Dear Money

by Martha McPhee

  So when the housing market exploded, a product designed for the wealthy became an asset for just about anyone, servicing those who dreamed tomorrow would bring more—those who never counted on tomorrow bringing less. A Mexican strawberry picker in Bakersfield earning $14,000 annually is loaned all he needs to buy a $720,000 house. The arithmetic was easy: property values could only go up; our homes only become more valuable; we'd refinance and lower our rates once our home's value rose. Banks were on to this. It was an elaborate design but a simple creed: tomorrow was the great American hope, and today there was money to be made.

  And so the lesson continues. I spoke of roads converging. One road was our national belief in homeownership, a notion nurtured since the Declaration of Independence, fortified by President Franklin Roosevelt during the Depression with the creation of the New Deal and the Government National Mortgage Association (or Ginnie Mae) and again after World War II and up to the present. The second road was created by the dot-com bust, followed immediately by the September 11 terrorist attacks and the recession of 2001, which caused the Federal Reserve fund to be reduced from 6 percent to 1.25 percent, an action, Win explained, that led to lower rates or drops in LIBOR (the London interbank offered rate), which is used by banks to set adjustable-rate-mortgage rates.

  The third road was the mortgage-backed-security market with its primary and secondary markets waiting and ready to thrive. Since the cost of borrowing money plummeted, money was easy to get. A house worth $600,000 could now be bought with a mortgage that would have the equivalent monthly payment of a $300,000 mortgage taken out only a few years before. Who wouldn't want to own? Why should the strawberry picker forgo such a chance? Why should the banker let him? The banker, after all, could pass off the loan to a financial institution in the shadow market, which could chop it up and ship it off to China and France and Sausalito, say, and in turn those institutions could hedge with swap options and derivatives and ... And that big, beautiful home with the Viking kitchen and bathrooms so sleek they seemed to belong in expensive hotels—heated chrome towel racks and piping for the shower that looked so elaborate it could steer you to the moon, not to mention the Jacuzzi and the marble bath and the travertine walls imported from quarries outside Rome, quarries once used by Brunelleschi and Michelangelo and Bernini—could be yours.

  Demand for houses skyrocketed. Suddenly everyone wanted to buy a house. Suddenly the American right to homeownership was powerfully recalled, and you were not quite American, not quite up there with the prospering class if, like Theodor and I, you rented. Cheap mortgages made expensive houses cheap, and demand kept the prices going up, up, up. Supply and demand—supply low, demand high—the only equation that means anything on the Street.

  So the fourth road comes into play, the need for capital—the money to be loaned to finance all these dreams. Where did it come from? It came from those investors in China and France and Germany and Waco. Here the roads begin to intersect, an elaborate freeway with exit ramps and on-ramps and cloverleafs. And there you have it: home values rose, homeowners tapped into their newfound wealth, squeezing every last drop of value from their houses. Houses became ATM machines, allowing us the means to fund our desires. Appliances became fancier, trips more exotic, children more numerous—three was the new two, four the new three, credit the new savings. In 2004, when I went to Wall Street, this was the party I joined.

  I lied to Theodor those first weeks at B&B. I told him I was doing research for a story I wanted to write, that I'd be leaving the apartment early every morning for a few weeks, that he couldn't ask me about it. "Mysterious," he said with a big, sincere smile. "A story? About what? You don't write stories." It was Saturday and we were making pancakes for the girls. Behind me was the old life, worn and comfortable and familiar. In front of me was Monday, hard, unfathomable, exhilarating.

  "No questions," I said. He continued smiling, his mind filling with relief, I could tell. His smile recalled the old days, the woman I no longer was. He had always been happy when I went from not writing to writing—as if it justified some truth for him about the creative process, about us. In the past, the smile, the dimples, the knowledge that sat on his lips, had been reassuring, a sign that I'd made it back. Now, however, the smile annoyed me. I was tired of where we existed, the soft hope that things wouldn't always be this way. You see, I could no longer equate tomorrow with hope, tomorrow bringing it as surely as a tide brings water. But I did not say anything, of course.

