Meet Lady Subprime

By Richard Cohen
Tuesday, January 13, 2009

The French have the comely Marianne, the British have the fetching Britannia, and we have the welcoming Lady Liberty. May I now suggest, at least for the duration of the current recession, a new feminine emblem of our times: Marvene Halterman of Avondale, Ariz. At age 61, after 13 years of uninterrupted unemployment and at least as many years of living on welfare, she got a mortgage.

She got that mortgage less than two years ago. She got it even though at one time she had 23 people living in the house (576 square feet, one bath) and some ramshackle outbuildings. She got it for $103,000, an amount that far exceeded the value of the house. The place has since been condemned.

This tale, unfortunately as American as apple pie, was recounted recently in the Wall Street Journal. Since the story ran over a long, holiday weekend, it is possible that you, not to mention the occasional member of Congress or, God forbid, the various government regulatory agencies, missed it. It is the only possible explanation for why there have been no executions, never mind arrests.

Halterman's house was never exactly a showcase -- the city has since cited her for all the junk (clothes, tires, etc.) on her lawn. Nonetheless, a local financial institution with the cover-your-wallet name of Integrity Funding LLC gave her a mortgage, valuing the house at about twice what a nearby and comparable property sold for.

According to the Journal, Integrity Funding then sold the loan to Wells Fargo & Co., which sold it to HSBC Holdings PLC, which then packaged it with thousands of other risky mortgages and offered this indigestible porridge to investors. Standard & Poor's and Moody's Investors Service took a look at it all, as they are supposed to do, and pronounced it "triple-A." "Double-A" must mean no running water.

At each step of this mortgage process, a moral crime was committed. Halterman's interest rate would have ballooned to 15.25 percent, when in all likelihood 1 percent would have been a reach for her. (Her welfare and disability payments totaled about $3,000 a month.) After paying off all her debts and the usual fees, Halterman got $11,090 at the closing. After processing her mortgage, Integrity cleared nearly as much: $9,243.

We turn now to Bernard Madoff, the accused swindler who allegedly ran a $50 billion Ponzi scheme. The English language lacks sufficient words of contempt for this man who leveraged the teachings of Maimonides -- the sacred obligations of philanthropy -- to swindle charities of money for the poor. His victims were rich and not so rich, one-time Masters of the Universe and one-time schoolteachers, now equally broke, a leveling of wealth that not even Lenin could have envisaged. The wreckage is immense.

But think: Was there a better Ponzi scheme than the one that ensnarled countless underfinanced homeowners? Who has gone to jail? Nobody. Who has paid back the huge amounts of money made in financial services? Nobody. Where's the former financial genius who has vowed to return his bonus -- or donate it to charity -- because he was overseeing a huge dream factory that produced nothing more than a stack of three-dollar bills as high as the sky? "Here, sorry, I didn't earn it." Words you will never hear.

How was Madoff's alleged scheme so different? He could go to jail. The other guys are scot-free. But they had to know that Halterman could not pay off her mortgage. They had to know that she could not afford a 15.25 percent interest rate. It didn't matter. One institution sold to another, taking its fees, passing along this Ponzified paper like it was a hot potato -- don't hold it for too long or you'll get burned -- and then offering it to the vaunted, all-knowing and downright perfect Market, our secular god.

Ah, Halterman, you are our unintentional Marianne, our Britannia. You represent the consequences of a Congress that was both deluded and bought. You personify succeeding presidencies (Clinton, Bush) that sniffed the glue of deregulation. You embody a public that fervently believed in the free lunch of ever-rising housing values and a financial system that figured out that the buck didn't really ever have to stop . . . until it did.

The little house on West Hopi Street is slated to be torn down. Pity. For as little as $18,000, its apparent value at the moment, it could be bought by the government and turned into an appropriate monument to our era: The American Museum of Greed. Don't bother joining. We are all charter members.

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