, Citibank,
Bank of America, have been
00:56:16.860 --> 00:56:21.260 align:middle line:84%
forced to go overseas to raise
capital just to stay afloat.
00:56:21.260 --> 00:56:24.990 align:middle line:84%
Some of the largest European
banks in Switzerland, Germany,
00:56:24.990 --> 00:56:28.580 align:middle line:84%
and everything else had been
brought to their knees.
00:56:28.580 --> 00:56:33.660 align:middle line:84%
Giants of Wall Street, Citibank,
Goldman Sachs,
00:56:33.660 --> 00:56:39.400 align:middle line:84%
Merrill Lynch, Morgan Stanley,
went hat in hand to investors
00:56:39.400 --> 00:56:43.750 align:middle line:84%
in China, Singapore, Japan, and
the Middle East, selling
00:56:43.750 --> 00:56:47.000 align:middle line:84%
large stakes in their companies
in return for cash
00:56:47.000 --> 00:56:50.330 align:middle line:84%
they desperately needed
to cover their losses.
00:56:50.330 --> 00:56:53.940 align:middle line:84%
And even then they were forced
to admit they could not stop
00:56:53.940 --> 00:56:56.670 align:middle line:84%
the bleeding from loan
write-offs, nor even
00:56:56.670 --> 00:57:01.760 align:middle line:84%
reasonably state what those
losses would ultimately be.
00:57:01.760 --> 00:57:06.520 align:middle line:84%
And then the banks
began to fail.
00:57:06.520 --> 00:57:10.250 align:middle line:84%
One of Wall Street\'s largest
banks, Bear Stearns, was the
00:57:10.250 --> 00:57:11.600 align:middle line:90%
first to go.
00:57:11.600 --> 00:57:15.510 align:middle line:84%
Once a leader in mortgage
securitization, Bear Stearns
00:57:15.510 --> 00:57:19.390 align:middle line:84%
was driven to insolvency
in March of 2008.
00:57:19.390 --> 00:57:22.620 align:middle line:84%
The loss of Bear Stearns to
the financial system was
00:57:22.620 --> 00:57:24.120 align:middle line:90%
really pretty catastrophic.
00:57:24.120 --> 00:57:28.500 align:middle line:84%
You know, an institution that
was worth tens of billions of
00:57:28.500 --> 00:57:31.620 align:middle line:84%
dollars just suddenly
disappearing.
00:57:31.620 --> 00:57:34.040 align:middle line:84%
The only other analogy
we have for anything
00:57:34.040 --> 00:57:35.210 align:middle line:90%
like this is Enron.
00:57:35.210 --> 00:57:38.070 align:middle line:84%
It doesn\'t matter what they say,
how much they\'re worth,
00:57:38.070 --> 00:57:41.580 align:middle line:84%
what size building they\'re in,
they\'re not too big to fail.
00:57:41.580 --> 00:57:43.340 align:middle line:90%
They can fail.
00:57:43.340 --> 00:57:47.070 align:middle line:84%
By September, Fannie Mae and
Freddie Mac had also reached
00:57:47.070 --> 00:57:49.180 align:middle line:90%
the brink of bankruptcy.
00:57:49.180 --> 00:57:52.320 align:middle line:84%
The US government was forced
to come to their rescue,
00:57:52.320 --> 00:57:57.010 align:middle line:84%
nationalizing them at a
cost of $200 billion.
00:57:57.010 --> 00:58:01.700 align:middle line:84%
Within weeks, it rescued AIG,
the nation\'s largest insurance
00:58:01.700 --> 00:58:05.810 align:middle line:84%
company, at a cost
of $85 billion.
00:58:05.810 --> 00:58:08.950 align:middle line:84%
But the dominoes continued
to fall.
00:58:08.950 --> 00:58:12.240 align:middle line:84%
Wall Street\'s fourth largest
investment bank, Lehman
00:58:12.240 --> 00:58:15.460 align:middle line:84%
Brothers, became the
next casualty.