  Gwen licked at the pancake batter, cocking her left eyebrow as she could do—double-jointed eyebrows, she liked to say to Ruby, lording the talent (and the drama of the gesture) over her. She knew I was lying, but she wasn't old enough to call me on it. I remember being very present in that moment, the way I could be before a big trip to some distant shore—admiring and appreciating all that I would leave behind, as if I might never return. Theodor poured the batter onto the skillet and Gwyneth stood ready with her spatula. Would I come back to this? Would I fail, fall? Would Theodor, once he knew, have me back? I also felt exhilarated and sullied, the way I imagined an adulterer must feel. What if Win was right and I did succeed? What would it be like to earn, unabashedly, so much money? I thought again of the trading floor, the energy I felt, the buzz and hum of the room as it generated so much cash (or, I should say, revenue), here, the epicenter of finance—rooms like this all around the globe, working in sync to create the world's financial rhythms—never sleeping as time crept from time zone to time zone. Lines formed at the corners of Theodor's eyes. He looked tired. I wondered if he too was aware of the toll.

  "You haven't written a story in years," Theodor said. "I'm glad. It always comes again." The it was ours. No identifier necessary. The sum of who we were. Gwen continued to haunt me with her penetrating eyes.

  The party I joined in 2004 was in the secondary market, the market that was making all the capital to finance homeowners in the North, the East, the West and the South while also generating wealth for large companies and countries alike. It was going full throttle. It was around 11 P.M. and the room was packed, champagne flowing, the supply seemingly endless, everyone high, friendly, giddy, welcoming. Interest rates continued their fall. Pop went the champagne cork, a nice loud burst. The ten-year U.S. Treasury yield dropped below 4 percent. The rate environment added to that confluence of favorable circumstances. Champagne glasses were being stacked, one on top of the other, as high as daring would take them. Up, up, up. Employment peaked. The American Dream Down Payment Initiative Act had been signed into law in December 2003, providing $200 million per year to help people with their down payments and closing costs, fueling the furnace. A stream of tiny golden bubbles poured into the top glass and flowed over the rim, spilling into the glass beneath it—a champagne fountain, cascading from glass to glass. The Zero Down Payment Initiative was also signed into law, allowing the Federal Housing Administration to insure mortgages with no down payment, thus generating more than 250,000 new homeowners that year—more fuel. Twenty-five percent of borrowers put no money down. The subprime volume of $2 billion rose 80 percent.

  Have you ever arrived late to a party, a really grand party at which everyone is having a fantastic time, completely wired, knowing that they are on to something? Everyone filled with so much good to say, exuberant with enthusiasm? You want to chug down a few drinks just to catch up.

  Monday morning I arrived, swept up quietly and certainly to the action on the thirty-third floor of B&B and into Win's office, where I sank myself into the mathematical complexities of the mortgage market. For a few weeks I read and listened and learned and observed, watching as my life shifted from the solitary orbit of the writer to the frenetic social universe of the bond trader. I fell into the role like an actress into her part, easily and with confidence. I was a good mimic, wanted to do as they did. I rose at 5 A.M., went for a long jog, donned suits (which I had fun buying), applied makeup, blew out my hair, was in the office by 7 (having kissed my sleeping husband and gi
rls before leaving), paid attention at the 7:30 meeting, shadowed Win while he hovered over his traders at meetings and in his office, gulped down lunch (bought by a lowly—I soon learned the hierarchy—analyst at the command of a trader: "You fly, I buy"), felt the rise at noon, the wind-down at 4, out for drinks with clients at 5:30, home to relieve April, kiss the girls good night, fall into bed by 10, overwhelmed, exhausted, ready to start the whole thing over the next day.

