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Before Toxie Was Toxic

Charlotte County subdivision

The last bubble: A neighborhood laid out in in the 1970s in Charlotte County, Florida, for a subdivision that never got built. DigitalGlobe hide caption

itoggle caption DigitalGlobe

Earlier this year, the Planet Money team bought a toxic asset — a tiny slice of one of those complicated mortgage bonds at the center of the financial crisis. Listeners named her Toxie.

She wasn't born toxic. Back in 2005, when Toxie was created, the housing market was booming, and mortgage bonds made it easier for people to buy houses.

Lisa Liberator-Kinney bought a house in Bradenton, Florida, and her mortgage wound up in Toxie. She didn't know she was buying into a giant housing bubble. She also didn't know that her mortgage would wind up in a complex financial instrument that would wreak havoc on the economy.

And even if she could travel back in time to try to warn everybody, it probably wouldn't do any good, she said: "I could probably shout at the top of my lungs what was to come, and I don't think anyone would have paid any attention."

Tony Polito was paying a lot of attention to the housing market back in 2005.

He and his colleagues at Metrostudy, a housing market research firm, would go out and look at new houses. If a house sold, did someone actually move in? A lot of times the answer was no — the houses were bought by investors.

"It could be an executive at a power company, it could be a dishwasher at a restaurant," he said. "All of them were out trying to buy homes — just to buy them, flip them, make some money, and move on."

Those homes were empty in 2005. And they're empty now.

"They're overgrown," Polito said. "In fact, down in Fort Myers they had all all kinds of big large lizards, living in these homes."

But, even with all that looking around, Tony Polito and the folks at Metro Study didn't see the bubble coming either. They thought there were good reasons for the rising housing prices.

One particularly good reason, in fact, was mortgage bonds like Toxie. The bonds connected institutions with money to lend — pension funds, insurance funds, banks — with people who wanted to borrow money to buy a home.

In 2005, over $1 trillion of bonds like Toxie were created. It was an ocean of money flowing into the housing market, contributing to the crowds of people showing up at open houses — and to home prices that kept rising.

As it turned out, it was just the latest in a series of bubbles.

Polito showed us an aerial photo of Charlotte County, Florida. It showed windy suburban roads — like a housing development, but without the houses.

"These were lots that were put in in the 1970s," during an earlier bubble, he said. "Some of the streets have been there so long you can see trees growing up in the roads."

There are enough housing lots in Charlotte County to last for more than 100 years, according to Polito.

All of which raises a central, unanswered question: Why are we so bad at spotting bubbles?

That feels like a particularly relevant question, now that Toxie is nearing the end of her life.

Lisa Liberator-Kinney is still making the payments on her mortgage. But a lot of people aren't, and soon our bond will be worth nothing.

We're told Toxie only has days left to live.

For more: Listen to our podcast, on the origin of Toxie. And see full coverage on the Toxie page.

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