00:58:15.460 --> 00:58:18.310 align:middle line:84%
Investment banking powerhouse
Lehman Brothers is filing for
00:58:18.310 --> 00:58:18.960 align:middle line:90%
bankruptcy.
00:58:18.960 --> 00:58:21.300 align:middle line:84%
Lehman Brothers, one of the
nation\'s largest and oldest
00:58:21.300 --> 00:58:24.230 align:middle line:84%
investment banks will file
for Chapter 11 bankruptcy
00:58:24.230 --> 00:58:24.750 align:middle line:90%
protection.
00:58:24.750 --> 00:58:27.590 align:middle line:84%
Bankruptcy earthquake and
major aftershocks in the
00:58:27.590 --> 00:58:28.690 align:middle line:90%
financial sector.
00:58:28.690 --> 00:58:32.250 align:middle line:84%
Unfathomable, almost, that
Lehman Brothers is going down.
00:58:32.250 --> 00:58:36.250 align:middle line:84%
With a history spanning more
than 150 years, Lehman
00:58:36.250 --> 00:58:38.970 align:middle line:84%
Brothers made its last desperate
attempts to raise
00:58:38.970 --> 00:58:42.090 align:middle line:84%
money from banks as
far away as Korea.
00:58:42.090 --> 00:58:45.220 align:middle line:84%
But foreign investors
had had enough.
00:58:45.220 --> 00:58:49.950 align:middle line:84%
In September of 2008, Lehman
faced the inevitable and filed
00:58:49.950 --> 00:58:51.370 align:middle line:90%
for bankruptcy.
00:58:51.370 --> 00:58:54.902 align:middle line:84%
On the same day, Merrill Lynch
was bought by Bank of America
00:58:54.902 --> 00:58:57.610 align:middle line:90%
in a last minute rescue.
00:58:57.610 --> 00:59:01.420 align:middle line:84%
Before the month was over,
Washington Mutual became the
00:59:01.420 --> 00:59:05.040 align:middle line:84%
largest bank failure in
United States history.
00:59:05.040 --> 00:59:09.190 align:middle line:84%
Wachovia, America\'s fourth
largest bank, and a string of
00:59:09.190 --> 00:59:12.340 align:middle line:90%
other banks collapsed as well.
00:59:12.340 --> 00:59:17.210 align:middle line:84%
Citibank, 200 years old and once
America\'s largest bank,
00:59:17.210 --> 00:59:22.070 align:middle line:84%
was saved by a government
rescue at the 11th hour.
00:59:22.070 --> 00:59:25.840 align:middle line:84%
What happens on Wall Street is
bound up with the jobs of
00:59:25.840 --> 00:59:28.480 align:middle line:90%
millions on Main Street.
00:59:28.480 --> 00:59:31.280 align:middle line:84%
Our system of credit
is frozen.
00:59:31.280 --> 00:59:34.730 align:middle line:84%
In an attempt to calm the
markets, the US government set
00:59:34.730 --> 00:59:38.940 align:middle line:84%
up a massive 700$ billion fund
to rescue the banks that
00:59:38.940 --> 00:59:42.840 align:middle line:84%
remained and to buy their
toxic mortgage bonds.
00:59:42.840 --> 00:59:45.740 align:middle line:84%
But like Wall Street, the
government was forced to look
00:59:45.740 --> 00:59:48.080 align:middle line:84%
abroad for the money
it needed.
00:59:48.080 --> 00:59:52.540 align:middle line:84%
We\'ve got elected officials
trying to bail everybody out
00:59:52.540 --> 00:59:56.130 align:middle line:84%
My great-grandkids are going
to be paying taxes that are
00:59:56.130 --> 00:59:58.910 align:middle line:90%
bailing out bad loans today.
