The Unwinding: An Inner History of the New America (55 page)

It took Warren thirty years to be able to tell this story in five minutes on
The Daily Show
.

By then, the country was deep in crisis, and the crisis was the stuff of her life’s
work. President Obama had met her in 2004, and he knew his way around “predatory lending.”
He read an article that she published in 2007, at the start of the foreclosure crisis,
proposing a new consumer financial protection agency. “It is impossible to buy a toaster
that has a one-in-five chance of bursting into flames and burning down your house,”
Warren began the article. “But it is possible to refinance an existing home with a
mortgage that has the same one-in-five chance of putting the family out on the street—and
the mortgage won’t even carry a disclosure of that fact to the homeowner.” Warren’s
idea was for a new federal agency, independent of Congress, that would force the banks
and credit card companies to disclose the risks and penalties in their financial products
in clear terms. Obama liked the idea. Shortly after he was elected president, Warren
was named the chair of the panel that oversaw the bailout fund.

So Warren went down to Washington. She was something unfamiliar there. First of all,
she didn’t look like a Washington woman. She had her hair cut in a simple bob. She
wore rimless glasses, not much makeup, and a teacher’s shapeless sweaters and turtlenecks
hanging loose on her slight frame.

She didn’t sound like a creature of the capital, either. She was a professor of bankruptcy
law, but her language was as plain as her coiffure. She made no attempt to conciliate
or ingratiate. She actually seemed to hate the banks. She had arrived at radicalism,
like many conservatives before her, by seeing the institutions that had sustained
the old way of life collapse. Sometimes she was cutting or angry, and spoke of leaving
“plenty of blood and teeth” on the floor. Even though she badly wanted to run the
new consumer agency that she had invented, she did nothing to help her own political
cause, subjecting the very people whose support she needed to tough questions about
the taxpayers’ money. She didn’t play the game.

She seemed to have walked into the hearing room and taken her seat at the dais out
of the past, from the era when the American prairie raised angry and eloquent champions
of the common people, William Jennings Bryan and Robert LaFollette, George Norris
and Hubert Humphrey. Her very presence made insiders uneasy because it reminded them
of the cozy corruption that had become the normal way of doing business around Capitol
Hill. And that was unforgivable.

The bankers could never forgive her. They saw her as “the Devil incarnate,” and they
threw money all over Congress to keep her out of the consumer agency job. They called
her naïve, but what they couldn’t forgive was how well she knew their game.

The Republicans could never forgive her. She didn’t back down or extend the usual
courtesies, and so they hectored her, called her a liar to her face, and devoted themselves
to killing the consumer agency almost as if they were pointing the knife at this woman
who dared.

Some of the Democrats could never forgive her. The White House considered her “a pain
in the ass.” Dodd suggested that her ego was the problem. Timothy Geithner, aggravated
almost to shouting in an oversight hearing, couldn’t stand her.

And the president didn’t know what to do with a woman like this. They had Harvard
Law School in common, and Warren talked about the same things Obama did—the hard-pressed
middle class, the need for a fair playing field, the excesses of finance. But she
did not talk about these things as one of the elites. She did not say, in the same
breath, “It’s not personal, guys—let’s be reasonable and get a deal.” For that reason,
some of Obama’s most passionate supporters were moving away from him, and toward her.

In the summer of 2011, the president emerged in the Rose Garden from an extended negotiation
with himself and, to avoid an unwinnable fight, announced that he would nominate Warren’s
deputy, Richard Cordray, to be chief of the new consumer agency. Then he bestowed
an affectionate kiss on Warren’s cheek.

But she was already gone, back to Massachusetts, to run for a seat in the chamber
where the voices of Fighting Bob and the Happy Warrior had once stirred the souls
of ordinary men and women.

