Dean Starkman has an excellent story, “Boiler Room,” at the Columbia Journalism Review exploring how greed and irresponsibility inflamed our current financial crisis. Predatory lending, abandoned regulations and amoral financial industry groupthink led to an atmosphere where home buyers were reduced to suckers begging to be bilked out of their money.
His analysis is summed up as follows:
I realize that borrowers who signed the notes can never be fully let off the hook; no one knows what went on in the room at each closing—although the reporting of the last several years certainly yielded plenty of examples of loans made to stroke victims, the retarded, the elderly, the illiterate, and people who don’t speak English. A fine piece in April of this year by The Indypendent, a New York alternative paper, for instance, describes how an eighty-six-year-old Brooklyn man diagnosed with dementia decided it was a good idea to refinance his 5.95 percent, thirty-year, fixed-rate loan with an option ARM, an instrument that BusinessWeek described as “the riskiest and most complicated home loan product ever created.”
But more broadly, it pays to remember that the borrower is the amateur in this equation, someone who might execute a mortgage twice in a lifetime. A lender will do it a hundred times before lunch.
So, that’s what we know: the lending industry used marketing deception—including boiler-room tactics—on a mass scale against a class of financially vulnerable borrowers (which subprime borrowers are, by definition) and other middle-class financial amateurs already laboring with stagnating incomes and rising costs for health care, education, and, of course, housing.