00:59:58.910 --> 01:00:01.510 align:middle line:84%
I don\'t know that we can print
enough money to get ourselves
01:00:01.510 --> 01:00:01.990 align:middle line:90%
out of this.
01:00:01.990 --> 01:00:05.040 align:middle line:84%
We have to now issue a lot of
public debt as a way to
01:00:05.040 --> 01:00:07.620 align:middle line:84%
finance these rescue
and the bailouts.
01:00:07.620 --> 01:00:11.360 align:middle line:84%
And most of the funding for
our budget deficit is not
01:00:11.360 --> 01:00:12.960 align:middle line:90%
within the United States but is
01:00:12.960 --> 01:00:14.320 align:middle line:90%
coming from other countries.
01:00:14.320 --> 01:00:18.170 align:middle line:84%
We\'re subject to the kindness
of strangers, like Russia or
01:00:18.170 --> 01:00:21.110 align:middle line:84%
China, or a number of unstable
petrol states
01:00:21.110 --> 01:00:22.670 align:middle line:90%
in the Middle East.
01:00:22.670 --> 01:00:25.960 align:middle line:84%
The Federal Reserve brought its
usual remedy of cutting
01:00:25.960 --> 01:00:29.270 align:middle line:84%
interest rates and pumping
dollars into the US economy,
01:00:29.270 --> 01:00:33.860 align:middle line:84%
once again performing the role
it had played in 2001.
01:00:33.860 --> 01:00:36.800 align:middle line:84%
But the financial system
continued its slide into a
01:00:36.800 --> 01:00:37.955 align:middle line:90%
worldwide panic.
01:00:37.955 --> 01:00:40.910 align:middle line:84%
The vicious downward spiral
in the markets continues.
01:00:40.910 --> 01:00:43.310 align:middle line:84%
Overseas investors frantically
unloading stocks.
01:00:43.310 --> 01:00:47.060 align:middle line:84%
$2.3 trillion in stock
market value, gone.
01:00:47.060 --> 01:00:50.210 align:middle line:84%
A third of the value of the
stock market wiped away in
01:00:50.210 --> 01:00:51.600 align:middle line:90%
just a year.
01:00:51.600 --> 01:00:53.750 align:middle line:84%
We\'re going to see
auto jobs lost.
01:00:53.750 --> 01:00:55.210 align:middle line:84%
We\'re going to see department
store jobs lost.
01:00:55.210 --> 01:00:56.440 align:middle line:84%
We\'re going to see restaurant
jobs lost.
01:00:56.440 --> 01:01:00.060 align:middle line:84%
Now this is in the process
of outstripping
01:01:00.060 --> 01:01:01.160 align:middle line:90%
anything I\'ve seen.
01:01:01.160 --> 01:01:05.420 align:middle line:84%
And indeed, it will continue to
be a corrosive force until
01:01:05.420 --> 01:01:08.343 align:middle line:84%
the price of homes in the United
States stabilized.
01:01:08.343 --> 01:01:11.350 align:middle line:90%
01:01:11.350 --> 01:01:14.335 align:middle line:84%
What has happened in the last
year or so, it\'s quite amazing
01:01:14.335 --> 01:01:18.370 align:middle line:84%
and historic in terms of the
destruction of the traditional
01:01:18.370 --> 01:01:21.760 align:middle line:84%
Wall Street and the
financial system.
01:01:21.760 --> 01:01:24.980 align:middle line:84%
This is the death of Wall
Street as we know it
01:01:24.980 --> 01:01:25.570 align:middle line:90%
traditionally.
01:01:25.570 --> 01:01:28.230 align:middle line:84%
It\'s going to be a totally
different financial system
01:01:28.230 --> 01:01:29.480 align:middle line:90%
from now on.
01:01:29.480 --> 01:01:34.880 align:middle line:90%
01:01:34.880 --> 01:01:36.940 align:middle line:90%
I think everyone is a victim.
01:01:36.940 --> 01:01:39.980 align:middle line:84%
And everyone is a
co-conspirator.
