Shortage of housing for the poor grows

Originally posted on The Baltimore Sun

By Natalie Sherman, The Baltimore Sun
nsherman@baltsun.com

6:07 PM EST, March 8, 2014

It’s growing increasingly difficult for the poorest families in Baltimore to find affordable rental housing, and some housing advocates worry new housing policies such as privatization could make the problem worse.

An analysis by the Urban Institute found a yawning gap between the number of low-income renter households and affordable units available in every jurisdiction in the country.

In Baltimore City in 2012, there were 43 affordable units available per 100 extremely low-income households, down from 58 in 2000, according to the study published last week. The number dropped to 16 in Howard County in 2012 from 38 a dozen years earlier.

The forces behind the widening gap vary. Many experts say the gap comes down to money: The private market rarely builds or rehabilitates units for the poorest families, cities and states can’t afford it, and federal spending hasn’t kept pace.

“You can only house the really low-income with a significant cash subsidy, and the question is: Where is that money going to come from?” said Robert Embry, a former Baltimore housing commissioner who is now president of the Abell Foundation.”Housing was only provided when the federal government made money available, and the federal government is reducing its role in this area.”

The Urban Institute’s report came out the same week the Housing Authority of Baltimore City disclosed a plan to sell 22 of its high-rises — nearly 40 percent of the city’s stock of public housing — to developers that would modernize the facilities. The plan raised concerns that that might further reduce the availability of public housing among some advocates.

The Washington-based think tank’s report defined extremely low-income as households earning less than 30 percent of an area’s median income — meaning less than $25,700 a year for a family of four in 2012 throughout the Baltimore area. Affordability is measured as housing that costs less than a third of a household’s income.

The number of such families rose by as much as 10 percent in Carroll County and 60 percent in Baltimore County during the 12-year period, according to the analysis. Meanwhile, the supply of affordable units in the counties fell drastically, driven in part by surging demand for rentals at all income levels.

In Baltimore City, the number of these low-income families increased just 2 percent, but the affordable rental supply fell by about 24 percent, with much of that drop occurring before 2006, the Urban Institute found.

The study’s count of available units does not include what are considered substandard units or affordable apartments occupied by higher-income households.

For the families that do rent affordable units, federal programs are critical: Nationwide, 97 percent of the 3.26 million affordable units available to extremely low-income renters receive federal assistance, the institute estimated. Local waiting lists for some housing voucher programs are thousands of people long — 25,000 households in Baltimore County alone.

But since the 1980s, federal housing policy has shifted from deep subsidies to supporting private developers with tax credits and public financing in exchange for rent limits on some of their apartments. That has limited funds for public housing and Section 8 vouchers that guarantee rent does not exceed 30 percent of a qualified family’s income.

The new programs allow landlords to rent subsidized units to families with a wider range of incomes, still below an area median income. The looser requirements assure broader access to affordable housing and help avoid concentrations of poverty, policymakers said.

“There are people at different income levels that need assistance, and we try to make sure that we’ve got integrated housing opportunities,” said Patricia Rynn Sylvester, director of multifamily housing for the state’s Department of Housing and Community Development.

The policy changes have left out the poorest families, said Trudy McFall, chairman of Annapolis-based nonprofit Homes for America and president of the Maryland Affordable Housing Coalition

“It’s good to have housing that’s more of a mix of incomes,” she said. “The problem is we’re not beginning to replace very low-income units with these new programs.”

The state provides incentives for developers competing for the tax credits to reserve more units for the poorest families and has partnered with the Weinberg Foundation to devote some funds to units for families at 15 percent or less of area median income, Sylvester said.

Across the country, housing officials are moving to sell public housing units to private developers, just as Baltimore said it would do last week. Proponents say it will raise millions needed to renovate the properties, in part by allowing the public units to access the tax credit financing.

The city’s federal funds for public housing capital projects have fallenfrom $30 million in 1997 to $12.8 million this year, said Housing Commissioner Paul Graziano.

In addition to Baltimore’s plan, U.S. Department of Housing and Urban Development documents show privatization projects from housing authorities across the state, including applications from Anne Arundel and Howard counties.