  It took a week to settle into this routine, and there was no time to think about the writing I'd left behind, no time to think about the novel I had out there that was just beginning to get reviewed. I was on that trip to a foreign land, learning (or trying to learn) its language, a total-immersion course, English a sister language, similar but largely different in the way that Italian and Spanish are. Acronyms were cast about with mind-boggling frequency: MBS and TBA and CMOs and CMBSs and ABS and Alt-A. And in the division of the mortgage universe that Win wanted me to focus on, there were Fannies and Freddies and Freddie golds and Ginnies and jumbos, "dwarfs" and "nuggets" and "midgets" and "gnomes." Trades were "done" and "subject." You "hit" the bid and "lifted" the offer. "Axed" indicated something you wanted to do.

  I loved the terms even if I didn't understand them. It made the world real to me, just as I loved to know how to ask directions or indicate needs and desires in foreign languages while visiting other countries. Referred to as the "mortgage universe," it was indeed vast, not a country but a cosmos with its galaxies, planets and stars. In this universe there were basis points and wider/ widening/tighter/tightening, outperforming and underperforming. There were quotes. There was a mid and a bid. People were making markets. People locked markets. People were "going fishing." People were "on the follow" and "throwing the flag." Deals were rinsed, killed, crushed and spun.

  I had my own spinning to do. By the end of the week I had called the university, told them I needed to take a leave of absence. That spring I was scheduled to teach only one class anyway. The department could find an adjunct easily. I lied to them, said I was having a private crisis. How much of a lie was it really? A thirty-eight-year-old woman, a writer no less, with little financial experience, goes to Wall Street to become a bond trader; I'd say that qualifies as a personal crisis, a full-blown midlife meltdown.

  Though I told the university, I had not told Theodor. "You're working hard," he said. "I am," I said. "Are you having an affair?" he asked. "That question's completely out of character for you," I snapped. I wouldn't dignify it with an answer, but I could feel my cheeks flush in our darkened bedroom. "You're running," he said, as though to explain himself, a signifier of infidelity. "I'm approaching forty," I answered. "It's a new year. A New Year's resolution." We were quiet for a bit, the night sounds of New York City drifting through the closed windows. I wanted to tell him then, but I was afraid. Afraid that he'd be mad that I'd lied, afraid he'd lose respect for me, see the truth of whom he'd married. I remembered the night we first met: he was a thief and I a rich girl. How I'd enjoyed that notion, a rich girl being swept into the arms of a bohemian: it formed our story's originating mythology.

  Now I was in love with my proximity to so much money, the staggering sums, small trades in the millions, medium trades in the low billions. "Research?" he asked. "Research," I answered flatly. "Sullivan's coming to town," he said. "Who?" I asked, my eyes closing, sleep pulling me. "From Fort Worth. To see the chalice. I'm ready to show it. He's coming for business." He spoke so casually. Two weeks before, I would have jumped up, turned on the lights, asked a thousand questions, all pointing to when we might see the money to pay that stack of bills. Oh yes, and to congratulate him. I could see that woman, the former me, doing just that, and I did not like her, her desperation, how exhausting it all had been. I would have cared urgently. I tried to care now, in a new way. I did care. I cared enormously. Warren William Sullivan, with his cowboy hat and boots and bolo tie and the money to wipe out our debt and pay the girls' tuition for a year simply by paying Theodor the commission.

  Yet I couldn't muster the truthful enthusiasm, and I knew Theodor would know. But I didn't care about that either, about explaining myself, justifying myself. I had mortgages on the brain—all that I'd read, that I wanted to read—so much of it made no sense. Could I do this? How could money be loaned to people who couldn't easily pay it back? That would be like loaning money to Theodor and me. Who in her right mind would do it? I wouldn't loan money to me. This was the aspect of the party's wired excitement that I was trying to understand. And why would an investment bank find this mortgage, and mortgages like it, an attractive investment, not to mention entire countries: Iceland, China? The stuff I'd read didn't add up. Why would people want loans that would double their debt within a few years? Didn't they know how fast those years pass? Didn't history inform them that markets change, that up is not the only direction? Why would the government encourage this? Care?

