The Unwinding: An Inner History of the New America (32 page)

*   *   *

Van Sickler and some colleagues at the paper crunched a lot of data about foreclosed
houses in Hillsborough County. They were everywhere, but they clustered in two places:
the older city slums and the ghost subdivisions. Van Sickler’s mapping software showed
a bright red dot at Carriage Pointe, the development built on top of a tropical fish
farm in Gibsonton: the foreclosure rate was 50 percent, the county record. Van Sickler
and a photographer from the paper, Chris Zuppa, started driving out to Carriage Pointe
in the evenings to find out what was happening there.

It was one of the weirdest places in Van Sickler’s life as a reporter. One night,
he and Zuppa saw emaciated cows standing in the fields between the rows of single-family
houses. The cows had been brought in so that some homeowner could claim agricultural
land use for a tax break, and now they were starving because no one was feeding them.
Van Sickler and Zuppa knocked on a lot of doors, but it was hard to find anyone home,
or anyone who would talk. The owners stranded here were mostly families that had viewed
Carriage Pointe as a starter home on their way to someplace else. When prices dropped
by 50 percent, they were trapped, and furious with Lennar, the developer, which had
promised them a pool, a community center, and a limit on investment homes of 20 percent.
As it turned out, a lot of the owners of record lived in places like Fort Mill, South
Carolina, and Ozone Park, New York, and they didn’t care what life was like for people
stuck in Carriage Pointe. Some of the foreclosed houses were being used by drug dealers
or traffickers in stolen goods, littered with contraband. There had even been a shooting.
Sheriff’s deputies were making nightly visits out to Carriage Pointe. Paranoia was
running high, and one man proudly showed Van Sickler the security cameras he’d installed
on his driveway.

“In suburbia,” Van Sickler said, “no one can hear you scream.”

A Ponzi scheme was a confidence game that succeeded only when enough people were willing
to put aside common sense. Everyone involved was both being taken and taking someone
else. The result was universal credulousness and universal fear. Carriage Pointe was
supposed to be a little slice of the American dream, but it felt like the end of days.
Van Sickler’s reporting there led him to conclude that the bust wasn’t all the fault
of feckless homeowners, and he wrote a hard-edged piece exposing the role of developers
and elected officials in creating the disaster.

*   *   *

Sang-Min Kim, nicknamed Sonny, had come to Tampa from South Korea. He was the owner
of Body Design Tattoos, a piercing and tattoo parlor with an Asian theme. At one time
or another in the middle years of the decade, Sonny Kim also owned a hundred houses
around Tampa, most of them in the bad neighborhoods north of downtown, the same area
where Kenny Rushing operated. In fact, Kenny and Sonny were business partners, selling
houses to each other. By the time Van Sickler got on Kim’s trail, in the summer of
2008, Sonny had cleared four million dollars’ profit, and more than a third of his
houses were in foreclosure.

Van Sickler drove around Belmont Heights and Sulphur Springs, two of the poorest neighborhoods
in Tampa, to take a look at Sonny Kim’s properties. There was a decaying two-story
stucco house at 4809 North Seventeenth Street, with a blue tarp over the roof, boarded
windows, and mattresses piled in the overgrown yard. Kim had received it in 2006 for
a hundred dollars with a quitclaim deed witnessed by a convicted drug dealer. Three
months later, Kim sold it for three hundred thousand dollars to a buyer named Aracely
Llanes, who borrowed the entire amount from Long Beach Mortgage, a subsidiary of Washington
Mutual Bank. Van Sickler stood in the yard and looked at the house and thought about
that loan. It was incredible. Did anyone from the bank do a drive-by to eyeball the
place? Eighteen months later, the house was in foreclosure and the bank was asking
thirty-five thousand. Van Sickler went searching for neighbors to find out whether
anyone was living in the house, but it was nighttime in a dangerous neighborhood,
and people didn’t answer his knock. Finally, a Tampa police car pulled up and a cop
got out. “Someone around here doesn’t like you,” he said. A neighbor had called to
complain about the tall white guy snooping around.