WALL STREET

Kevin Moore
1
was born and raised in Manhattan, and he went to work at a top American bank right
out of college, in 1998. That was the year Long-Term Capital Management went down,
almost taking Wall Street with it, the year before Glass-Steagall was repealed. None
of it meant much to Kevin then; it was years before he understood the significance.
He was the last person hired for his training class—he only got the job because most
of the competition out of college was flocking west to the gold rush in Silicon Valley—and
he was voted most likely to be cut loose first.

But Kevin found out pretty quickly that banking wasn’t that hard. Wall Street used
this purposefully opaque language to intimidate outsiders, but to succeed you just
had to be somewhat comfortable with math or else with bullshit—the former went into
trading, the latter into sales, and a quant who could lie made the big money. To reach
the top you had to be a fucking dirtbag and knife fifty-seven other people—that was
the only thing separating them from the next ten guys down—and Kevin had no interest
in getting there. His goal was to work as little as possible and live the life he
wanted, which meant lots of foreign travel, good food, music, design, and funky friends.
He started at the bank’s offices in the financial district making eighty grand a year
with an eight-thousand-dollar bonus. The most he earned in his first six years was
maybe a quarter mil. The crazy money came after that.

On the morning of September 11, 2001, Kevin was at the office talking about the day’s
trades when he felt the ground shake. Suddenly all this paper started fluttering past
the windows. From one side of the building there was a direct view of the flames billowing
out of the North Tower. All the TV sets at the trading desk were on CNBC, which had
a monopoly on the Street—CNN wasn’t robust enough on finance, the BBC was too soft
and international, Reuters had no network, nobody took Fox seriously—and CNBC began
showing video of the tower. They were saying it was a small plane, but Kevin could
tell from looking out the window at the exit wounds that it wasn’t a fucking small
plane. The flight path wasn’t normal—it didn’t look right at all.

He went back to work, and he was on the phone when U.S. treasuries suddenly spiked—London
was buying them. He told the guy on the line, “I think we’re done here,” and tore
up the ticket. Outside the window it looked like a ticker tape parade, burning shreds
floating past. The fire was getting worse. The TVs on the trading desk had been switched
to CNN, and suddenly on the live video a second plane flew by.
Holy shit, another fucking plane!
And … boom. It felt like an earthquake.

“Everybody stay calm,” said the head of the desk.

“I’m not staying calm,” Kevin said. “I’m getting the fuck out of here.” People were
saying that the fire marshal was on his way, everyone should follow the fire drill
procedure, but Kevin had already started toward the elevators. “Fuck you and your
fire drill procedure,” he said. “You want to fire me, fire me. I’m done.” No one else
moved. Brilliant traders making a couple of million a year, and they stood around
waiting for directions from some buffoon who had no information. They mispriced the
two planes.

On the street, crowds were coming up out of the subways without a clue. Everything
looked normal. Kevin got on an uptown train headed toward his parents’ apartment,
and he was probably the only person on board who knew what had just happened. His
coworkers eventually got evacuated, and they were standing on the street when the
South Tower came down and covered them in dust. In a crisis you realized that society
operated without anyone knowing deep down what the hell was really going on.

The bank had to move its operations out of the city for a couple of weeks. Markets
were a buy surprisingly quickly, and they were right—the attacks didn’t change that
much. The airlines were fucked, but not necessarily that much worse than after four
terrible plane crashes. The Fed kept cutting rates. Before long, a financial boom
was on.

In 2004, Kevin left his safe and boring job to join the proprietary trading desk at
a big European bank, with zero job security and huge potential—one of the ballsier
and more correct decisions of his life. The European bank was about to get into collateralized
debt obligations. The stock market determined the size of your apartment and whether
you had a Viking stove—who was rich and who wasn’t. The bond market determined if
shit worked or everyone was eating sand, who was alive and who wasn’t. Ever since
the eighties, credit had been the biggest driver. All the things that would later
go wrong, structured credit, default swaps, were good inventions; they mitigated risk
or offered financial solutions to companies and investors. The problem was the execution.
In the mid-2000s, when there was just too much money on the table, the moral compass
moved.

