Broke USA Part 10

At first, Schlein had been feeling optimistic about payday's chances with the voters. He had lived in California, and time and again had watched better-funded referendum campaigns swamp the opposition no matter what the issue. If we have the money, Schlein asked at an early campaign strategy meeting, what was there to worry about? He didn't like the answer he heard. We can run television ads for months. We can do weekly mailings. We can set up phone banks and do robo-calls. But if the other side has the endors.e.m.e.nts of the leading politicians and its top newspapers, they can trump our efforts with one or two good television ads in the final week.

Wooing the state's political establishment was out. The payday lenders were in a bind because they had already failed so miserably on that front. The industry could only watch helplessly as the Yes on 5 campaign trotted out its big political endors.e.m.e.nts, starting with the first press event of the campaign, when two of the state's top Republicans, Jon Husted, the Speaker of the House, and Bill Harris, the Senate president, joined Ted Strickland, the Democratic governor, to endorse a Yes vote on 5. Later in the campaign, Faith and his allies would again show off their bipartisan muscle by convincing the Democratic and Republican candidates for attorney general to call a temporary truce in their campaign and join former AGs who were gathering to condemn the payday lenders and their practices. The payday lenders would win an endors.e.m.e.nt from the Congress of Racial Equality, but though they played that up in press releases and in campaign materials, there was some question about the relevance of this once venerable civil rights organization, whose director, Roy Innis, had joined the Libertarian party in 1998 and endorsed fringe candidate Alan Keyes for president in 2000.

The payday lenders tried looking for friends among the state's newspaper editorial boards, but without much luck. Allan Jones may "still have a lot of hillbilly in him," Jared Davis told me, but it was Jones whom they sent to the Cleveland Plain Dealer Cleveland Plain Dealer to represent the industry in a sit-down with that paper's editorial board. Perhaps no one had explained to Jones that by design an editorial endors.e.m.e.nt meeting generally means facing a small squad of editors and writers peppering a visitor with pointed questions, because Jones, fed up with what he described as "the most hostile questions I've ever heard," exploded partway through the meeting. "Y'all are the most biased group I've ever seen," he yelled at them, and then added for good measure that he thought the whole lot of them were full of s.h.i.+t. "Those people would not listen to reason, that's how antibusiness they are," Jones told me when we met in Cleveland, Tennessee. to represent the industry in a sit-down with that paper's editorial board. Perhaps no one had explained to Jones that by design an editorial endors.e.m.e.nt meeting generally means facing a small squad of editors and writers peppering a visitor with pointed questions, because Jones, fed up with what he described as "the most hostile questions I've ever heard," exploded partway through the meeting. "Y'all are the most biased group I've ever seen," he yelled at them, and then added for good measure that he thought the whole lot of them were full of s.h.i.+t. "Those people would not listen to reason, that's how antibusiness they are," Jones told me when we met in Cleveland, Tennessee.

In Cincinnati, Jared Davis and Jeff Kursman, Check 'n Go's spokesman, were no less disappointed in their hometown newspaper. The Cincinnati Enquirer Cincinnati Enquirer may be the most conservative large daily in the state but the reception they received was hardly warm. "We've been a business leader in this city for nearly twenty years, a major employer," Kursman said. may be the most conservative large daily in the state but the reception they received was hardly warm. "We've been a business leader in this city for nearly twenty years, a major employer," Kursman said.

"Three thousand employees," Jared Davis interrupted.

"Three thousand employees. And what does the editor of the editorial page tell Mr. Davis? 'Look, you can show me all the statistics you want, you can show me all the numbers in the world, but we've made up our minds.'" The two of them shook their heads ruefully. "The whole experience made me wonder about the future of American journalism," Davis said.

"Journalism doesn't exist in the state of Ohio," Kursman sighed. The one newspaper of any size to endorse the industry's referendum was in Lima, a town of forty thousand in the state's northwest corner. "If someone is willing to accept the terms of these loans," the Lima News Lima News wrote archly, "that person ought to be free of government interference to do so." So inside the No on 5 campaign, they crossed their fingers and hoped that the Yes campaign wouldn't have enough money in the final weeks to afford even a decent mailer, let alone television money to trumpet their endors.e.m.e.nts. wrote archly, "that person ought to be free of government interference to do so." So inside the No on 5 campaign, they crossed their fingers and hoped that the Yes campaign wouldn't have enough money in the final weeks to afford even a decent mailer, let alone television money to trumpet their endors.e.m.e.nts.

Ted Saunders is no one's idea of a charismatic speaker. Saunders will tell you that much himself. "I'm a numbers guy," he said when we met in CheckSmart's offices. He's someone who feels more at home poring over a spreadsheet than sitting opposite a foe in a political debate. "I didn't even run for student council," he said. "I was a total neophyte."

But the question was, if not him, who?

The payday ranks were depleted, to say the least. Angry that they had been so soundly defeated in the state legislature, Schlein's organization fired its longtime lobbyist. The head of the Ohio a.s.sociation of Financial Service Centers, whom Jared Davis claimed had done more to bring payday to Ohio than anyone else, also dropped out of sight, presumably another casualty of their loss. Jared Davis proved willing to do as many radio shows as they threw at him, but no TV. "I don't like to do TV because of my Tourette's," he confessed. "My wife says get over it, but I don't like the way it looks so I don't do it." And the rest? Like most other business people in the second half of 2008, they were preoccupied navigating the worst economic crisis since the Great Depression. Ohio was important but it was only one of dozens of states where the big chains had a presence. CheckSmart, in contrast, had its headquarters just outside Columbus and half of its stores were in the state.

So it fell to this mild-mannered technocrat who had only recently taken over as chief executive to square off against Bill Faith and his minions.

"Maybe I'm just a glutton for punishment," Saunders offered with a rueful smile. "I was willing."

Saunders is a slim man with thinning brown hair and the drab look of an accountant who has already spent twenty years on the job. Surprisingly, he was only thirty-five years of age. He in fact had worked as an accountant before taking a job at Stephens, Inc., the investment bank in Little Rock that had carved out a specialty in subprime businesses. While at Stephens, Saunders started doing work for Diamond Castle, a New Yorkbased private equity firm that had raised $1.9 billion and announced in 2004 its intention to pursue "companies which serve the very large 'unbanked' or 'underbanked' population of the United States, estimated at approximately 70 million people." After Diamond Castle paid $268 million for CheckSmart in 2006, Saunders jumped when the new management offered him the job of chief financial officer. "This was going to be our vehicle," Saunders told me. With the purchase of CheckSmart, Diamond Castle wasn't just buying 175 payday and check-cas.h.i.+ng stores; it was securing a platform on which to build.