01:01:39.980 --> 01:01:46.710 align:middle line:84%
Certainly the family who\'s
making $60,000 a year had to
01:01:46.710 --> 01:01:50.420 align:middle line:84%
of recognized the fact that they
couldn\'t pay back a loan
01:01:50.420 --> 01:01:51.690 align:middle line:90%
of half a million dollars.
01:01:51.690 --> 01:01:54.440 align:middle line:84%
The problem is, the system
made the money available.
01:01:54.440 --> 01:01:58.360 align:middle line:84%
So to a large extent,
we\'re a country
01:01:58.360 --> 01:02:00.810 align:middle line:90%
addicted on easy credit.
01:02:00.810 --> 01:02:06.280 align:middle line:84%
I\'m demoralized by this
phenomenon and how we as a
01:02:06.280 --> 01:02:09.610 align:middle line:84%
country have allowed
this to happen.
01:02:09.610 --> 01:02:10.980 align:middle line:84%
We have allowed this
to happen.
01:02:10.980 --> 01:02:12.610 align:middle line:90%
This was predictable.
01:02:12.610 --> 01:02:15.270 align:middle line:84%
There were people sounding the
alarm bells and whistles as
01:02:15.270 --> 01:02:16.940 align:middle line:90%
early as 2000.
01:02:16.940 --> 01:02:19.850 align:middle line:84%
But the power of Wall Street,
the power of the real estate
01:02:19.850 --> 01:02:23.580 align:middle line:84%
industry to control laws at the
local level, at the state
01:02:23.580 --> 01:02:26.590 align:middle line:84%
level and federal level, made
this probably, at some level,
01:02:26.590 --> 01:02:27.940 align:middle line:90%
inevitable.
01:02:27.940 --> 01:02:32.190 align:middle line:84%
It\'s only in the last 30 or 40
years that we\'ve thought that
01:02:32.190 --> 01:02:35.210 align:middle line:84%
everyone deserves
to own a house.
01:02:35.210 --> 01:02:37.290 align:middle line:84%
But we haven\'t thought about
what that means.
01:02:37.290 --> 01:02:40.710 align:middle line:84%
And a lot of people who bought
houses didn\'t really
01:02:40.710 --> 01:02:43.850 align:middle line:84%
understand the responsibility
that went with that, that
01:02:43.850 --> 01:02:46.730 align:middle line:84%
there were responsibilities to
your neighbors, there were
01:02:46.730 --> 01:02:48.980 align:middle line:84%
responsibilities to
the community.
01:02:48.980 --> 01:02:54.780 align:middle line:84%
We just thought about it\'s
all about me, me, me.
01:02:54.780 --> 01:02:56.580 align:middle line:84%
We think a lot about what
our rights are.
01:02:56.580 --> 01:02:58.890 align:middle line:84%
We don\'t think about what our
responsibilities are.
01:02:58.890 --> 01:03:00.900 align:middle line:84%
One these days, historians
are going to do a
01:03:00.900 --> 01:03:03.130 align:middle line:90%
great study of this.
01:03:03.130 --> 01:03:05.310 align:middle line:84%
George Bush, our first
MBA president, and
01:03:05.310 --> 01:03:05.920 align:middle line:90%
look what he did.
01:03:05.920 --> 01:03:08.275 align:middle line:84%
He started out as a
laissez-faire capitalist.
01:03:08.275 --> 01:03:11.100 align:middle line:84%
And he wound up socializing the
entire mortgage market.
01:03:11.100 --> 01:03:14.170 align:middle line:84%
It\'s amazing what can happen
when you let people run amok
01:03:14.170 --> 01:03:16.070 align:middle line:90%
and not regulate them.
01:03:16.070 --> 01:03:17.930 align:middle line:84%
And it will turn out to
be one of the great
01:03:17.930 --> 01:03:19.260 align:middle line:90%
ironies of all time.