Van Sickler tried to track down Aracely Llanes. She had an Opa Loca address but no
phone number—she was unreachable. Some of Kim’s other buyers were drug dealers, arsonists,
the mentally ill. Van Sickler looked at dozens of the houses he’d flipped, and it
was always the same: a derelict property, a minimal purchase price, a swift resale
for a ridiculously large sum, a no-questions-asked loan, little or no money down,
the buyer nowhere to be found, the house never occupied, the loan in default. An expert
told Van Sickler that some of the buyers—they were known as “straw buyers”—might not
exist, or might be victims of identity theft. Or they might be Sonny Kim’s partners
in mortgage fraud. So might the brokers, appraisers, notaries, title agents, and ultimately
the bankers who were in on the deals, some of them showing up again and again. Everyone
was making money on Sonny Kim’s business, and the business of all the other Sonny
Kims out there, while the bad loans seemed to vanish into the air.

Van Sickler kept reporting into September. In the middle of the month, Lehman Brothers
went down. Lehman was one of the banks making loans to Sonny Kim’s straw buyers. So
were some of the other big players that were suddenly all over the news and facing
ruin—Washington Mutual, Wachovia, JPMorgan Chase, Countrywide, Bank of America, Fannie
Mae, Freddie Mac. The headlines sent a shudder and a thrill through Van Sickler. It
dawned on him that his local story about a tattoo parlor owner (which had already
taken too long—his editors were showing a lot of patience) was connected to the story
of the biggest financial crisis in decades. Down in Tampa he had the goods—the authority
of his own eyes—that better-known reporters covering it from New York and Washington
didn’t have. You could trace the Wall Street collapse right back to the house at 4809
North Seventeenth Street, and to the houses in Carriage Pointe and Country Walk.

The banks had thrown money at fraudulent borrowers to overpay for crappy houses because
the risk was immediately passed on to someone else. There was a new term in finance,
at least one that Van Sickler had never heard before: “mortgage-backed securities”—bundles
of loans that were sold by the lenders to Wall Street, where they were packaged as
bonds and sold again to investors for huge profits. The term inspired dread, like
the name of a new virus. Now Van Sickler understood: here were the mortgages backing
the securities. Here were the defaulted loans that were threatening to bring down
the global financial system.

The conventional wisdom among journalists was that everybody was responsible for the
financial crisis. “Greed just got out of control. We don’t know why, we just got really
greedy, and everybody wanted a house they couldn’t afford,” Van Sickler said. “I think
that’s lazy journalism. That’s a talking point for politicians who want to look the
other way. We’re not
all
to blame for this.” He hated the kind of reporting that tried for a false balance
and refused to draw clear conclusions even when they were staring the reporter in
the face. His own work had led him not to “everybody,” but to certain institutions—government
agencies, real estate businesses, and especially banks. Sonny Kim was just a front
man. “It was systemic. Banks were approving these loans without human eyes looking
at them, because the appetite was so huge. They couldn’t make these mortgages fast
enough.”

Van Sickler’s story filled the front page just after Thanksgiving. Within a week the
FBI got on the case, and soon after that Sonny Kim was cooperating, wearing a wire.
Van Sickler waited for the feds to make their way up the food chain to the guys at
the top.

SILICON VALLEY

Peter Thiel and his friend Reid Hoffman had been arguing about the nature of society
ever since Stanford. Over Christmas in 1994 they had spent a few days on the California
coast brainstorming about how to start an Internet business. Hoffman had Thiel read
a new sci-fi novel called
Snow Crash
, by Neal Stephenson—a dystopia in which large parts of America have been privatized
into sovereign enclaves run by powerful entrepreneurs and mafias, a kind of fictional
precursor to
The Sovereign Individual
. The novel’s characters escape the violence and social breakdown around them into
virtual reality through a successor to the Internet called the Metaverse, where they
represent themselves through avatars.
Snow Crash
gave Hoffman an entrepreneurial idea, and he soon left his job at Apple to start
a dating website called
socialnet.com
, perhaps the first social network on the Web. It didn’t succeed for various reasons—people
turned out not to want to interact through avatars, they wanted to be themselves—but
Hoffman continued to refine the idea, and after the sale of PayPal to eBay in 2002,
he took his proceeds and launched a social network for businesspeople called LinkedIn.
It was through LinkedIn that Hoffman met Sean Parker, and it was through Hoffman and
Parker that Thiel met Mark Zuckerberg.