"Fundamentally you have an entire sector of the population, whether people like it or not, living outside the American banking system," Saunders said. "And so long as those people are not welcome in the conventional banking system, and they're not served by the conventional banking system, there's going to be alternatives. That's just what America is." Using CheckSmart, Diamond Castle would snap up smaller chains as fast as they could, wring out redundancies, and eventually grow into an efficiently run giant of the poverty business. That at least was the theory.

The first challenge Diamond Castle faced in its plan to dominate this corner of the financial universe was that people were generally reluctant to sell because they too saw that there was still big money in the poverty business. "If you went through all our files, you'd see we tried quite diligently to expand this business," Saunders said. "But it was like the Wild West out there among the payday lenders and check cashers and p.a.w.nbrokers. These are people who have no fear and never had any fear." Saunders and his cohorts tried explaining that the industry was approaching a saturation point and, as a consequence, the better-funded, better-managed companies would crush the smaller players. But pretty much everyone they spoke with saw themselves as playing the role of the alpha company in that scenario. "Getting any of them to the point where they thought it made good economic sense to sell the business was next to impossible," Saunders said. By the time the global credit crunch put a sudden stop to their expansion plans, CheckSmart had grown to only around 250 stores, and most of those additional seventy-five stores were built rather than bought.

"It would be a fair statement that in retrospect we didn't have the greatest timing in the world," he said.

Saunders barely paid any attention when the state legislature was holding hearings about payday lending. "We were heading into this terrible economy, which meant more people were going to need this service, not less," he said. "I was thinking [the legislature] couldn't be so clueless as to cut people off just when the need was greatest." His promotion to CEO came at around the time the governor was signing the payday rate cap into law. So Saunders would need to navigate his company through the choppy waters of both a recession and a new regulatory environment at the same time he would take time to tape a segment for Fox News or argue for the industry's survival at small forums around the state.

"The combination of good employees who want to deliver a valued service and a customer who appreciates that service ought to be enough to create a business in America," he said. "But I don't know what's happened to our country." He brought up the new rule that dictated that no Ohioan could take out more than four payday loans in a year. "What if government in their infinite wisdom said you couldn't swipe your Visa card more than four or six times in a year? Well, that's what the legislature did to these other people over here," he said.

Saunders felt he owed it to his investors, his employees, and his customers to take to the stump. "If someone marched in tomorrow and took the company away, I could go do something else," he said. "I can't say that about everybody who works for me. I can't say what would happen to a lot of our customers." Like Billy Webster, Saunders had spent time working behind the counter before deciding to get into the business. "You spend three or four hours, without any cameras around, really talking to the people, and you become one hundred percent convinced that those people wanted the service and needed the service," he said. "But when people hear the word 'payday,' they immediately shut down. They become instantly closed-minded. They think, 'That's toxic, that's bad, that's awful.'

"If you've never had to use the product, it's easy to turn your nose up to it. People think, 'Only a fool. Only an uneducated person.'" And of course the media reinforced those negatives, he said, as did those "supposedly independent consumer organizations."

Saunders asked me if I knew the name Martin Eakes. I told him I did. "Then you understand what's really going on here," he said. I told him I wasn't sure I did. "You've got this group, CRL, which is supposed to be for what it sounds. Consumer protection. But it's funded by this credit union started by Martin Eakes, who just happens to be the head of the CRL. And it's this very same credit union that chased payday out of North Carolina in order to increase their fee revenues."

Saunders was hardly alone in making this argument. I was no more than two minutes into my first conversation with Kim Norris, the woman the payday lenders hired to run the No on 5 campaign, when she brought up the Center for Responsible Lending. "This is an attack on a very young industry that doesn't have the sophistication against this well-organized lobbying effort promoted by the credit unions and their front organization, the Center for Responsible Lending, which will say anything to get their way," Norris said. At the Ohioans for Financial Freedom website, sponsored by the No on 5 campaign, there was an entire section dedicated to "credit unions lies," which concluded: "It's pretty simple: credit unions see payday lenders as compet.i.tion, and they have been spending millions on lobbyists to get their way."

And Bill Faith? To Norris he was "CRL's proxy in Ohio," a tool of the "credit unions who are trying to put their compet.i.tors out of business." To Saunders he was a hypocrite who had no right to call himself an advocate for the homeless. "This is a man who spent more money"-$200,000-"on one TV campaign about his pet issue than he's spent helping the homeless over the last two years," Saunders said. (According to Faith, COHHIO actually spent a combined $2.7 million in 2007 and 2008 on projects aimed at helping the homeless.) Later in our talk Saunders described Faith as "nothing more than a lobbyist who is very good at his job."

Payday lending operators might have seen their industry as young and overmatched, but they were certainly not without resources. The No on 5 campaign paid Strategic Public Partners Group, a Columbus-based political consultancy firm, nearly $1 million for its services and it spent tens of thousands more on State Street Consultants, which the Columbus Dispatch Columbus Dispatch would describe as a "high-powered Columbus lobbying firm that...ruled Capitol Square." They would also pay Fleishman-Hillard, the giant communications consultancy, another $35,000 a month for Kim Norris's services. Through the end of September, they had already spent $1.6 million on mailings and purchased some $7 million in television ads. would describe as a "high-powered Columbus lobbying firm that...ruled Capitol Square." They would also pay Fleishman-Hillard, the giant communications consultancy, another $35,000 a month for Kim Norris's services. Through the end of September, they had already spent $1.6 million on mailings and purchased some $7 million in television ads.

Faith, in contrast, paid Sandy Theis, a former Cleveland Plain Dealer Cleveland Plain Dealer reporter, a flat fee of $7,500 for the campaign, and relied on the pro bono services of his longtime friend and media consultant, Greg Haas. He had the part-time services of the COHHIO staff, just as the payday lenders had their teams, but where the payday lenders spent hundreds of thousands of dollars on polling, Haas had to beg to convince Faith to spend a bit of their limited cash on a focus group. reporter, a flat fee of $7,500 for the campaign, and relied on the pro bono services of his longtime friend and media consultant, Greg Haas. He had the part-time services of the COHHIO staff, just as the payday lenders had their teams, but where the payday lenders spent hundreds of thousands of dollars on polling, Haas had to beg to convince Faith to spend a bit of their limited cash on a focus group.

That single focus group meeting held during the summer would prove critical. For starters they learned that Ohioans had paid extraordinarily close attention to the legislative debate over payday. "We were all basically stunned by how much people knew," Haas said. But most important, it drove home the polarizing power of the triple-digit APR. Any number of the partic.i.p.ants hated this idea that limiting the number of payday loans a person could take out in a year meant maintaining a database that tracked loans by name. "The 'nanny government' stuff really bothered people-until you mentioned the 391 percent," Haas said. "People were suddenly, 'That's theft!'" It was after the focus group meeting, Haas said, that the Yes on 5 campaign changed its name to the "Is 391 Percent Too High? Vote YES on 5 Committee" so that the 391 percent would automatically be stamped on anything the campaign produced.