Some housing advocates said they worry private ownership will exacerbate the shortage for the poorest families, allowing developers to reduce the number of units overall or steer housing toward families further up the income ladder.

“I can’t really speak definitively about that, but one would always be concerned,” said Jeff Singer, former CEO of Health Care for the Homeless who teaches at the University of Maryland School of Social Work. “It’s a little difficult to know precisely, because I am operating with a lack of information from the Housing Authority. They’ve been so secretive about the process that I don’t know what sort of contracts they’ll be signing with project developers and how they will limit the ability to rent to higher incomes.”

The average income of families in Baltimore public housing is about $12,000 a year, according to the Housing Authority.

Spokeswoman Cheron Porter said officials do not expect the makeup of tenants to change with privatization. The authority’s income-limit calculations will remain the same, and privatized units will go to households on its waiting list, currently 28,000 families long, she said.

The units will operate like so-called “project-based” Section 8 vouchers, she said.

“With a poverty rate at or above 25 percent for the city of Baltimore and our ongoing history of serving the most vulnerable population, we would not expect [income composition] to change,” she said.

McFall, whose Homes for America is one of the nonprofits participating in Baltimore’s privatization program, said it could preserve the number of housing units for the poorest families depending on how local authorities implement the program.

Moreover, she said, privatization will mean more units for the poorest families could access a state-administered pool of subsidized financing.

Gov. Martin O’Malley’s new budget seeks $24 million for the Rental Housing Works program, which provides state financing for private affordable housing projects. If funded at that level, $6 million will be reserved for the converted public housing units, according to the state.

“However this budget comes out, we will be using more of the federal and state resources that have tended to go to moderate incomes, and more of them will go to preserve, maintain or rebuild housing that serves people who get a deep subsidy,” McFall said.

But, she said, that doesn’t mean she is optimistic about the affordable-housing shortage.

“It’s creating better housing, and it might create more moderate income housing, but it isn’t creating new housing units for [families] at 30 percent or below,” she said. “And therein is why our shortage grows and grows.”

Too Poor For Pop Culture

Where I live in East Baltimore, everything looks like “The Wire” and nobody cares what a “selfie” is by D. Watkins. Originally posted on Salon.

Miss Sheryl, Dontay, Bucket-Head and I compiled our loose change for a fifth of vodka. I’m the only driver, so I went to get it. On the way back I laughed at the local radio stations going on and on and on, still buzzing about Obama taking a selfie at Nelson Mandela’s funeral. Who cares?

No really, who? Especially since the funeral was weeks ago.

* * *

I arrived, fifth of Black Watch clenched close to me like a newborn with three red cold-cups covering the top. We play spades over at Miss Sheryl’s place in Douglass Housing Projects every few weeks. (Actually, Miss Sheryl’s name isn’t really Miss Sheryl. But I changed some names here, because I’m not into embarrassing my friends.) Her court is semi-boarded up, third world and looks like an ad for “The Wire.” Even though her complex is disgustingly unfit, it’s still overpopulated with tilting dope fiends, barefoot children, pregnant smokers, grandmas with diabetes, tattoo-faced tenants and a diverse collection of Zimmermans made up of street dudes and housing police, looking itchy to shoot anyone young and black and in Nike.

 Two taps on the door, it opened and the gang was all there — four disenfranchised African-Americans posted up in a 9 x 11 prison-size tenement, one of those spots where you enter the front door, take a half-step and land in the yard. I call us disenfranchised, because Obama’s selfie with some random lady or the whole selfie movement in general is more important than us and the conditions where we dwell.

Surprisingly, as tight as Miss Sheryl’s unit may be, it’s still more than enough space for us to receive affordable joy from a box of 50-cent cards and a rail bottle.

“A yo, Michelle was gonna beat on Barack for taking dat selfie with dat chick at the Mandela wake! Whateva da fk a selfie is! What’s a selfie, some type of bailout?” yelled Dontay from the kitchen, dumping Utz chips into a cracked flowery bowl. I was placing cubes into all of our cups and equally distributing the vodka like, “Some for you and some for you …”

“What the flip is a selfie?” said Miss Sheryl.