  Lying in bed beside Theodor, I was the lie leading her double life. On the machine was a message from my editor, another from my agent. Isn't that how it happens when you travel? A week can seem like a lifetime and everything you've left behind so remote and irrelevant when confronted by the present moment? I recalled a trip to Morocco to write an article for a magazine. Two in the morning beneath a Berber tent on a riad rooftop in the Marrakech medina, a North African breeze blowing over me and a fingernail moon suspended in the sky like some kind of punctuation mark. A man on the street below played a song on a horn, a beautiful piercing song, for a long time, a call to wake the people, to remind them to eat before sunrise, as it was Ramadan. I had felt so far away, so happily far away from the girls, from Theodor, the demands. They existed in a different lifetime, though I'd been gone only three days.

  I kissed Theodor and told him I wanted to see the chalice as soon as he'd show it to me, and did he want me to come when Sullivan visited the studio?

  Then he asked, "Where have you gone?"

  Here: to the mortgage universe. I was being trained to trade pass-throughs, agency fixed-rate mortgage-backed securities. This was where Win had started; it was one of his specialties, the universe of Ginnies, Fannies, Freddies—conforming mortgages backed, or quasi-backed, by the government. He was clear and firm in his expectations. Immediately I learned to run a roll; within a month I was writing a daily commentary detailing flows, performance, the desk views on the market:

  The mortgage basis traded notably well into yesterday's uptrade, amid heavy two-way flows. While we did see some profit taking from domestic real money ahead of payrolls (in 5.5s and 6s), there doesn't feel to be a lot of basis longs left in the market. Despite the largest origination day in weeks ($1.25bln, mostly 6s), flows on the day were heavily skewed toward the buy side, easily absorbing the supply.

  A far cry from the narrative concerns of Generation of Fire, which, by the way, received a daily in the paper three weeks into my stint on the Street. A glowing, if mixed, review with a few excellent pull-quotes, a review that would have made my year, the editor and the agent congratulating me, a call from Lily Starr and Will Chapman, my mother and father, my brother, explanations of a bad pub date for the delay in attention (too much competition with the heavy hitters pre-Christmas), followed by a well-placed Sunday review, questions about what was next, what I was working on, and over me the settling of a tremendous relief, not because of the reviews but because of the new freedom from the urgent concern: my life, my welfare depending on those forces that were designed by the Great Unknown. Radalpieno had been right. I was free. I did not want to do that anymore—pull nothing from nothing to make nothing:

  As expected, another 3bp rally in the 30y mortgage rate caused some heartburn among convexity accounts, and we did see some risk reduction late in the day after the month-end uptrade held...

  If the days were defined by numbers, yield curves and the rest, the evenings were defined by the clients: middle-aged men with wives, families, expensive homes, daughters who longed for front-row seats to the Hil
ary Duff concert. The conversations, over drinks, were decidedly not about the numbers. Rather, they were designed to build trust and adoration. You went to the bars for that post-work wind-down so that your personality could shine. "We're all selling the same bacon," Win said to me in his office, the light fading with the day. "I thought we were selling used cars," I said. He smiled. "Today it's bacon we're selling, and it's all the same. Nothing fancy. Nothing organic. Just the same old bacon with nitrites that tastes good, that's consistent. We're all selling it. So why are they going to buy mine instead of yours? Here's why: I talk about the kids, ask how they're doing in school, how's Marjorie, the new addition, the trip to Aspen, did they get into Cache? I pull some strings, get the kids front-row seats to Hilary Duff. And why do I know about her? I'm a single man, interested in women and money and planes. I know about her because I need to know about her, just as I need to know about munis, LIBOR, midgets. Sure, there's some idea generation, market discussion, flow of information. But they also come to me for the bacon because they like me, because I know. That's all I've got on the other guy. I've earned their trust, so they believe what I tell them."