In the spring of 2004, Thiel and Hoffman were trying to talk their hyperkinetic twenty-four-year-old
friend Parker out of suing Sequoia Capital, the investors in his online address book
company, Plaxo. Owing to his libertine ways, Parker had been driven out of his own
company, just as he’d been driven out of Napster, the music sharing site, a few years
earlier. Thiel told him that rather than entangling himself in a lawsuit, he should
start a new company. Three months later, Parker came back to Thiel with the news that
he’d just become president of Thefacebook, a college social network with four employees,
and that the Harvard sophomore who had founded it needed money because the number
of students clamoring to get on was increasing and would soon overwhelm the computers.
Hoffman, who had been tracking Thefacebook and Mark Zuckerberg all year, recused himself
from becoming the lead investor because it might be seen as a conflict of interest
with LinkedIn. The natural choice was Thiel.

Thiel liked to say that, on principle, a hard-core libertarian shouldn’t put his money
in social networking. If there was no such thing as society, only individuals, how
could there be any return on the investment? Ayn Rand wouldn’t have invested in Thefacebook.
But Thiel, placing rational selfishness ahead of ideological purity in a way that
wasn’t completely inconsistent with the principles of Objectivism, had been interested
in social networks for a while. This one looked like it might succeed where others,
such as Friendster, had failed. The consumer Internet was still in its postcrash doldrums,
and for once there were more good ideas around than investors chasing them. Thefacebook
was already on about twenty campuses, operating under a benign version of the Brezhnev
Doctrine: once a college was targeted for a takeover, pretty much the entire student
population was captured in a matter of days, and the process became irreversible.
With such an intense user base, it seemed that Thefacebook could go reasonably far.
Hoffman had talked to the engineers and they had seemed quite good. So in midsummer
2004, Thiel agreed to meet Zuckerberg at Clarium Capital’s offices in the heart of
San Francisco’s financial district, on the forty-third floor of 555 California Street,
a granite skyscraper that had been the headquarters of Bank of America until it moved
to Charlotte in 1998.

Parker did most of the talking for Thefacebook, but Thiel gathered a strong impression
of Zuckerberg. He was only twenty, wearing a T-shirt, jeans, and rubber flip-flops,
and already stubborn about what he wanted, with an intense focus, a coder’s introversion,
obtuse to the point of Asperger’s about other people (something of a paradox in the
founder of a social network). He matter-of-factly described Thefacebook’s dramatic
growth while making no effort to impress Thiel, and Thiel took that as a mark of seriousness.
By the end of the meeting—which stretched on for most of the afternoon—Thiel had made
up his mind to become an angel investor in Thefacebook. He would lend the company
half a million dollars—“seed money”—which would convert into a 10.2 percent stake
and a seat on its five-man board.

As the meeting concluded, Thiel told Zuckerberg, “Just don’t fuck it up.”

Years later, after Zuckerberg did not fuck it up, and the number of people using Facebook
passed half a billion, and the value of Thiel’s stake rose above $1.5 billion, and
the story of its early days was made into a Hollywood movie that portrayed Zuckerberg
and Parker in a less than flattering light, freaking out both of them, Thiel went
to see
The Social Network
at a movie theater in San Francisco with a small group of friends. The meeting between
his character and Zuckerberg’s took thirty-four seconds of screen time, and although
he came off well, relatively speaking, he also felt that his character looked too
old, too much like an investment banker type—Thiel normally wore T-shirts at work,
not button-down blue shirts. Later still, after Facebook went public in May 2012 and
its stock price immediately began to fall, Thiel sold off most of his remaining shares,
for a cash total of over a billion dollars from his original five hundred thousand.

The same year as his meeting with Zuckerberg, 2004, Thiel cofounded a company called
Palantir Technologies (the name came from a crystal-ball-like stone in his beloved
Lord of the Rings
), which took software that had been used at PayPal to combat fraud by Russian gangsters
and developed it for complex data analysis, finding subtle patterns in torrents of
information to make it easier for government agencies to track down terrorists, fraudsters,
and other criminals. Some of the seed money came from the CIA’s venture fund, but
in its early stages, Palantir depended heavily on Thiel’s thirty-million-dollar investment.
He became chairman of the board, and after Facebook got too big for its offices at
156 University Avenue in downtown Palo Alto, Palantir moved in—right across the street
from where PayPal had its start. Eventually, Palantir would be valued at $2.5 billion.
Thiel was on his way to becoming one of the world’s most successful technology investors.