“When a stupid person with a smartphone flicks themselves and looks at it,” I said to the room. She replied with a raised eyebrow, “Oh?”

It’s amazing how the news seems so instant to most from my generation with our iPhones, Wi-Fi, tablets and iPads, but actually it isn’t. The idea of information being class-based as well became evident to me when I watched my friends talk about a weeks-old story as if it happened yesterday.

* * *

Miss Sheryl doesn’t have a computer and definitely wouldn’t know what a selfie is. Her cell runs on minutes and doesn’t have a camera. Like many of us, she’s too poor to participate in pop culture. She’s on public assistance living in public housing and scrambles for odd jobs to survive.

Sheryl lost her job as a cook moments after she lost her daughter to heroin, her son Meaty to crack and her kidneys to soul food. It took 15 to 20 unanswered applications a week for over a year for her to realize that no company wants to employ a woman on dialysis. Sometimes Bucket-Head and I chip in and buy groceries for her and her grandson Lil Kevin who has severe lead-paint poisoning, but was diagnosed late and is too old to receive a check.

Bucket-Head is a convicted felon but not really. He was charged with a crime that he didn’t commit. I know this because my late cousin did the shooting and our whole neighborhood watched. Bucket was in the wrong place at the wrong time and as many know, we are products of a “No Snitching” culture.

As a result, the only work Bucket can find after 10 years of false imprisonment is that of laborer with the Mexicans who post up in front of 7-Eleven, or as a freelance dishwasher. Bucket’s no angel, but he’s also not a felon and doesn’t deserve to be excluded from pop culture no more than Miss Sheryl or Dontay, who represents the definition of redemption to me.

* * *

I placed our cups at the table and the bottle in the center. “Me and Miss Sheryl are gonna whip ass tonight, hurry up, Dontay!” I yelled.

Dontay cleans nonstop. Roaches sleeping in the fridge, roaches relay racing out of the cabinets carrying cereal boxes, purchasing homes, building families, slipping through cracks for fun and weaving in and out of death — Dontay bleaches them all. Dontay doesn’t take handouts from us and won’t go on government assistance. He couldn’t contribute to the chips and vodka that week so he’s cleaned for Miss Sheryl and would clean for Miss Sheryl even if there were no chips and vodka.

“Boy we ready to play the cards. Stop acting selfie and sit yo ass at the table!” yelled Miss Sheryl from another room. We all laugh. Miss Sheryl’s rooms are separated by white sheets; they look like a soiled ghost at night when the wind blows. Her son Meaty stole and sold her doors years ago and housing never replaced them.

Dontay joined us at the table. “Takin forever, boy, wit dem big ass feet!” yelled a happy Bucket. Dontay was wearing my old shoes. They are 13’s and busting at the seams but Dontay’s a size 8 and his foot is digging through the side. His arms are chunked and wrapped in healed sores from years of drug abuse. He’s eight years clean off of the hard stuff now, but I met him way back when I was 13, in his wild days.

He was huddled over his girlfriend in the alley behind my house. I watched moments before as she performed an abortion on herself with a twisted coat hanger. She screamed like the sirens we hear all day. I couldn’t stop looking at her. He gazed too, in and out of a nod and then signaled me for help. I joined them. Together we dragged her to Johns Hopkins Hospital, which was under a mile away. Blood scabbed and dried on my hands, Nikes and hooping shorts; she lived until she OD’d months later. I’ve been cool with Dontay ever since.

“Tryin get dem roach eggs, tee-he, tee-he he he, gotta get the bleach on da roach eggs! Den dey won’t come back!” Dontay replied as he sat at the table.

* * *

I dealt the first hand. Miss Sheryl reminded me to deal to the left. “Always deal to the left, boy, the rule don’t change!” she said. She has the widest jaws in the history of wide and jaws, thicker than both of her bloated caramel arms, which are thigh-size. I collected the cards, reshuffled and dealt to the left. And there we were — my job-hungry unemployed old heads and me the overworked college professor.

