Nick Paumgarten's piece on the decline of high finance in the latest New Yorker -- trapped by the magazine's calamitous "digital reader" -- is nice, but I was struck by one passage in particular, about how a finance king realized the end was near:
A private-equity executive I talked to said that he sensed the jig was up when his cleaning woman -- "from Nicaragua or El Salvador of wherever the fuck she's from" -- took out a subprime loan to buy a house in Virginia. She drove down with her husband every weekend from New York, six hours each way, to fix it up for resale. They cleared sixty-five thousand dollars on the deal, in a matter of months. To many, this would have been proof that America is a land of opportunity, but to him it signalled a fatal imbalance between obligation and means.
I was pretty sure I'd read this before. And when I went back and checked Michael Lewis's Portfolio piece from a couple of months ago, I found a similar anecdote:
One day, [financier Steve Eisman's] housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. "The price was absurd, and they were giving her a low-down-payment option-ARM," says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he'd hired back in 1997 to take care of his newborn twin daughters phoned him. "She was this lovely woman from Jamaica," he says. "One day she calls me and says she and her sister own five townhouses in Queens. I said, 'How did that happen?' " It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. "By the time they were done," Eisman says, "they owned five of them, the market was falling, and they couldn't make any of the payments."
Is this some kind of bizarre trend, the inverse of the servant problem?