01:03:19.260 --> 01:03:23.360 align:middle line:84%
When you think about it, it\'s
not in all Wall Street problem
01:03:23.360 --> 01:03:25.650 align:middle line:90%
or a Washington DC problem.
01:03:25.650 --> 01:03:27.460 align:middle line:84%
It\'s really a societal
problem.
01:03:27.460 --> 01:03:30.540 align:middle line:84%
Everybody was sort of complicit
in saying, let\'s
01:03:30.540 --> 01:03:33.880 align:middle line:84%
pretend we can have a rising
standard of living by drawing
01:03:33.880 --> 01:03:37.880 align:middle line:84%
the cash out of our rising home
values and buying new
01:03:37.880 --> 01:03:39.910 align:middle line:90%
cars and taking vacations.
01:03:39.910 --> 01:03:42.230 align:middle line:84%
And so we all got swept
up in that.
01:03:42.230 --> 01:03:44.420 align:middle line:84%
Over time we\'re going
to fix this problem.
01:03:44.420 --> 01:03:48.430 align:middle line:84%
There is a new administration to
try to deal with this mess.
01:03:48.430 --> 01:03:51.870 align:middle line:84%
And there is going to be a
recovery of growth, even if
01:03:51.870 --> 01:03:55.220 align:middle line:84%
the golden era of America
running the world
01:03:55.220 --> 01:03:57.320 align:middle line:90%
probably has ceased.
01:03:57.320 --> 01:04:00.800 align:middle line:84%
Other emerging powers, economic
and financial, are
01:04:00.800 --> 01:04:02.470 align:middle line:90%
rising right now.
01:04:02.470 --> 01:04:05.900 align:middle line:84%
So how much the realty power of
the US is going to shrink
01:04:05.900 --> 01:04:08.110 align:middle line:84%
is going to depend very much on
whether we\'re going to use
01:04:08.110 --> 01:04:11.630 align:middle line:84%
now the next few years to fix
this mess, to do the right
01:04:11.630 --> 01:04:15.600 align:middle line:84%
policies, and having a more
sustainable economic growth
01:04:15.600 --> 01:04:18.960 align:middle line:84%
based not just on bubbles but
on the skill of our workers.
01:04:18.960 --> 01:04:22.040 align:middle line:84%
We have to invest more in real
capital that\'s productive and
01:04:22.040 --> 01:04:25.250 align:middle line:84%
less into something that is not
productive, like housing.
01:04:25.250 --> 01:04:28.220 align:middle line:90%
01:04:28.220 --> 01:04:31.400 align:middle line:84%
Looking toward the future,
America stands at a
01:04:31.400 --> 01:04:33.360 align:middle line:90%
crossroads.
01:04:33.360 --> 01:04:37.440 align:middle line:84%
Reminiscent of the 1930s, we
are, again, faced with the
01:04:37.440 --> 01:04:40.640 align:middle line:84%
task of rebuilding our financial
system from the
01:04:40.640 --> 01:04:42.590 align:middle line:90%
ruins of excess.
01:04:42.590 --> 01:04:47.120 align:middle line:84%
Our future prosperity, perhaps
even our place in the world,
01:04:47.120 --> 01:04:50.410 align:middle line:84%
whether we should lead other
nations or stand in debt to
01:04:50.410 --> 01:04:54.200 align:middle line:84%
them, all of this will
be determined by how
01:04:54.200 --> 01:04:55.690 align:middle line:90%
we choose to rebuild.
01:04:55.690 --> 01:04:58.615 align:middle line:90%
01:04:58.615 --> 01:06:14.590 align:middle line:90%
[MUSIC PLAYING]
01:06:14.590 --> 01:06:23.337 align:middle line:90%
Distributor: Icarus Films
Length: 65 minutes
Date: 2009
Genre: Expository
Language: English
Grade: 8-12, college, adult
Color/BW:
Closed Captioning: Available
Interactive Transcript: Available
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