The culture of the prop desk was extremely aggressive. The dopey bankers in Europe
wanted to leverage their deposit base, so they turned control over to the cowboys
in New York and London, who started driving around drinking and shooting out the windows.
The prop desk was on a lower floor—after 9/11 the trading desks were moved down there
to keep the moneymakers alive, so the guys earning millions stared out at the sandwich
shop across the street while the HR chicks making forty grand sat in cubicles on the
upper floors with amazing views of the river. On the prop desk there was no team,
just a bunch of guys all playing with a piece of the bank’s balance sheet for a shot
at enormous rewards. Kevin traded credit derivatives and corporate bonds—things like
airline debt.

When you were on a prop desk and getting it right, there was nothing better on Wall
Street, and for two years he got it right. He earned close to a million dollars a
year, most of it his bonus—multiples of his previous pay—and he would have made more
if he had cared more. He paid off the mortgage on his apartment in the East Village,
lived off his salary, and saved the bonus. He didn’t own a car or a boat. He became
a connoisseur of New York’s best restaurants and picked up the tab for his starving-artist
friends. He didn’t need more.

It wasn’t just American mortgages that blew up the world—it was global credit. Kevin
was part of that, and during the middle years of the decade he watched the credit
bubble inflate. He wasn’t doing anything wrong—he had a great deal going on the prop
desk and didn’t want to screw it up. He wasn’t like the guys saying “Just print the
fucking CDO, we’ll get the bonuses this year and when it blows up in three years we
won’t even be here.” But he knew that something was off kilter. He had a girlfriend
in the European country where the bank was based, and on one visit he saw all these
people using its ATM cards, and he thought, “This is a fucking regular bank. This
isn’t Bear or Merrill.” For every dollar his girlfriend put in her savings account,
Kevin was buying forty dollars’ worth of bonds. At one point in 2005, he was shown
a huge trade by a salesperson from Deutsche Bank. Greg Lippmann, the head of Deutsche’s
CDO desk, was short the housing market—he might have been the only bond trader at
a big Wall Street firm who saw that everyone in Florida and Nevada was about to start
defaulting on their mortgages—and he needed someone to take on some of his credit
derivative risk. “Look, here’s the deal,” the salesperson said, “there’s all these
fucking mortgages and they’re all full of shit.” But Kevin passed. It all made sense—he
never understood why all those houses in places like Tampa were worth anything—but
he didn’t know mortgages well enough to get in that deep and then time getting out
right. And it turned out to be the right call, because he would have lost a ton of
money at the start, and he left the prop desk well before the trade made Lippmann
millions and Deutsche Bank $1.5 billion.

At the end of 2005, when Kevin was almost thirty, he followed his boss to the emerging
markets desk, working between London and New York, trading corporate bonds and traveling
to fun places like Buenos Aires and Kiev. He had platinum status on every airline
and knew some foreign cities a lot better than the places in America where people
filled their pickup trucks with subsidized gas and drove thirty miles to a job. In
2006 everything took off, people were buying any financial asset they could get. Prices
in London were so retarded that Kevin would buy a month’s worth of socks at Century
21 in lower Manhattan, take them to London, and then throw them away after wearing
them because it was more expensive to wash them in Mayfair than buy them in New York.
It said that something was fucking wrong, that it couldn’t last, and at the end of
the year he went short.

He thought the world was going to bust three or four times before it finally did.
The credit market was such a confidence game that when it started to wobble, everyone
got really scared, because they knew it was too big for them to get out. The first
wobble came in February 2007, when there was a collateral dispute between Merrill
Lynch and a Bear Stearns hedge fund. The market shat itself for a week—you didn’t
want to be the last guy in the swimming pool with a bunch of toasters. Kevin thought
it was the beginning of the end and didn’t cover his short, but the market came roaring
back for five months—he got it completely wrong. If he’d gotten it right he’d be living
in twenty thousand square feet.

In July, just after Kevin had sold a bunch of crappy Ukrainian bonds, a guy in his
department came up to him and said, “You are the only person on this whole floor who
is short. You are such a pussy.”