"Bill decided we just have to keep pounding and pounding on that 391 percent," Haas said.

The payday lenders took more of a scatter shot approach. Sandy Theis saw that as a sign of weakness. "They're changing topics every few days," Theis told me a few weeks before election day, "which tells me they're still searching for a message that has traction." Alternatively, it also could have indicated that their polling revealed any number of weaknesses in the anti-payday argument. As Greg Haas could have predicted, the payday lenders hammered away at the database issue. As written, the referendum wouldn't do anything to change what Ted Saunders called the "Big Brother aspect" of the bill: The state would still keep track of the number of loans people took out in a given year even if the "no" side won. But it was also a potent issue, and so the lenders incessantly ran a television commercial reminding viewers of a few of the state's more infamous data breaches. The industry also played to antigovernment sentiments by slyly making fun of this idea that the law required them to express the terms of a two-week loan as an APR. Imagine, the ad asked, if the authorities required rental car companies to advertise their rates as an annual rate: $10,585 a year for a compact rather than $29 a day. "Maybe they just think we're all stupid," the ad's tag line sneered.

But mainly the payday lenders played to people's fears. "Our polling shows that seventy percent of people are afraid of losing jobs," Ted Saunders had told his fellow payday lenders in Las Vegas. "So we're running a whole lot of ads about jobs." Set to ominous music, one showed a set of grainy black-and-white photos of what at quick glance looked like a kind of postapocalyptic Ohio. Ohio had lost hundreds of thousands of jobs in recent years, a narrator intones. "Is this the time to shut down an Ohio industry and eliminate another 6,000 jobs?" For a time, the No campaign took to calling Issue 5 the "job killing initiative."

That 6,000 number was a fabrication. Ohio had roughly 1,500 stores in the fall of 2008. Some had one employee; most of the rest employed two. Even accounting for an extra 150 roving district and regional managers, it didn't add up to anywhere near 6,000 Ohio jobs. And a restrictive rate cap wouldn't necessarily mean that every payday employee lost his or her job. By August, the state's consumer finance department had received nearly 1,100 license applications from existing payday stores looking to offer alternative loan products should Yes on Issue 5 prevail. People would lose jobs, no doubt, but nowhere near 6,000.

Yet that number grew even more elastic as the campaign wore on. "We're fighting to keep 10,000 good-paying jobs in the state," Kim Norris told an a.s.sociated Press reporter in the final weeks of the campaign. And from that point on, 10,000 became the new 6,000.

It was eleven days before the election, and Bill Faith was sick-he always catches a cold during these big campaigns, people around him told me-and he slurped and sneezed through this first interview. He fiddled with a pen on his desk and also paper clips and random papers. He rocked back and forth in his chair and then bent forward to peek at his BlackBerry. Sometimes he leaned in, it seemed, just to twirl it around. I wanted to hear about the campaign but he was curious to hear from me what it's like to chat with Allan Jones.

"They're evil," he said of the payday lenders. "They're Orwellian evil people. They are people without principles. They deserve to be beaten and jailed. They're thieves." Later he described them as the "new Mafia." They might not break kneecaps, he said, but they charge a higher vig.

Faith didn't have much of a rationale for how the executive director of a group called the Coalition on Homelessness and Housing in Ohio came to devote so much of his time-and his organization's time-to fighting the short-term cash advance business. "People were telling us some seniors were having a hard time paying their rent because they're taking out payday loans to help their kids make ends meet," he said. "People were at risk of losing their housing because of these things." But then he doesn't need to explain to anyone but his board of directors. COHHIO, a nonprofit, receives state and federal monies to help the homeless but those funds are earmarked for specific programs. It's the discretionary money he raises from foundations and wealthy individuals that he uses to pay for COHHIO's crusades, whether it's the fight against predatory mortgage lending or a two-year battle to cap the rates that a payday lender can charge. Over the years everyone from the IRS and HUD to various state agencies have audited him but he's never worried about what they may find. "I have an accounting guy to make sure we carefully segregate all our funds," he said.

In the end, there was no money for a last-minute advertising blitz. The opposition had spent a lot of time talking about Martin Eakes but the Center for Responsible Lending's presence in the campaign boiled down to the part-time help of a sole Durham-based CRL staffer. He proved an invaluable source for data and intelligence on the various payday companies but he hardly served as the campaign's mastermind. "None of the credit unions gave us a nickel," Faith said. "Zero." In the final days of the campaign, the Yes on 5 campaign had only enough money for a single statewide mailing.

But none of that mattered. NEARLY NEARLY 2 2 MILLION OHIOANS STAND UP FOR PAYDAY MILLION OHIOANS STAND UP FOR PAYDAY, read the headline over an Advance America press release posted the day after the election. Unfortunately for the payday lenders, Faith's side collected more than 3 million votes for a landslide 64 percent.

The Friday after the election the Dayton Daily News Dayton Daily News ran a recap story quoting a seventy-year-old Social Security recipient named Evelyn Reese who was disheartened to hear that Issue 5 had lost. "This is a terrible mess for people who live from week to week," Reese said. ran a recap story quoting a seventy-year-old Social Security recipient named Evelyn Reese who was disheartened to hear that Issue 5 had lost. "This is a terrible mess for people who live from week to week," Reese said.

Down in Cincinnati, Jared Davis and Jeff Kursman shook their heads over the News News article. "The media finally quotes one of our customers talking about the value of our product," Kursman said. article. "The media finally quotes one of our customers talking about the value of our product," Kursman said.

"Once it's too late," Davis interjected.

"We never stood a chance," Kursman said.

Sixteen.

Dayton after Dark DAYTON, OHIO, 20082009 On a sunny and crisp autumn day, Jim McCarthy and I were on a driving tour of Dayton. Weeks earlier I had phoned McCarthy to talk about the impact of the poverty industry in one typical midwestern city, and McCarthy, an upbeat forty-three-year-old with bright blue eyes and a raucous Nathan Lane laugh, graciously offered to show me around. At that point I was new to Dayton, so he veered a few blocks out of his way to show me the preserved, pristine bicycle shop where the Wright Brothers built the first airplane to successfully take flight. He made sure I saw the broad lawns and handsome red brick buildings of the University of Dayton and, for a food break, he chose a revitalized neighborhood that would have felt familiar to anyone living in a regentrified section of Brooklyn, Chicago, or Oakland. McCarthy, who was born and raised in nearby Cincinnati, does his best to present his adopted hometown in the most favorable light, but block after block of boarded-up homes and a seemingly endless chain of strip malls dominated by the companies I had been writing about left my head whirling.