College professor?

Not the kind of professor that makes hundreds of thousands of dollars for teaching one class a year but a broke-ass adjunct who makes hundreds of dollars for teaching thousands of classes a year. The other day I read an article about an adjunct who died in a homeless shelter and I wasn’t surprised; panhandlers make triple, and trust me, I’ve done the research, I should be looking for a corner to set up shop.

I have a little more than my friends but still feel their pain. My equation for survival is teaching at three colleges, substituting, freelance Web designing, freelance graphic designing, rap video director, wedding photographer and tutor —  the proceeds from all of these are swallowed by my mortgage, cigarettes, rail vodka and Ramen noodles. I used to eat only free-range organic shit, I used to live in Whole Foods, I used to drink top shelf — I used to be able to afford pop culture.

But long gone are the days when I pumped crack into the very neighborhood where we hold our card game. Eons since I had to stay up all night counting money until my fingers cramped. Since I had to lie on my back to kick my safe closed and I wore and treated Gucci like Hanes and drove Mercedes CL’s and gave X5 beamers to my girlfriends — my good ole days.

Eventually the mass death of my close friends caused me to leave the drug game in search of a better life. Ten-plus years and three college degrees later, I’m back where I started, just like my card-playing friends: too poor to participate in pop culture. Too poor to give a fuck about a selfie or what Kanye said or Beyoncé’s new album and the 17 videos it came with.

“Put me on that Obamacare when you can, college boy!” Sheryl says to me as I contemplate the number of books I can make out of my shitty hand. We all laugh. I am the only one in the room with the skill set to figure it out, but we all really see Obamacare as another bill and from what I hear, the website is as broke as we are. We love Barack, Michelle, their lovely daughters and his dog Bo as much as any African-American family, but not like in 2008.

The Obama feeling in 2008 isn’t the same as the Obama feeling in 2014. Obama had us dream chasing in 2008. My friends and I wanted him to be our dad and  best friend and mentor and favorite uncle. Shit, I wanted to take selfies with him. He was a biracial swirl of black and white Jesus sent to deliver us. To bless people stuck under the slums like Sheryl, Bucket, Dontay and I with jobs, access to the definition of words like selfie and hope — REAL HOPE.

But in 2014 it feels the same as Bush, or Clinton, or any other president. The rich are copping new boats and we still are using the oven to heat up our houses in the winter, while eating our cereal with forks to preserve milk. America still feels like America, a place where you have to pay to play, any and everywhere even here at our broke-ass card game.

* * *

1 a.m. rolls around and we’re faded, everyone but Miss Sheryl, that is, because dialysis prohibits her from drinking. My kidney pounds, her 2008 Obama for Pres T-shirt stares back at me all stretched out of shape, making Barack look like Sinbad. No one knows who won because really, we all lost. Dontay is asleep because I saw the roaches creeping back and Bucket staggered out.

I looked at Miss Sheryl, “We could take a late night selfie now but I swapped my iPhone for a boost mobile, $30 payment!”

She laughed and said, “Baby, what’s a selfie again?”

D. Watkins is an author, filmmaker and native Baltimorean who graduated with honors from Johns Hopkins University. He teaches at Coppin State University and runs a writing workshop on Creative Nonfiction at the Baltimore Freedom School. Watkins also conducts artist interviews for StopBeingFamous.com and1729mag.com. Watkins work also be seen on Niche Literary Magazine, Welter, Artichoke Haircut, The Baltimore Fishbowl, Hippocampus Magazine and a host of other literary publications. Connect with him on Instagram and Twitter @dWatkinsWorld and read more at d-Watkins.com

AIG Levels Claims Against BoA for Losses Tied to Mortgage Bonds

Image Source: New York Times

American International Group’s lawsuit against Bank of America was widely reported yesterday, as news outlets revealed that the financial firm initiated the suit in an effort to recover more than ten billion dollars in losses resulting from asset-backed securities they purchased from the bank.  According to the New York Times’ financial reporters Gretchen Morgenson and Louise Story, AIG “claims that Bank of America and its Merrill Lynch and Countrywide financial units misrepresented the quality of the mortgages placed in securities and sold to investors,” say inside sources.

