Thursday, March 24, 2016

Macro and Micro Misery

I met Harry the Mortgage Guy through Sarah, my sister-in-law.  It was 2003, and I was ready to buy my first house.  “I’ll hook you right up,” Harry said, his voice so gravelly I was sure I smelled the Camel No Filters through the phone.  Sarah told me Harry wore gold chains and strong cologne, and I kept a mental image of the man in my mind whenever we talked on the phone.  I pictured him in his smoke-filled office at the Saugus Federal Credit Union, a half-filled bottle of Drakkar Noir on his desk, next to piles of financial reports as he scoured the internet for the best mortgage he could find for me.  I knew absolutely nothing about buying a house.

When my numbers came back from the bank, Harry was exuberant.  “You could buy something over $600k!  Live a little.  You’re good for it,” he told me.  “We’ll set you up in something we call an ‘adjustable rate mortgage.’  It’s perfect for you.”  No one ever confused me with Milton Friedman, and for years I thought a Laffer Curve was the perfect pitch on a 1 and 2 count, so when Harry explained it didn’t matter that my wife would lose her job when we moved, I trusted him.  “Just as long as she works now, you’re fine.  The bank won’t bother checking once you move.”  I reasoned Harry had no reason to sell me a lousy mortgage, and we bought a house and moved to New Hampshire.  We didn’t listen to him about what we could buy, choosing a home far cheaper than what he told me we could afford.  In hindsight, it was one of the best decisions we ever made.

Midway through watching the film 99 Homes, I felt sick.  Homeowner after homeowner gets evicted, and as Michael Shannon, the bank’s hatchet man, and his key henchman, played by Andrew Garfield, talk to the families getting tossed from homes they no longer own, I hear over and over how no one knew what they were signing, not comprehending their mortgages would adjust to unaffordable levels.  If not for a few gut instinct decisions a few years after buying our house, I could have been in that exact situation, ducking the Sherriff, pleading for one more day, blaming the bank and, of course, Harry, for putting me and my family in this mess.

               Two recent films, 99 Homes and The Big Short, are an excellent view into this nation’s worst financial mess since the 1930s, capturing the causes and effects of America’s Great Recession, a societal, economic and political monsoon of ignorance, greed and blame.  The films use micro and macro perspectives of the housing crisis at the root of the entire mess.  The Big Short looks at the macro forces at work, telling the story of a handful of investment bankers and fund managers who realize before anyone else that America’s housing market and the big banks’ aggressive decisions to invest in mortgages are built on soggy ground.  The movie tackles very complex topics (mortgage-backed securities, credit default swaps, synthetic collaterized debt obligations) and compares them to things we simpletons can grasp, like fish stew and blackjack.  Halfway through the film I couldn’t help but think of Harry trying to sell me a mortgage I didn’t qualify for and could never afford.  The Florida real estate brokers in The Big Short are portrayed as a notch below seagull guano, and when they brag about how they earn only $2k on a fixed rate mortgage but $10k on an adjustable mortgage, Harry’s friendly coaxing seemed less so in retrospect.

               99 Homes takes the up-close, micro stance of the housing crisis.  The depiction of evictions is so visceral you can’t help feel anger, sadness and resignation.  Rick Carver, the film’s chief antagonist played by Shannon, says things like, “I know this is a very painful time,” and “I didn’t kick you out – the bank did,” as he, together with sheriffs and his crew of day laborers, give families two minutes to gather their things before they’re told to move to the other side of the sidewalk because they’re now trespassing on the bank’s property.  The film paints a dark picture of the human side of the Great Recession, and it’s one that’s tough to forget.  When Carver says, “America doesn’t  bail out the losers – America was built by bailing out winners,” I realized the same line could have been used at the end of The Big Short when Ryan Gosling’s narration explains that even after 6 million families lost their homes to foreclosure, and over 8 million jobs were lost, leading to a loss of $5 trillion from everyday people’s savings, retirement account and investments, very few systemic changes were made to help avoid the same mistakes in the future.
   
My generation grew up with “Greed is Good” at the movie theater and “Poverty Sucks” posters on our dorm room walls, and maybe that’s why the bankers, brokers and government officials lost their collective minds more than a decade ago, making one bad bet after another, ignoring the reality that millions of lives were at stake in their gambit for profit.

A few months after I’d fixed everything, just as the rest of the housing market was cratering, I called the bank where Harry worked.  I wanted to connect and see what his perspective was on what was happening.  They told me he was long gone, only the smell of cologne and cigarette smoke lingering over all the bad deals he made for would-be suckers like me.

(The Big Short and 99 Homes are available through online rental or on-demand through your cable provider; both are rated R for language, adult situations and terrible decision-making by said adults regarding grand financial schemes built on fantasy or borrowing money they could never pay back.)