I had been forewarned. That morning I had pored over local maps with a woman in McCarthy's office named Anita Schmaltz, plotting possible routes. This was in October 2008 and Ohioans had yet to vote on Issue 5, by which the future of payday lending would be decided. I had told Schmaltz I was looking for neighborhoods thick with payday lenders, check cashers, instant tax companies, and consumer finance shops. She shrugged. If that were my criteria, she said, I might as well spin a dial because it made no difference in what direction we headed.

Schmaltz's finger traced the snakelike path of the Miami River, which bisects Dayton. Heading west meant pa.s.sing through the city's black neighborhoods and, just over the city line, entering Trotwood, whose population in recent years had s.h.i.+fted from nearly all white to majority black. The poverty industry, she said, was particularly well represented in this suburb named, appropriately enough, after a character from a d.i.c.kens novel. A single street in Trotwood was home to no less than six payday shops, along with a Rent-A-Center and a Jackson Hewitt. The prospect of including Trotwood on our tour caused Schmaltz to sigh. That's where she and her husband owned a home.

Heading south would bring us to a set of first-ring suburbs that had fallen on hard times, starting with Kettering. Not long ago, Kettering was a nice middle-cla.s.s community that many within Dayton aspired to. But that was before the metropolitan area experienced seven straight years of job losses, starting in 2001 and culminating with the June 2008 decision by General Motors to shut down the giant truck plant it operated in Moraine, directly to Kettering's west. "There's lots of payday in Kettering," Schmaltz said-and also in Moraine and West Carrollton and several more first-ring suburbs she named. But it doesn't stop there even as one proceeds farther south and begins the climb out of the Miami Valley. Allan Jones may have been the first payday lender to open a store in a newer, more prosperous-looking suburb called Miamisburg but he had hardly been the last. Eight compet.i.tors opened outlets in Miamisburg, along with Rent-A-Center and Aaron's. Jackson Hewitt and Liberty Tax each had two stores in town.

We ended up sticking mainly to the eastern half of the city and a sampling of predominantly white suburban towns. In recent years, the Center for Responsible Lending has released a pair of studies claiming that there is a racial bias to the placement of payday stores. These reports enraged the likes of Billy Webster and Allan Jones and I can't say I blame them. They are hardly the most progressive group you'll ever meet. After the end of a long day with Allan Jones, I commented that Cleveland seemed a very white town. "That's why I can leave my keys in the car with the door unlocked," he answered. I started to muster a response but he interrupted me. "I'm just telling you the way it is," he said. "We have just enough so that our football and basketball teams are good." But the payday industry as a whole seems no more racist in its approach to business than a great white shark deciding between different shades of fish. A few years back, Policy Matters Ohio studied the geography of payday lending in Ohio. They thought they were going to show that lenders target black communities, but in fact the group found almost no correlation between race and store placement, researcher David Rothstein said. "The big surprise was in how payday had really taken off out in the suburbs and rural areas," he said.

After conferring with Schmaltz, McCarthy plotted out a route and pointed his 2002 gray Ford Focus east. We visited a few of east Dayton's more battered neighborhoods and then headed south to begin a loop around some of the city's first-ring suburbs. When I noticed three or four boarded-up homes on a block in the first neighborhood we visited, McCarthy waved off my whistle. "This is nothing," he warned. At the end of the 1990s, people in Dayton had been alarmed that the courts were seeing more than two thousand foreclosures a year in Montgomery County, which encompa.s.ses Dayton and some of the first-ring suburbs. But that number crossed four thousand in 2003 and then again in 2005. The city would be hit by another 5,200 foreclosures in 2008 and there were forecasts of five thousand more in 2009.

The various neighborhoods swim together. There's not really a name to that first neighborhood-the East Third Street community is the best McCarthy can manage-but in a way it made no difference. Each white working-cla.s.s neighborhood was more or less a carbon copy of the other, a pa.s.sing montage of modest-sized homes broken up by corners crowded with representatives of the poverty industry. Census data showed that the people who lived in the second neighborhood we visited, Linden Heights, were generally better educated than people living in the first, but the real difference, at the street level at least, seemed to be the proportion of homes for sale and the particular names of the stores that had taken root there. Both had a Jackson Hewitt and a Cashland payday store but whereas the first neighborhood had two check-cas.h.i.+ng outlets and a Rent-A-Center, Linden Avenue, the main drag through Linden Heights, was home to a Check 'n Go, a CheckSmart, as well as an Aaron's and at least two instant tax shops.

Kettering was a lot like its city cousins except that the drive to or from a furniture rental store was a little leafier and more pleasant. Toby McKenzie opened the first payday store there in early 1997; Advance America and an outfit called Check Exchange opened stores the following year. Another four payday operators established a presence between 2003 and 2006, and Cash America, the p.a.w.n giant, opened a store in a Kettering strip mall. By the end of 2007, Ohio would rank first in the United States in foreclosure inventory and in Ohio (in short order, the state would be surpa.s.sed by Nevada, Arizona, and Florida) only Cuyahoga County (Cleveland) had a bigger foreclosure problem than Montgomery County (Dayton). Statistics like those helped to explain a fall in the average sales price of a home in Kettering from a peak of $160,000 to $100,000 in the first quarter of 2009. Not surprisingly, Kettering and Moraine and West Carrollton offered endless more views of neighborhoods studded with plywood and for-sale signs.

McCarthy took the scenic route along the river to head back north, but even a dramatic change in background offered only a partial respite from the gloom of our tour. He pointed to the vast empty s.p.a.ce where for decades National Cash Register had operated a series of factory buildings. At that point, NCR, which did a robust $5.3 billion in business in 2008, still had its headquarters in Dayton but years ago it moved most of its manufacturing overseas-and then, in June 2009, the company abruptly announced it was moving its central offices to the Atlanta area. Other ghosts hover along the river, including a long list of tool-and-die makers that shut down years ago and a vast, six-story redbrick building now literally filled with junk, like loose mannequin arms and radio vacuum tubes collected by a company called Mendelson Liquidators. Farther north was an old GM radiator plant torn down to make room for something the city is optimistically calling "Tech Town." At the end of 2008, though, it seemed little more than thirty empty acres of good intentions.

Back in the city, more familiar Poverty, Inc. names occupy strip malls and storefronts and even an abandoned Pizza Hut now serves as a Cashland payday outlet. Yet perhaps the most startling sight on this portion of the tour are the bloated carca.s.ses left behind by big-box stores that have abandoned Dayton in recent years, including a Builders Square, a Sun Appliance, and a Walmart. The mammoth sh.e.l.l that Walmart left behind, surrounded by an ocean of asphalt, must have been particularly galling. Dayton city officials had put together an attractive package of tax breaks to draw Walmart to this corner of the city, McCarthy told me, but as soon as the deal's term expired, the retail giant moved several miles north "in pursuit of another set of benefits from a different jurisdiction."