As many of you many now know, BoA has faced intense scrutiny over the last several weeks.  A few weeks back, we covered the controversy clouding the bad loan settlement the bank negotiated with investors, in which BoA managed to secure a tremendously favorable outcome.  Just a few days ago, Morgenson penned a follow up piece documenting New York Attorney General Eric Schneiderman’s decision to challenge the settlement.  Apparently, Schneiderman takes issue with a number of the settlement’s terms, particularly those that preclude private litigants who may have suffered from the bank’s troubled loans from making a further claim.

The settlement has prompted other investors, like AIG, to join in on the litigation against the bank.  As Morgenson and Story’s article points out, BoA has encountered 25 suits related to the financial crisis thus far, many more than any other American bank.  Moreover, the journalists correctly tie this ongoing litigation into a broader theme: the federal government’s inability to successfully prosecute members of the banking industry.

Citing legal scholars and the insiders at the Justice Department, the writers imply that the lack of government intervention may be the result of the higher standard of proof necessary to secure a criminal conviction.  This notion has been buttressed by the fact that federal prosecutors were unable to deliver a conviction against Washington Mutual and Countrywide, two banks that have been involved in Justice Department investigations. These failures, unfortunately, create a situation in which investors must regulate the banks through litigation, which is extraordinarily costly and inefficient for all parties involved.

Whether the suit has any merit is a question in and of itelf—BoA rebuts AIG’s claims by arguing that the securities at issue appeared safe to both parties, and that their decline was the result of an unexpected depression in the housing market.  BoA further contends that “AIG is the very definition of an informed, seasoned investor,” and that they fully assumed the risk in purchasing the bank’s potentially high yield securities.

As we have stated several times, the underlying theme that constitently presents itself throughout the media analysis of BoA’s pre-courtroom saga is the lack of regulation in the securities industry.  While it is unclear as to which industry player has the upper hand here, all bear some fault—BoA for marketing the securities in the first place, AIG for creating a market for them, the ratings agencies for ensuring their legitimacy, and perhaps most of all, the government for failing to regulate.  Had these toxic assets not hit the market in the first place, the transaction and subsequent dispute would never had occurred and the economy may be much better off.  Along with it, our clients, many of whom had mortgages resold to Wall Street banks before the crisis, would have been better off, too.

What’s Up with Bank of America’s Bad Loan Settlement??

Late last month, Bank of America, one the nation’s largest mortgage servicers, entered into a settlement agreement with multiple investors, in what has been hailed as one of the most significant settlements involving mortgage-backed, toxic assets since the onset of the financial crisis.  At $8.5 million, the settlement, at least on its face, seems to present an optimistic message for investors, who can now maintain some measure of hope that legal remedies exists for the opaque, sometimes fraudulent securities on which they spent their money.

But a closer look at the agreement reveals a different picture.  While $8.5 million may be a convincing figure to some, the value of the mortgages held by the Bank of America totals at about $172 million, meaning that Bank of America secured a deal in which they were obligated to pay back less than five cents on every dollar.  This statistic has prompted many, including New York Attorney General Eric Schneiderman, to demand more information about the settlement.  Schneiderman and other critics suspect that the deal was put together hastily and unfairly: the New York Times reports that the investors involved in the settlement hold interest in merely one quarter of the 172 million in assets.  Moreover, because of the legal parameters of such a settlement, the deal would have a comprehensive effect, foreclosing claims from investors and individuals that may hold interest in the BoA loans but were not privy to the settlement negotiations.

