Wall Street Banker Turns Toxic Asset Sleuth Wit Solberg is a sort of "toxic asset detective." After a career on Wall Street — where he was part of the industry that helped create toxic assets — Solberg now works in Kansas City, helping small banks unravel the investments they have bought.
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Wall Street Banker Turns Toxic Asset Sleuth

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Wall Street Banker Turns Toxic Asset Sleuth

Wall Street Banker Turns Toxic Asset Sleuth

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MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris. We know that many of the biggest banks are teetering under the weight of toxic assets - complicated pools of mortgages and other debts. Less well known is the small community banks that also bought these toxic goods. As part of a collaboration with Chicago Public Radio's "This American Life," NPR's David Kestenbaum spent time with one man who's trying to clean up the mess.

DAVID KESTENBAUM: If there's any doubt that the problems of Wall Street have reached Main Street, I'm here to report: It's all true.

Mr. WIT SOLBERG (Head, Mission Peak Capitol): The building is 1908 Main Street. It's in this crossroads area of Kansas City which is…

KESTENBAUM: This is the new office of Wit Solberg. It's the first time he's worked below the 30th floor. Solberg is a kind of toxic asset detective helping unravel these complex things. Of course, there's only one way you can get chops like that. Solberg worked on Wall Street in the industry that created these kinds of securities. Last summer, when Solberg moved back home here to Kansas City, he was shocked to find a small bank in town owned toxic assets. It was as if the animals from the Wall Street zoo had escaped and hidden in bank vaults halfway across the country. He found himself driving around the Midwest on a kind of toxic asset road trip.

Mr. SOLBERG: Most of the banks that we've been working with we've never heard of before. Nobody has ever heard of'em before. And so, we'll drive through, and as you get closer to the town, you start seeing the branches of the banks. So you're like, oh, there it is. And so, we get out of the car and we take a picture of the branch of the bank and say, look, the bank is actually for real.

(Soundbite of laughter)

KESTENBAUM: These small community banks typically made local loans to people they knew. And maybe they bought some Treasury bonds. But then one day, a broker came to town.

Mr. SOLBERG: These guys, they're brilliant salesmen. They'll come in and they'll be like, look what Wall Street's created to get yield. And it has this credit rating on it.

KESTENBAUM: A good credit rating - triple A.

Mr. SOLBERG: It's got the best credit rating on it. And nobody wanted to admit they didn't understand it. Because if you didn't understand it, it was sort of like admitting to somebody you didn't understand how to use email today.

KESTENBAUM: Most of the local banks seemed to be fine. But the others? It's the same story over and over. They tell Solberg, we've got this thing that has plummeted in value and no one will buy it. Often, they just want him to find out what it is they really own, or figure out what it might be worth. They'll give him basic information and sometimes a huge complicated legal document that came with the asset, if they have it.

Mr. SOLBERG: They'll produce, like, a receipt that's got less detail than a Costco receipt, right? Like, it's like, it'll say - bought bond, you know, $10 million, like Dec. 4th, you know, 2005. You'll just be, like, and this is all you have? Well, yeah, you know. And we've been getting payments, see, look, we've been getting payments every quarter. And you're like, yes you have. But the real big payment comes at the end - that's when you get the $10 million you paid, you get it back. And that's the real big story here, is whether you are going to get it back.

KESTENBAUM: Solberg's office here in downtown Kansas City is pretty spare: A few desks with flat screen monitors, a large potted plant. Toxic assets come in all shapes and sizes. But, in general, wrapped inside is money someone promised to someone else — mortgage payments, maybe credit card debt — something that is beginning to go bad or that people worry will go bad. The detective work usually begins with something called a CUSIP number - an ID for the asset, nine digits or letters.

Mr. SOLBERG: Eight, nine, six…

KESTENBAUM: Solberg, or someone, punches it into the computer - a Bloomberg terminal that has access to financial data.

Mr. SOLBERG: You go to Bloomberg, you get your CUSIP and you get this.

KESTENBAUM: What is that?

Mr. SOLBERG: It says, not priced, some other stuff, market quote. And this is where you find the bad news, which is that it's private.

KESTENBAUM: That's really bad news. Most CUSIPs have lots of information available when you type them in. You can actually see that a homeowner with a million dollar mortgage is 60 days past due, or that a third of the mortgages in the pool are in California. But private deals? There's none of that. The screen is basically blank.

Mr. SOLBERG: When it's private, you're not going to get collateral description. You're not…

KESTENBAUM: We won't know that these are houses in Florida, or a building in New York, or what?

Mr. SOLBERG: Or loans to Brazilian companies.

KESTENBAUM: Sometimes they'll call up the guy listed on some documentation for the asset only to find he's been fired, or the company just doesn't exist anymore. Which means, in Solberg's line of work, this is what passes for a good news phone call to a client.

(Soundbite of phone ringing)

Mr. SOLBERG: Right now, I'm going to call this lady (unintelligible) speaker phone.

KESTENBAUM: The woman works at a small bank in the Midwest. The bank had thought its toxic asset was worthless.

Mr. SOLBERG: Hey, it's Wit.

Unidentified Woman: Hi, Wit.

Mr. SOLBERG: Did you get my e-mail? Well, I got some good news.

Unidentified Woman: Is it good?

Mr. SOLBERG: Yeah. It's not like you're paid off, but, like, now we - you know all the stuff we have been trying to hack through to get from them?

Unidentified Woman: Uh huh.

Mr. SOLBERG: Well, we got it.

Unidentified Woman: Fantastic.

Mr. SOLBERG: We're talking like thousands and thousands of pages stuff. I have an honest to God document from RBC. It's signed by a human being - can you believe it?

KESTENBAUM: This is success. He didn't get them their money. He found a document that proves they haven't lost everything just yet. In the evening, when the phone calls were over and the street lights came on outside, Solberg and I got to talking about how he was part of the industry that made these kinds of things, and then blessed them. And how he's back in his hometown now, trying to sort through the wreckage.

Mr. SOLBERG: There's a small part of me that says, serves you right because you help make these things. Well you know, you know, in fairness to…

(Soundbite of laughter)

Mr. SOLBERG: I never made a subprime loan. I never supported the subprime stuff. I actually looked at it and I'd say, this is nuts. I would…

KESTENBAUM: But you made these complicated structures.

Mr. SOLBERG: We made complicated structured (unintelligible). And you sold them - and we sold them to people who knew that - what they were buying.

KESTENBAUM: I guess, I'm asking is there some - can we make something that's just too complicated that we should never make?

Mr. SOLBERG: Yeah, absolutely. I think that's - there are pools of bonds that own pieces of this bond in it, that have a whole new other layer of rules attached to it. So I can have stacks of books to the ceiling that I have to drill through to figure out what it's worth. Yeah, it's too complicated.

KESTENBAUM: The thing about these complex financial structures is that they work fine when everything's going well. Everyone who puts money in gets paid back, or most do. And as the mortgages get paid off, this tangled knot just disappears. It swallows itself. But a lot of these things just were not made to go bad. They don't fail gracefully. The strange thing about this story is that these little banks Solberg has seen, they're fine. If they bought toxic assets, it was a small fraction of their investments. The big banks, though - the ones that were best equipped to understand this stuff? They're the ones that are really in trouble.

David Kestenbaum, NPR News.

NORRIS: And you can find more on the bank crisis on our Planet Money podcast and our blog at npr.org/money.

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