We entered Santa Clara, a white neighborhood that the Dayton Daily News Dayton Daily News had recently featured in a series that took a closer look at the destructiveness of the subprime mortgage meltdown. Here Ken McCall, a reporter with the had recently featured in a series that took a closer look at the destructiveness of the subprime mortgage meltdown. Here Ken McCall, a reporter with the News News, discovered a four-block stretch he dubbed the "ground zero" of the area's foreclosure crisis. It's here in Santa Clara where I learned why McCarthy had previously shrugged at the sight of a few boarded-up houses. On a single block in Santa Clara, fifteen of twenty-eight properties had been sold at auction in the previous thirty-nine months, and an average of ten families lost homes during that period on the other three blocks the News News featured. This was once a solidly middle-cla.s.s neighborhood seemingly built on bedrock. Now anyone can buy a 1,500-square-foot house there for $30,000-if they don't mind the drug dealers who now brazenly sell their wares on a street corner. featured. This was once a solidly middle-cla.s.s neighborhood seemingly built on bedrock. Now anyone can buy a 1,500-square-foot house there for $30,000-if they don't mind the drug dealers who now brazenly sell their wares on a street corner.

McCarthy headed toward Wright-Patterson Air Force Base, a sprawling facility that employs some twenty-two thousand people, most of them young and modestly paid, many of them non-military. He wanted to make sure I saw Huber Heights, and not because this once model suburb built in the 1950s heralds itself as "America's largest community of brick homes." The concentration of name-brand Poverty, Inc. outposts in this one town, which McCarthy dubs Dayton's only truly integrated neighborhood, is at once astonis.h.i.+ng and overwhelming. A partial list includes Rent-A-Center, Jackson Hewitt, H&R Block, ACE Cash Express, Advance America, Check 'n Go, Check Into Cash, CheckSmart, QC Holdings, and Cashland. In all, the state has issued fourteen licenses to payday operators in Huber Heights. CitiFinancial has its offices a few blocks from the town border and it was at a Household Finance in Huber Heights where Tommy Myers said he got "took for a screwin'."

McCarthy lives not far from here and can remember Huber Heights as a thriving community. But the nearby giant Delco factory shuttered its doors in 2007 and all those people he described as earning $75,000 or $80,000 with overtime could no longer make the payment on their $600-a-month gas guzzlers or the adjustable rate mortgages they could barely afford in flush times. "I hate to say it because it's cliche, but it really was was the perfect storm," McCarthy said. "You had all this predatory lending going on at the same time all these people were living beyond their means and overconsuming." When the job losses. .h.i.t, he said, it all turned very ugly very quickly. the perfect storm," McCarthy said. "You had all this predatory lending going on at the same time all these people were living beyond their means and overconsuming." When the job losses. .h.i.t, he said, it all turned very ugly very quickly.

One perspective on how the poverty business has grown so vast in so short a period of time holds that corporate America has so thoroughly chewed up the nation's once-solid middle cla.s.s that the country's poor and working poor were pretty much the last consumer segment left to exploit. Witness the credit card industry: The charge card is barely fifty years old but whereas the country was a collective $20 billion in debt to credit card companies in the mid-1970s, that figure would exceed $600 billion by the end of the 1990s. Looking for fresh fields to harvest and inspired by the profits posted by the pioneers of the subprime charge card, the big banks began peddling credit to those on the economy's fringes.

Elizabeth Warren, a Harvard Law School professor who has written extensively about consumer debt, would learn firsthand about the financial value of the customer who is barely making ends meet. When she was talking with a group of senior executives from Citigroup about how the bank where they worked might lower its default rate by more accurately determining which customers could least afford to carry credit card debt, a man at the back of the room interrupted her. Cutting off our most marginal customers, he told her, is out of the question because it would mean giving up a large portion of the bank's profits. Warren quotes a MasterCard executive who described for her the perfect credit card customer. It's someone who has recently emerged from bankruptcy protection because it will be years before they are permitted under the law to file for bankruptcy again yet they also have what he described as a "taste for credit." (At the end of 2008, Warren would be named chairwoman of the five-person oversight committee Congress created to oversee spending of the $700 billion TARP bailout money.) The tax preparation business has followed a similar arc. For years those running H&R Block, which was founded in 1955 and went public in 1962, were happy to stick to the core business of preparing tax returns for the middle cla.s.s. As long as there was still a long list of cities and towns to conquer, they could simply open more storefronts each year to reliably post the double-digit growth revenues that Wall Street expected. But by 1978, confronting a map of the country that was more or less filled in, Block tried moving into the temp agency business (their logic being that a corporation that earned virtually all of its revenues during a four-month period was already in the temporary employee business) and then in 1980 purchased CompuServe, at the time a computer time-share company. Block even tried getting into the legal services business in a short-lived partners.h.i.+p with Joel Hyatt. But it wasn't until the second half of the 1980s that the company wowed Wall Street with the refund antic.i.p.ation loan. Block's long-stagnant stock price soared by 118 percent over the next four tax seasons.

The subprime mortgage market, however, followed the opposite trajectory. It proved so successful among the working poor that it was reinvented and repurposed for middle-cla.s.s borrowers. These borrowers, because they had deep scars in their credit records, or because they were self-employed and could not produce the W-2s needed to verify their income, or simply because they wanted more house than their income could justify, were offered mortgages on less favorable terms than conventional borrowers. A problem once isolated on Dayton's black west side spread to the white east side and first-ring suburbs and quickly climbed up the hills in search of people living in higher tax brackets. By 2007, every county in the Miami Valley experienced a triple-digit increase in foreclosure filings since 1995-except Warren County, an exurb to the south that saw a four-digit increase of more than 1,000 percent in foreclosure filings.

The cast of companies making these loans changed as well. Subprime pioneers like Household Finance didn't drop out of the game but they weren't the same powerhouses that reigned during the 1990s. Most of the big consumer finance companies, for instance, no longer sold credit insurance, and if they did, they no longer folded it into the princ.i.p.al of a loan and financed it at shocking rates. And while the middle cla.s.s might be perfectly happy to use a subprime product to buy the house they coveted, they certainly weren't visiting some make-believe banker in a box in a strip mall as Tommy Myers had done. The era that Kathleen Keest would call the "third wave" of subprime finance was dawning, and the early years of the new century would see the mortgage broker emerge as a central player in the home loan business, selling to a new crop of companies.