More specifically, the settlement involves loans held by a BoA subsidiary, Countrywide Financial, which BoA purchased in late 2008 under what was apparently a disaster mitigation circumstance.  While BoA has every incentive to get rid of the Countrywide loans, given their toxicity and total lack of profitability, they neglect to consider the far-reaching policy effects that the deal will have.  Most conspicuously, the settlement will almost certainly accelerate foreclosure processes, which will impose devastating consequences on families.  These foreclosures will have broader economic ramifications.  According to Times columnist Paul Krugman, the settlement:

“would just accelerate foreclosures, and if more families were evicted from their homes, that would mean more homes offered for sale — an increase in supply. An increase in the supply of a good usually pushes that good’s price down, not up. Why should the effect on housing go the opposite way?”

Indeed, as Krugman writes, this settlement presents yet another example of letting bankers of the hook.  Furthermore, the Countrywide mess and the subsequent short sale of the firm to BoA indicates the crucial need for greater regulation of asset-backed securities, the danger of which is now well documented.  The deal will certainly affect our job at here at St. Ambrose, where our foreclosure prevention team negotiates with banks everyday in an effort to stymie foreclosures.  Settlements like this one set a precedent of “going easy on the banks,” as Krugman writes, enabling them to feel that they are beyond legal remedies for honest negotiation.  Such settlement will, in other

Will Proposed Reforms in Lending Work?

New Yorker Cartoon Satirizing Wall Street’s Opaque Securitization Chain

Over the last few weeks, considerable reforms have been proposed in the world of mortgage financing.  The most salient has been Iowa Attorney General Tom Miller’s proposal that would, among other things, require banks to terminate foreclosure proceedings while borrowers are actively pursuing a modification.  While Miller’s ideas seem both necessary and commonsensical on the surface, they have run into criticism from all ends of the political and economic spectrum.  The critics, from various vantage points, ultimately posit the same inquiry: will the reforms work?

On one hand, critics from the left argue that the reforms do not go far enough. In a staff editorial a few days back, the New York Times vigorously puts forth this contention, expressing concern that the terms of the reform will provide the banks leeway to avoid the kinds of strong penalties they deserve.  In particular, the Times cites the fact that the proposal does not proffer a way to implement reforms.  Moreover, Miller and his fellow attorneys generals have discussed the possibility of a settlement over the banks illegal practices, like the infamous robo-signing scams and systemic predatory lending—which may function as a prosecutorial shield.

The Times’ also cites a review of the proposal by their staff writer, Gretchen Morgenson.  In addition to outlining the overhaul’s lack of sufficient legal remedies for borrowers, Morgenson also points out what in her estimation appears to be yet another substantive flaw:

the terms severely disappoint in their treatment of second liens, a major sticking point in many loan modifications. The proposal would treat first and subsequent mortgages equally, turning upside down centuries-old law requiring creditors at the head of the line to be paid before i.o.u.’s signed later.

Treating holders of first and second liens alike is a boon to the banks, since so many second mortgages are owned by the nation’s largest institutions; many of the firsts are held by investors in mortgage-backed securities. The banks want the first mortgages to take the hit, leaving the seconds intact. Or at least for them both to share the pain equally.

To some degree, the document presented by Mr. Miller raises more questions than it answers.

As news of the proposal’s substance continues to rapidly unravel, a few thoughts come to mind.  While the proposal is a much needed step in the right direction, it does not seem to address the institutional nature of predatory lending.  We now know that the aggressive marketing of bad loans to uninformed consumers morphed into a systemic problem largely as a result of a perverse incentive structure.  As we’ve outlined in many previous posts, main street banks often possessed an incentive to dole out non-prime loans because of a pervasive securitization chain that linked borrowers, lenders, investment banks, and investors.

While consumer protection reforms are needed, no doubt, attorneys general would fundamentally benefit from a regulatory infrastructure at the federal level that addresses the securities market.  The Frank-Dodd Bill is a start, but as John Cassidy recently pointed out in his much talked about New Yorker article a few months back, asset-backed securities have become the heart of the financial industry, implicating average Joes and Wall Street investors alike.  Without financial regulation that adequately integrates consumer protection measures, Miller and the rest of the state’s attorneys will not gain the legal leverage they need to stymie the broken lending processes that have afflicted far too many of their constituents and thus may be forced to make concessions.

