Q+A
James B. Stewart Interview by Barry Friedman
Sigrid Estrada
James B. Stewart is the author of 11 books,
Before we get to your book, explain what happened during the financial meltdown of 2008-09, specifically in terms of the housing collapse — and, if you would, talk to me like I’m a 10-year-old. [laughs] Well, there is no short paragraph to explain that, but it was a matter of unqualified buyers getting mortgages — subprime mortgages [those mortgages given to high-risk borrowers] — which were then bundled together, then cut up, and then rated as secure by credit agencies. Wall Street then went out and hawked them, sold them to other institutions based on those secure ratings. Now, it was ludicrous how these loans were approved — ludicrous. Ultimately what happened is they eventually stopped lending, people who couldn’t afford the mortgages went into default, and property values came down.
including Den of Thieves, about Wall Street in the 1980s; Blind Eye, an investigation of the medical profession; Blood Sport, inside the Clinton White House; Heart of a Soldier, the story of Rick Rescorla, a victim of 9/11; and DisneyWar, which chronicles Michael Eisner’s time as head of the entertainment giant. A former “Page One” editor for the Wall Street Journal, Stewart now writes the “Common Sense” column for the Business Day section of the New York Times and contributes regularly to The New Yorker. He is the recipient of a 1988 Pulitzer Prize for his reporting on the 1987 stock market crash and insider trading scandals, as well as a winner of the George Polk award and two Gerald Loeb awards. In reviewing Stewart’s latest book, Tangled Webs: How False Statements Are Undermining America: From Martha Stewart to Bernie Madoff, novelist Scott Turow wrote, “Part of Mr. Stewart’s magic as a writer is that he is both exhaustive and engrossing.” A graduate of Harvard Law School and DePauw University, Stewart is the Bloomberg professor of business journalism at the Columbia School of Journalism.
How, why did it all break down? The key flaw in the system was that rating companies like Moody’s get paid by the issuers so, for instance, if Moody’s didn’t slap a good rating on these mortgages, the firms would be able to just go down the street to another agency that would. There was also the matter of people getting into homes over their heads. I interviewed a woman who went to sign her mortgage documents, and when she looked at her monthly payment, she said, “I can’t afford this.” She never made a payment — not one. Another guy said he was a sign painter on his loan application. I don’t know if he ever painted a sign in his life, but there was so much money to be made lending money — in the fees collected — that these companies were looking for warm bodies. He got a loan based on what other sign makers in the area were making.
Another great weakness: these mortgages were instantly flipped and then sold immediately at a profit.
How fast would they be flipped? A company like Countrywide Financial literally would have these mortgages on its books for a nanosecond.
What could the mainstream press, generally, and the business press, specifically, have done better? Well, first off, it was hard, because you had to work backwards — it was tough to follow that line. In fact, it wasn’t a straight line at all. The crisis was first spotted in California with a number of mortgages going into default. But let me just say, once it was determined what had happened, I think the press, generally, did a good job of covering it. Did they do a great job? No. But the Federal Reserve couldn’t piece it all Continued on p. 12 Apri l 2013 IN TERM ISSION
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