Any list of the most successful third-wave companies would have to include Ameriquest Mortgage, the lender that so aggressively fought Vincent Fort and Roy Barnes in Georgia and the outfit that the Wall Street Journal Wall Street Journal would single out when looking at the role lobbying money played in the subprime meltdown. Ameriquest's founder was Roland Arnall, an Eastern European Jew born in 1939 to a family that survived the war by pretending to be Roman Catholic. In Los Angeles after the war, a young Arnall got his start in business selling flowers on the street and eventually had enough money to start buying real estate. He pounced when Congress eased the restrictions on savings and loans in the early 1980s and then jumped on the mortgage lending boom in the mid-1990s. In 1996, Arnall paid a $4 million fine to the U.S. Justice Department to settle a lawsuit accusing his company of exploiting minority borrowers and the elderly. He declared that he was a changed man and promised that Ameriquest would serve as a model for the industry. In 2006, after raising $12 million on behalf of George Bush and other Republican causes, the president named Arnall the American amba.s.sador to the Netherlands. By that point he had a net worth of $3 billion. He owned a $30 million estate in Los Angeles and a $46 million ranch in Aspen but also proved a generous philanthropist, making large donations to local animal shelters and hospitals and serving as co-founder of the Simon Wiesenthal Center in Los Angeles. would single out when looking at the role lobbying money played in the subprime meltdown. Ameriquest's founder was Roland Arnall, an Eastern European Jew born in 1939 to a family that survived the war by pretending to be Roman Catholic. In Los Angeles after the war, a young Arnall got his start in business selling flowers on the street and eventually had enough money to start buying real estate. He pounced when Congress eased the restrictions on savings and loans in the early 1980s and then jumped on the mortgage lending boom in the mid-1990s. In 1996, Arnall paid a $4 million fine to the U.S. Justice Department to settle a lawsuit accusing his company of exploiting minority borrowers and the elderly. He declared that he was a changed man and promised that Ameriquest would serve as a model for the industry. In 2006, after raising $12 million on behalf of George Bush and other Republican causes, the president named Arnall the American amba.s.sador to the Netherlands. By that point he had a net worth of $3 billion. He owned a $30 million estate in Los Angeles and a $46 million ranch in Aspen but also proved a generous philanthropist, making large donations to local animal shelters and hospitals and serving as co-founder of the Simon Wiesenthal Center in Los Angeles.

Like Household and the other consumer finance companies that preceded them into the subprime field, Ameriquest and rivals like New Century, Option One, and Countrywide Financial did not have depositors like a traditional bank would. Instead these operations arranged what in the trade are called "warehouse lines"-outsized lines of credit for businesses needing access to tens of millions of dollars in ready cash that Ameriquest used to make home loans to individual borrowers. But unlike the consumer finance shops, Ameriquest and its ilk did not hold these loans but immediately sold them at a quick profit to big investment banks like Bear Stearns, Lehman Brothers, or Merrill Lynch. (Sometimes they sold them to middlemen who put together big pools of these loans on behalf of its Wall Street brethren.) Bear, Lehman, Merrill, or other big investment houses on Wall Street would in turn sell pieces of these repackaged mortgages to pension funds, state and munic.i.p.al ent.i.ties, and other clients who thought they were buying something safe and reliable, as the A ratings bestowed on them by the big rating agencies implied. No subprime mortgage lender proved more proficient at this game than Arnall. In 2004, Ameriquest made $55 billion in subprime loans, topping the league tables published by Inside B&C Lending Inside B&C Lending. The company would again rank first in 2005 with $54 billion in subprime loans, $15 billion better than Countrywide Financial, its closest compet.i.tor, and two or three times the loan volume of Household or CitiFinancial.

"a.s.sociates, Household, CitiFinancial, and the Money Store proved to be very good at subprime lending," Jim McCarthy said. "But Ameriquest became the experts at it." Where the old-line companies focused primarily on refinancings and home equity lines of credit, Ameriquest included new financings in its offering.

The three hundred retail offices that Ameriquest maintained in thirty-eight states might have been better appointed than those of Household or CitiFinancial, but Ameriquest at its core seemed familiar to McCarthy and his fellow housing advocates. Early in 2005, three years before personalities on the cable news networks started talking about mortgage-backed securities and credit default swaps, the Los Angeles Times Los Angeles Times ran a story by E. Scott Reckard and Mike Hudson revealing the darker side of this huge lender in its backyard. Ameriquest, the paper reported, seemed little more than a collection of "boiler rooms" scattered across the country, each stuffed with loan agents cold calling borrowers and then burdening them with higher rates than promised and fees they never bothered to disclose in loan agreements. In a suburban Minneapolis office, an agent named Mark Bomchill told of colleagues so eager to cross into six-figure salary territory that they forged doc.u.ments. They were spurred along, Bomchill said, by a "little Hitler" of a manager who hounded them to sell more loans-in between reminders of how easily they could be replaced. Other former sales people told much the same story. It didn't matter to Ameriquest's bottom line whether customers could afford the high-cost loans they were being sold, because they would be off the books long before a borrower defaulted. "Proud sponsor of the American dream" was the Ameriquest motto but Ameriquest paid $325 million in 2005 to settle actions against it taken by forty-nine states and the District of Columbia, suggesting that for many its financings proved to be nightmarish. ran a story by E. Scott Reckard and Mike Hudson revealing the darker side of this huge lender in its backyard. Ameriquest, the paper reported, seemed little more than a collection of "boiler rooms" scattered across the country, each stuffed with loan agents cold calling borrowers and then burdening them with higher rates than promised and fees they never bothered to disclose in loan agreements. In a suburban Minneapolis office, an agent named Mark Bomchill told of colleagues so eager to cross into six-figure salary territory that they forged doc.u.ments. They were spurred along, Bomchill said, by a "little Hitler" of a manager who hounded them to sell more loans-in between reminders of how easily they could be replaced. Other former sales people told much the same story. It didn't matter to Ameriquest's bottom line whether customers could afford the high-cost loans they were being sold, because they would be off the books long before a borrower defaulted. "Proud sponsor of the American dream" was the Ameriquest motto but Ameriquest paid $325 million in 2005 to settle actions against it taken by forty-nine states and the District of Columbia, suggesting that for many its financings proved to be nightmarish.