Talk to St. Ambrose Review of Charles Ferguson and Audrey Marrs’s Inside Job

The Film’s Official Poster

Two weeks ago, nearly 38 million Americans tuned in to watch ABC’s coverage of the eighty-third annual Academy Awards ceremony.  While this year’s Oscars delivered the usual Hollywood dose of glitz and glamour, this post highlights merely one slice of the 2011 Oscars: the award-winner for Best Documentary Feature, Inside Job, directed by Charles Ferguson and Audrey Marrs.

Inside Job is relevant to St. Ambrose because it focuses on the origins and implications of the financial crisis, which, of course, are extensively tied to the housing and real estate markets.  Moreover, low and middle-income people have taken a particularly hard hit, as many have lost substantial equity in their homes—and by extension savings for college tuition, healthcare, and retirement—or have undergone foreclosure.

The film, however, doesn’t focus too heavily on everyday folks but instead provides a thorough, didactic chronicle of the public policy and irresponsible financial practices that led to the crisis.  Divided into five parts, Ferguson and Marrs begin their documentary by portraying the situation in Iceland, which, staggeringly, possessed a yearly GDP of $13 billion but found itself $100 billion in debt during the crisis.  Iceland’s troubles culminated in the sort of brutal unemployment with which we in the rest of the Western world are now familiar.  The filmmakers attribute this flabbergasting statistic to the fact that Iceland, in addition to privatizing it’s three largest banks, systematically unraveled its robust regulatory state, as it too was swept by the deregulation fervor that infected most other industrialized nations.  This allowed Icelandic banks to make highly leveraged investments—as in using more borrowed than in-hand capital—that, of course, failed miserably.

From this vantage point, the film explores how domestic deregulatory policy also facilitated U.S. bankers’ identical mistakes. Ferguson and Marrs graphically convey two of the most talked-about yet enigmatic securities that were apparently responsible for bringing down the economy, Synthetic Collateralized Debt Obligations and Credit Default Swaps.  The former refers to the process of banks’ securitizing bundled mortgages, repackaging them and selling them to investors at an inflated price.  The pervasiveness of these kinds of securities created a perverse incentive structure whereby local lenders were under pressure to sell as many loans as possible, even “junk” ones, since they knew that these loans would be purchased, regardless of their quality.  This then led to massive predatory lending.  The latter kind of “security,” if one can even call it that, are the notorious insurance policies that enabled investors to make bets on whether the borrower would sink or swim, get foreclosed or pay off the loan.

In addition to demonstrating the proliferation of both securities, the film, I think, works to dispel a few equally pervasive myths: these securities are complex, sophisticated products that the average Joe couldn’t possibly comprehend, and that the high fallutin’ investment bankers on Wall Street had everyone’s best interest in mind. On the contrary, Ferguson and Marrs show that CDOs and Credit Default Swaps amount to little more than the repackaging of other people’s debt, and rather than rigorously examining the loans that comprise their products, these bankers possessed a lazy tendency to put them on the market with little analysis.  (The directors contrast the financial services industry with the IT sector, for which one actually “needs an education”). They further point out that the perverse incentive structure extended to our three major credit rating agencies, which, having been commissioned by the banks themselves, systematically bestowed upon the banks’ junk loans the same AAA ratings that they gave U.S. Treasury bills.

What the film does best is cohesively weave together this unfortunate maelstrom of events, illustrating the ties between borrowers, lenders, banks, and their investors in a cogent and clear fashion that is lacking in the media.  The filmmakers expose how these ties emphatically reveal a truth recently reiterated by the Financial Crisis Inquiry Commission’s Report, that the catastrophe was avoidable.  To be sure, Inside Job has some setbacks: the directors could have done a better job conveying the human affect of the bankers’ practices.  They could have also further developed some important themes that they mentioned briefly, like the rising cost of college tuition relative to the rate of inflation, which is functioning to preclude more and more middle class kids from college.  Nevertheless, in an hour and twenty minutes, Inside Job manages to be informative, entertaining, and important, and we at Talk to St. Ambrose would welcome any thoughts or comments about the film.