This American Life is a radio show hosted by Ira Glass in collaboration with Adam Davidson, a business correspondent for National Public Radio (NPR), as well as, Alex Blumberg, a producer for the show. The podcast episode number 390, which originally aired in the spring of 2008, was called “Return to the Giant Pool of Money”. The show begins with Ira and Adam at a black tie dinner, similar to the Oscars. However, the award being presented was not for actors. This award dinner was for a small group of specialized financial experts with one award, in particular, being given for Collateralized Debt Obligation (CDO) of the year. Jim Finkel, also sitting at the table with Ira and Adam, was a man who was described as a “Legend” and a “Granddaddy” of the financial industry. Now he sat nervously, no longer high with investor confidence (Ch. 9, p 294) because he was up for the CDO of the year award. At this time, it was an already well-known fact that CDOs were considered to be a financial product that became a leader in the economies subprime mortgage meltdown and financial crisis.
Act 1 was particularly interesting as it began by recapping the original report where Alex and Adam hear from the bankers, mortgage dealers, investment managers and homeowners, who all whether consciously or not, played a role in creating the economic disaster created by the housing crisis. The discussion starts with Clarence Nathan, a homeowner, who received a “NINA” (no income, no asset) bank loan to purchase a home. This type of loan is lent without first checking to see if the borrower has any income or assets to fall back on in case a default in payment occurs. It became very clear the banks had become willing to take excessive risks as they began to dabble in subprime mortgages. The banks tied more and more capital into these loans. Securitization (Ch.10, p 444) allowed these banks to free up assets by pooling them together and selling them off.
Moving on in the show, we heard from Mike Francis, a Wall Street financier who worked at Morgan Stanley; Mike Garner, a Nevadan, working as a Mortgage Broker; and Glen Pizzolorusso, a Mortgage Salesman in NY. Each was a link in the chain that connected homeowners such as, Clarence inadvertently to the global pool of money through the purchase, bundle and sales of residential mortgages and US housing. Interestingly, the episode led us back to Jim Finkel, the guy up for the CDO of the year award, who also ran an investment management firm. CDO’s were created as a result of the industry attitude, which was lower interest rates, create credit, increase the money supply and spend, spend, spend. This mentality led Jim and his company to seek new markets and create new financial vehicles to tap those markets, create liquidity in the economy, and allow banks to sell off debt to free up capital to invest or loan.
In fall 2009, the show revisited some of the market players to see where they were a year later. The team describes the bursting of the housing bubble, the key financial player’s business and personal fortune, as well as, the shift that occurred in economic thinking (Ch. 1, p 15). What I found to be the most engaging is how the homeowners faired versus some of the key financial players. Alex and Adam met with the homeowner, Richard Campbell who nearly lost his house as a result and after much stress, effort and assistance from the aid of a program called Neighborhood Assistance Corporation of America (NACA) were able to overcome the housing debacle and keep his house. Clarence Nathan, the original homeowner with the “NINA” loan, neither had made a payment nor been contacted by any institution regarding a payment or foreclosure. He was lost in the sea with millions of others with delinquent mortgages but continued to live for free for nearly three years. On the flip side, there was Glen and Jim who lost millions as a result of the burst. Glen lost his own home which he found himself upside down in. Both were left with nothing other than memories to reflect on.
In closing, the team checks in with the giant pool of money which was initially stated to be around $70 trillion dollars and growing. Yet, two years, a financial collapse and anticipation of shrinkage the pool grew to $84 trillion. The fact is two major influences played a role in the recovery and growth of the pool, major investors pulling money from the stock market and reinvesting it into the pool and the government. The Federal Reserve and the world’s central banks created trillions in new currency which has made it back into the pool again.