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Some of the problems Lehman Brothers executives were trying to shuffle off the books were those troubling things known as toxic assets. Toxic assets threatened to bring down the global economy, hundreds of billions of dollars worth of home mortgages packaged into complicated bonds and no one wanted to touch them.

Well, now these things are starting to move and our Planet Money team has been wondering what's become of them? They thought the best way to find out was to actually buy a toxic asset.

David Kestenbaum and Chana Jaffe-Walt report.

DAVID KESTENBAUM: There's no store you can go to, to buy toxic assets.

CHANA JOFFE-WALT: You have to know a guy, and we know a guy.

Mr. WIT SOLBERG (Principal, Mission Peak Capital): So my name's Wit.

KESTENBAUM: Wit Solberg, he used to work on Wall Street. Now he's set up his own shop, Mission Peak Capital, here in his hometown, Kansas City.

JOFFE-WALT: Wit and a dozen guys sit at desks with their tools: two to four computer monitors, three to five bags of potato chips, Snapple, chewing tobacco. And all Wit does all day is look at those monitors - spreadsheets, numbers, mortgage data - evaluating toxic assets and sometimes buying one.

KESTENBAUM: But the thing is you dont always know what you're getting. Wit compares this to buying a cow at an auction.

Mr. SOLBERG: The big Black Angus cow that everybody wants? We're not buying that cow because it's too expensive. We want the cow that kind of got a wounded leg, but she might produce a few more calves for us and is cheap.

So why dont we run the O51MV8...

KESTENBAUM: Wit starts searching for a bond we might want to buy. And what searching looks like is checking your email. Brokers keep sending him announcements about which toxic assets are for sale today. One says, cheaper, super senior steal.

Mr. SOLBERG: Bobby sends a lot email. Cliff and Dewayne and...

JOFFE-WALT: To figure out which bond may be a good buy for us, Wit has a computer model; basically a very fancy spreadsheet named Brandy, named after his wife who built the thing.

Brandy takes all the information on all the mortgages and tries to make sense of it.

KESTENBAUM: If you bought a home in the last 10 years it's possible your mortgage is in here.

JOFFE-WALT: And Brandy, the model, is asking these questions about you: Where is your house; are you making your mortgage payments, who made you the loan? She does this with thousands of mortgages. Meanwhile, Wit is scanning the screen, yelling, whats Brandy telling us here? Oh, Brandy likes it. Oh, wow. Check out Brandy's loss severity there?

KESTENBAUM: Around lunchtime, Wit finds a bond he likes for us.

JOFFE-WALT: It's a type of bond called an OOMLT bond. Thats an acronym for Option One Mortgage Loan Trust. Wit thinks we should offer to buy the OOMLT for half a cent on the dollar.

KESTENBAUM: In other words, less than one percent of its original value. Wit calls one of those brokers who sent him the emails, a guy named Cliff, tells him, half a cent on the OOMLT, and then we wait.

Finally Cliff calls back.

Mr. SOLBERG: Hey, Cliff.

CLIFF: Hey.

Mr. SOLBERG: Whats happening?

CLIFF: So that OOMLT gone.

Mr. SOLBERG: Yeah.

CLIFF: They're seeing high teens on that.

(Soundbite of laughter)

JOFFE-WALT: High teens: 17, 18 cents on the dollar, more than 30 times higher than what we bid.

Mr. SOLBERG: Thats bull(BEEP). Thats ridiculous.

JOFFE-WALT: Wait. But, Wit, what happened with the OOMLT? Somebody bought it for high teens?

Mr. SOLBERG: Thats what they're telling the trader.

JOFFE-WALT: And you bid half a cent.

Mr. SOLBERG: Yeah.

KESTENBAUM: So there's real disagreement about what these things are worth.

Mr. SOLBERG: There's huge disagreement. I mean, honestly, this is not uncommon.

JOFFE-WALT: After our OOMLT failure, we move on. Wit gets excited about another bond. He looks through his fancy spreadsheet. It has big loans, meaning big houses: McMansions in California.

KESTENBAUM: But he only has minutes to make an offer on this one, and there isnt enough data to evaluate it. So Wit does something that makes me kind of nervous. He yells, print the book.

JOFFE-WALT: The book is the prospectus, a 604-page document no one ever expected anyone to read. It describes the bond in excruciating details.

