The Monster: the Subprime Mortgage Meltdown and the Jerks Who Caused It

The subprime mortgage meltdown, it turns out, makes for riveting reading. I was up until 4 a.m. reading The Monster, a page-turning account of the subprime lending binge that precipitated the collapse of the world economy.

The Monster would make a great heist movie, except that, instead of stealing piles of money from a casino, the subprime lending industry, lead by Ameriquest, Lehman Brothers, and countless others, scammed millions of Americans out of their savings.

Whatever the talking heads and politicians may say, subprime lending was not about helping people buy homes. 90% or more of subprime loans were refinances—sometimes the second or third. Consumers were not clamoring for loans; subprime lenders kept boiler rooms full of driven, verbally-abused—but very well-paid—salespeople who worked off of lists of homeowners with equity. They sold the ability to pay off credit card bills, pay for weddings or home improvements, or just “free up some cash.” They sold primarily to minorities and low-income consumers. They sold according to high-pressure sales scripts like “the Track” and “the Monster” designed to deceive, and often doctored paperwork so even a consumer who thought he or she was making a smart decision wound up with a mountainous loan impossible to pay.

Then, when the consumer could not pay the loan they got, the same lender would call, offering to tack on another mountain of fees and penalties, but somehow deliver a lower rate on a new loan. About 11% of subprime loans went to existing customers with subprime loans less than two years old.

In subprime lenders’ boiler rooms, documents were faked not by a few bad apples, but as a matter of course. Even an internal investigator for Ameriquest found that about half of the loans he reviewed in four California counties contained fraudulent income statements. One Ameriquest manager put it thusly:

We are all here to make as much fucking money as possible. Bottom line. Nothing else matters.

Nothing else, indeed. Together, subprime lenders, from the mortgage originators in Ameriquest’s boiler rooms to the securitization wizards in Wall Street’s skyscrapers, extracted billions of dollars from Americans’ pockets as neatly as a pickpocket on a New York subway train. Or maybe not. Theft is an honest trade by comparison.

The subprime mortgage industry was little more than a Ponzi scheme. Subprime lenders, fed by fat Wall Street lines of credit, extracted as much money as possible and poured it into the pockets of their salespeople, executives, owners, and shareholders. Then they collapsed. Even Wall Street, which tried to insulate itself from all risks, missed one: most of the subprime loans were not just bad investments, they were guaranteed to fail. And they did.

Michael Hudson tells the story of the industry that started the collapse of the global economy crisis through the eyes of its perpetrators and victims. Main characters include salespeople from the boiler rooms, executives, consumer lawyers, and politicians. The politicians name-checked are impressive. You can follow (a lot of) subprime mortgage money to our current president, his Republican opponent in the 2008 presidential race, the governor of California, and so many more.

But mostly, The Monster is about Roland Arnall, the founder of Ameriquest, who mostly escaped with his bankroll, and about Lehman Brothers, the Wall Street investment firm that eventually declared bankruptcy during the early days of the recession, in 2008. Arnall was a ruthless CEO, who constantly drove profits higher and created an anything-to-make-a-sale atmosphere that had salesmen tracing signatures against the office windows and falsifying W-2s to make borrowers look more wealthy. He tried to buy everyone off, from consumer non-profits to a group of state attorneys general to a menagerie of politicians, Democrats and Republicans alike. While Arnall escaped mostly scot-free, he left a raft of bank failures, bankruptcies, foreclosures, and a recession in his wake.

The Monster is an excellent book. It is well-written, more a true crime novel than recent history. I don’t read many journalistic books like this, but I was completely absorbed.

The Monster is also is a reminder of how the United States got into this mess in the first place. It is a reminder that when companies pursue profit above all else, they often cut corners to do it. It is a reminder that smart, limited, but effective regulation is necessary to protect consumers—and the country–for that matter.

And for me, The Monster is a reminder of why I represent consumers.