Ameriquest, of course, was hardly alone in its relentless, reckless pursuit of borrowers and profits. Ma.s.sachusetts Attorney General Martha Coakley singled out Option One Mortgage in 2008 when she sued that company, alleging that it engaged in "unfair and deceptive conduct on a broad scale by selling extremely risky loan products that the companies knew or should have known were destined to fail to Ma.s.sachusetts consumers." The complaint also charged that Option One specifically targeted black and Latino borrowers in its marketing push and routinely charged them with higher points and fees than similarly situated whites. Agents for Option One, it seemed, were particularly fond of "no doc" (no doc.u.mentation) and "low doc" loans and also so-called "2/28" adjustable rate mortgages, sometimes called "explodable ARMs." Often borrowers could afford the monthly payments during the first two years because a teaser rate remained in effect but not once the interest reset at a higher rate. "Brokers and agents for Option One often promised borrowers they could simply refinance before the ARM adjustment," the Ma.s.sachusetts complaint read, "without disclosing that such refinancing was entirely dependent on continued home price appreciation and other factors." Yet Option One did not even make the top three in customer complaints with the Federal Trade Commission. Ameriquest was the clear leader, with Full Spectrum Lending (Countrywide's subprime subsidiary) in second and New Century in third place.

Which subprime lender ranked as the worst? I asked that question of a wide range of people, from the banking a.n.a.lysts I met at an FDIC event in Was.h.i.+ngton, D.C., to the wide array of consumer activists I encountered across the country. Ameriquest was the clear winner in my unscientific straw poll but Countrywide, a latecomer to the subprime sweepstakes, received more than a few votes, and many chose CitiFinancial (Jim McCarthy's pick), New Century, and Option One. The CRL's Mike Calhoun named Countrywide ("you wouldn't believe some of the stuff they were pus.h.i.+ng out the door," he said). Kevin Byers, a CPA and financial consultant whom Kathleen Keest had commended to me as her "favorite forensic accountant" ("he's the only person I know who reads SEC filings for fun," Keest said), cast Countrywide as the "most aggressive" of all the aggressive lenders attacking the subprime market in the 2000s.

Countrywide CEO Angelo Mozilo, as tawny as a movie star, the George Hamilton of subprime mortgage lending, had initially resisted the temptations of the subprime market. But the profits were too alluring and once the company made the jump, Mozilo seemed determined to make his company number one. "Countrywide wanted to lead the market and so they adopted whatever product innovation was out there," said Byers, who runs a consulting firm in Atlanta called Parkside a.s.sociates. They were happy to put people in a high-priced product nicknamed the NINJA loan (No Income, No Job, No a.s.sets, also called a "liar's loan" because it essentially invited a borrower to obtain a loan with virtually no doc.u.mentation) and they paid what they needed to pay to convince brokers to steer borrowers to a higher-cost loan from Countrywide. In 2009, the Securities and Exchange Commission charged Mozilo with stock fraud, citing email messages in which Mozilo himself referred to some of his products as "toxic" and "poison." Mozilo, who had received as much as $33 million in annual compensation and cashed in hundreds of millions in options, was also charged with insider trading.

There were other culprits, of course, starting with all those mortgage brokers willing to accept fees for steering clients into the 2/28 teaser loans they couldn't possibly afford in year three. "The brokers were the drivers, as far as I'm concerned," said Chuck Roedersheimer, a bankruptcy attorney I met in Dayton who specializes in cases involving home foreclosure. They worked on commissions, Roedersheimer said, that could reach 3 or 4 percent of the loan's value if it included a generous yield spread premium-the bonuses a lender gave brokers who steered borrowers into higher priced, more profitable loans. Early on, Option One was among those lenders refusing to pay a yield spread premium, essentially a bribe for putting people into higher-priced loans. "But then brokers stopped sending them business," the Center for Responsible Lending's Mike Calhoun said. "So they turned around and endorsed yield spread premiums because that's what they needed to do to compete." (A study commissioned by the Wall Street Journal Wall Street Journal found that more than half of the borrowers taking out a subprime loan between 2000 and 2006 had a credit score high enough to qualify them for a conventional rate loan.) Mortgage broker might once have been considered an honorable profession, but by the start of the 2000s it seemed nothing more than a quick way to become rich. "Literally you saw people going from used car dealer to mortgage broker," Jim McCarthy said. found that more than half of the borrowers taking out a subprime loan between 2000 and 2006 had a credit score high enough to qualify them for a conventional rate loan.) Mortgage broker might once have been considered an honorable profession, but by the start of the 2000s it seemed nothing more than a quick way to become rich. "Literally you saw people going from used car dealer to mortgage broker," Jim McCarthy said.

Yet the system worked after a fas.h.i.+on-as long as home prices continued to rise at a brisk rate. The broker was happy to put a homeowner holding an adjustable rate mortgage about to reset into a new mortgage if a $300,000 house was now worth $350,000, as was the lender. Everyone earned another fee, and the ultimate stakeholders would even hold collateral that was appreciating in value. There would only be a problem if home prices fell. Without the ability to refinance, people would be trapped in adjustable rate mortgages they couldn't really afford and as more families were forced into foreclosure, prices would fall further, widening the gap between the amount owed on a property and the price it would fetch at a sheriff's sale. Only then would it seem as if everyone had been living in a perversely rosy world.

"Losses were remarkably low given the crazy lending they were doing," Mike Calhoun said, "but that was because they were doing even crazier stuff, putting off foreclosures by refinancing people into even less sustainable loans." The most maddening part, Calhoun said, was that the more lenders loosened their terms, the more it reinforced a perception that there was nothing wrong. Home owners.h.i.+p was on the rise, the stock market was soaring, and politicians on both sides of the aisle were happily accepting campaign contributions from these rich new benefactors. "It was a hard time to say this giant storm is building but it's beyond the horizon," Calhoun said.

In places like Ohio that weren't experiencing the same boom in home prices as other parts of the country, consumer advocates started talking about another problem: appraisal inflation. For Beth Deutscher, an early member of the Predatory Lending Solutions Project that Jim McCarthy helped put together, the case that alerted her to the problem involved two sisters in their sixties, both legally blind and living on a fixed income. The sisters were in a house in such poor shape that the dining room sloped downhill, Deutscher said, and cracks were visible in the foundation. Yet somehow they owed a lender $100,000 after a broker sweet-talked them into signing papers they couldn't read for a loan they couldn't afford. Initially Deutscher, who by this time was running an organization she helped found called the Home Owners.h.i.+p Center of Greater Dayton, read the appraiser's report and wondered if the crazy real estate inflation taking place in other locales had hit Dayton. The house to her seemed worth less than half that $100,000. But the case of the sisters taught her that as bad as waves one and two of the subprime mortgage fiasco had been, there were still new shocks to be had in wave three. Select appraisers, it seemed, were happy to enrich themselves by fabricating a report when a lender needed the justification for an outsized loan.

"With that case it started to become clear that lenders are not afraid to loan more than a house was worth," Deutscher said. "It became all about maximizing the up-front profit and then moving on to the next loan, with no conscience about how that was going to play out."