(Soundbite of machinery)

KESTENBAUM: As the printer tray fills up, I realize Im staring at an historical record of the entire financial crisis. It's all here on these pages: vaporized companies, people struggling to pay their mortgages, and some horribly complicated logic describing which bond holders get paid, in which order, how much under which conditions.

JOFFE-WALT: Wit hunches over the pages with three highlighters and a pen, circling stuff, turning the pages quickly, time running out - and then he stops. There's a hidden time bomb on Page 136.

(Soundbite of laughter)

JOFFE-WALT: But you're laughing. That doesnt seem like a good sign.

(Soundbite of laughter)

Mr. SOLBERG: In the event of insolvency of Lehman Brothers, payments due under the interest rate cap - dude, this is a disaster.

KESTENBAUM: This is a disaster.

JOFFE-WALT: The disaster is the deadly interest rate swap. You don't need to know what that is. It's bad. We're not buying it.

KESTENBAUM: We go on like this for two days, and finally, we find her: a beautiful, totally toxic asset at what Wit thinks is a good price - $36,000. The original sticker price was a lot more.

Mr. SOLBERG: $2.7 million.

KESTENBAUM: Meaning that's how much money, in theory, is supposed to be coming in from all the mortgages.

Mr. SOLBERG: Yeah.

KESTENBAUM: Wow, so someone originally - someone was holding it, expecting it to be worth a lot more money.

Mr. SOLBERG: Yeah. Somebody - a human being or an institution paid $2.72 million for this, and within very recent history.

KESTENBAUM: And you bought it for $36,000.

Mr. SOLBERG: That's right.

JOFFE-WALT: We buy a piece from Wit for a $1,000. It's going to be our encyclopedia of the financial crisis.

KESTENBAUM: So what the heck did we buy? A toxic asset - she has 2000 mortgages all over the place, a lot in the worst-hit parts of the country: California, Arizona, Florida.

Mr. SOLBERG: Here's a guy, a pretty nice Sarasota place, right.

KESTENBAUM: Can you tell the zip code?

Mr. SOLBERG: Yeah, there's a zip code. Golf-course community, maybe a cul-de-sac - something like that.

JOFFE-WALT: A lot of the people in our bond are really struggling. Almost half are behind on their mortgage payments. Fifteen percent of our homes are already in foreclosure.

KESTENBAUM: And at some point, those homes will be taken over and sold for a loss. Every time that happens, the bond shrinks. At some point, our part of the bond disappears entirely.

JOFFE-WALT: But until then, we get a little money every month from people paying off their mortgages. We just got a check for $141. If we keep getting checks till Thanksgiving, we could double our money.

What's the worst thing that could happen?

Mr. SOLBERG: Next month, they sell all the houses and you guys, you get stuck with nothing.

(Soundbite of laughter)

JOFFE-WALT: So now we're toxic-asset investors. What does that mean? Are we helping unclog some big bank's balance sheet? Are we helping the homeowners?

Mr. SOLBERG: No. You're not helping these people. If you have any reason to purchase this product, the reason is to make money, but...

JOFFE-WALT: Are we helping the people who owned this stuff, that we bought it from?

Mr. SOLBERG: No, because what would have happened was that they'd have to recognize that loss. Ninety-nine - they would have bought for a hundred, and now they've just recognized the fact that they've lost 99.

JOFFE-WALT: I see. So what we're actually doing is we're saying to whoever holds this, you think - you don't know what it's worth, or maybe you think it's worth whatever. And we think it's worth $.02 on the dollar.

Mr. SOLBERG: Yeah. You've raised your hand, and you said it's worth a penny-and-a-half. And, by the way, that's better than nobody raising their hand at all.

KESTENBAUM: Of course, there could be a reason no one was raising their hands. It could be worth less than a penny on the dollar.

JOFFE-WALT: However this investment turns out, we'd like to meet some of our partners in the pages of this gigantic financial transaction. If you bought a home in 2005 in Sarasota zip code 34232...

KESTENBAUM: Or if you've owned our toxic asset, CUSIP number 41161PUA9, let us know. I'm David Kastenbaum.

And I'm Chana Joffe-Waltz, NPR News.

MONTAGNE: In case you're wondering, our reporters spent their own money. Any proceeds will go to charity. If they lose money, well, they lose. You can follow their progress at npr.org/toxic.

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