The big rating agencies would play similarly destructive roles as well-and not out of ignorance, Kevin Byers told me when I visited him in Atlanta. To make his point he grabbed a stack of reports he keeps handy in a desk drawer. One is from Moody's and is dated May 2005. It explores what its a.n.a.lysts called the "payment shock risk" a.s.sociated with the 2/28s as lenders continued to lower the teaser rates to make loans seem more affordable. "The resulting differences in potential payment increase," the a.n.a.lysts note, will have a "meaningful" impact on the financial soundness of these loans. Another, written by two Standard & Poor's a.n.a.lysts in April 2005, explores what the pair describe as the "continuing quest to help keep the loan origination flowing." Lenders are resorting to any number of new products to keep loan volume up, they wrote, including mortgages that mean people will own less of their home over time rather than more and the repurposing of interest-only loans for the subprime market, a product that really only made sense for a rich client who can afford the balloon payment on the other end. "There is growing concern around the increased usage of these mortgages," they wrote.

"It's not like they didn't know that all this was going on," Byers said. "They just didn't want to do anything about it because they had a vested interest." The inst.i.tutions putting together these packages loaded with toxic loans were the very ones paying the credit agencies to evaluate the creditworthiness of the loans, and so the agencies would liberally hand out top ratings while relegating their concerns to the occasional research report. "I think they saw their role as ending once they put the investor community on notice that there are structural issues that they need to watch out for," Byers said. The attorney general of Ohio was among those suing the major credit rating agencies, claiming their stamping of a triple-A rating on high-risk and wobbly securities cost state retirement and pension funds more than $450 million in losses.

Alan Greenspan shares some of the blame-a lot of the blame, according to some. Congress had deputized the Federal Reserve to enforce a sense of fair play inside the subprime market but the Fed chair steadfastly maintained a hands-off approach even as subprime grew from 5 percent of the mortgage market in 2001 to a 29 percent share by 2006. Worse, Greenspan kept interest rates historically low through the first half of the decade-at 1 percent in 2003, the lowest rate in half a century. "I'm sitting there watching Greenspan continuing to lower interest rates," Kathleen Keest said, "and I'm going, 'I thought your job was to take the punch bowl away and you're pouring more rum into it.'" Federal Reserve Governor Edward Gramlich would rebuke Greenspan for showing no interest in investigating the predatory behavior of the subprime lenders.

There were those who said Wall Street was primarily responsible. Their insatiable appet.i.te for these loans-the New Yorker New Yorker's Connie Bruck called it Wall Street's "addiction"-kept everyone motivated. But then one can also fault those wanting to buy small tranches of a mortgage-backed bond for keeping demand high. And to say "Wall Street" is to miss out on a broader range of culprits. In the mid-2000s, it seemed every major financial inst.i.tution in the world had a hand in this dirty business. By 2006, Wells Fargo, through its Wells Fargo Home Mortgage unit, ranked as a top-ten subprime lender, as did Citigroup, which ranked fourth. Was.h.i.+ngton Mutual placed eleventh on that same list and Chase Home Financial, a division of JPMorgan Chase, seventeenth. HSBC, the London-based financial giant that had purchased Household Finance, was number one on the list in 2006 after its subsidiary, Household Finance, regained the top spot with $53 billion in subprime loans. A chastened Ameriquest, which paid a $325 million settlement earlier that year, fell to seventh.

And the big financial conglomerates were hardly the only major corporations to aggressively jump into the subprime mortgage business. The money H&R Block made offering refund antic.i.p.ation loans had apparently given the tax preparation giant a taste for subprime profits because in 1997 it paid $190 million for Option One and in short order transformed it into a top-tier subprime lender. General Motors aggressively entered the subprime market through its GMAC unit, which bundled together nearly $26 billion in mortgage-backed securities in 2006, and General Electric owned WMC, a subprime lender that made $33 billion in mortgage loans in 2006, ranking it fifth on the Inside B&C Lending Inside B&C Lending list. list.

Glen Pizzolorusso, a WMC sales manager, gave a sense of what life was like in the middle of the credit cyclone when he agreed to an interview in 2008 with the radio show This American Life This American Life. Pizzolorusso, in his mid-twenties, seemed to be living the life of a mini-celebrity. He bought $1,000 bottles of Cristal champagne at bottle clubs in Manhattan and rubbed shoulders with the likes of Christina Aguilera and Cuba Gooding, Jr. He bought a penthouse on Manhattan's Upper East Side and a $1.5 million house in Connecticut and owned a Porsche and two Mercedes to get him back and forth. He was making between $75,000 and $100,000 per month and suspected something might be seriously wrong in his life when one month he was paid $25,000 and that wasn't enough to cover his expenses. "I did what YOU do every day, try to be the best at my job," he wrote on a blog he created to defend himself after his story appeared on the radio. He didn't create the rules, he said, and the corporation he worked for had stayed within the law. His sole regret, he wrote, was that he had spent his money so foolishly.

The first overt sign of trouble came in February 2007, when HSBC announced that it was writing down its subprime mortgage holdings by more than $10 billion. The housing market had peaked in 2006 and began its inexorable decline, and in short order HSBC would not be the only large inst.i.tution to announce a loss in the double-digit billions. By the time the banks were lining up for TARP handouts from the federal government in the fall of 2008, the U.S. stock markets had lost more than $8 trillion in value. Finally, the country woke up to the problem that Bill Brennan, Martin Eakes, Jim McCarthy, and others had been warning about for years.

In Dayton, it fell to people like McCarthy and Beth Deutscher and Deutscher's old employer, Consumer Credit Counseling Services, to handle the fallout. The civil courts also absorbed much of the burden; by 2006, foreclosures represented 49 percent of the civil caseload in Montgomery County. Bankruptcy attorneys like Chuck Roedersheimer worked to sort out the mess.

Roedersheimer worked at Thompson & DeVeny, located a few miles from downtown on a street crowded with insurance agents, medical professionals, and fast-food purveyors. There a basic bankruptcy could be had for a couple of thousand dollars. Business in recent months had been very good at Thompson & DeVeny, Thompson told me prior to my arrival in December 2008, but that turned out to be a major understatement. I entered the waiting area in a low-slung bunkerlike building and found no seats. A loud-voiced receptionist called out people's names as if we were all crowded in a bus terminal. The firm has three lawyers, Roedersheimer told me, and they were seeing as many as two hundred new people a month and taking on forty to fifty as clients. He figured he saw two or three clients a day but the other two lawyers (the firm has since added two young a.s.sociates), well versed in the intricacies of bankruptcy law and unburdened by the complexities of the subprime loans that were his specialty, were seeing ten a day.

The phone rang constantly during the hour I spent with Roedersheimer. He