"Every Pirated Copy Represents a Lost Sale"

I want to talk about the financial impact of piracy today. First, I'll give you this quote from Slate:

Much of the debate about SOPA and PIPA has thus far centered around the entertainment industry’s absurdly inflated claims about the economic harm of copyright infringement. When making these calculations, intellectual property owners tend to assume that every unauthorized download represents a lost sale. This is clearly false. Often people copy a file illegally precisely because they’re unwilling to pay the market price. Were unauthorized copying not an option, they would simply not watch the movie or listen to the album.

So, let's talk about lost sales. That's what this whole SOPA/PIPA fuss is all about, right? Studios claim that they are losing money and if piracy continues unchecked, studios will lose a lot of money. Piracy apologists counter that studios are making record profits, and the effects of piracy are minimal, and might even be beneficial.

In their estimates of actual monetary losses, the MPAA paid for a study that was conducted by L.E.K. Consulting. The study examined and tried to calculate the toll piracy took from the industry. I have not read the entire report...but let's be honest, you haven't either.

However, a few people who actually did read the report (including the venerated libertarian think take the Cato Institute) seemed to think these numbers were complete bullshit. Even me, the lonesome anti-piracy crusader, had expressed some doubt.

Then I thought about it for a bit.

A couple months, actually.

Turns out, maybe the one-to-one sales loss isn't so crazy after all.

To demonstrate, let's do a thought experiment. If people are right, and they use the "well, I pirated it because I wouldn't have paid to see the movie anyway" excuse, if we remove piracy from the equation the "no net loss" argument should still hold up.

Because that's what they're claiming, right? That generally there is little-to-no net loss due to piracy?

Let's say Mike wants to watch a movie. He kinda' wants to watch A Few Good Men, because he heard it was pretty good, but he's not like, really super-interested in watching it. It just sounds interesting.

In a world with piracy, Mike could either torrent the movie or find a streaming site -- super easy. He wouldn't even have to get up off of the couch and the movie would be up and running in a couple of minutes.

But what if there were no piracy?

He could still see the movie if he wanted to. He could buy it on Amazon and watch it instantly ($9.99). He could buy it from iTunes and watch it instantly ($9.99). He could sign up for Netflix  and have the DVD delivered to his house ($7.99 a month after free trial). He could stream it through Gamefly ($7.98 a month). He could rent it from a Redbox kiosk ($1.20, if you can find it). He could buy a used DVD on Amazon or eBay (under $5.00). Or he could rent it from one of those antiquated buildings called a video store (under $4.00).

But maybe he doesn't want to wait, or it's just too damn expensive (because $5.00 is a lot of goddamn money).

So instead of watching that Academy Award-nominated "masterpiece," he decides to do something else with 138 minutes of his life.

Here's where the thought experiment really kicks in -- can you find Mike an activity that does not represent a "lost sale"? Remember...there is no piracy allowed.

Maybe he'll play a video game (which he purchased). Or watch some TV (which pays broadcast rights and also generates advertising revenue). Maybe he'll just listen to some music (which he purchased legally) or watch a movie he already owns (and purchased legally). Maybe he'll watch some YouTube videos (that generates advertising revenue for Google, and they have partnerships with content creators) or catch up on a show like The Daily Show or South Park (both online, both generating ad revenue) or watch something saved on his DVR (which is subscription-based, and has commercials that many people still watch even though they don't have to).

In every scenario above, the content creator is making money that they wouldn't be making if Mike chose to watch a pirated movie. At some point, somewhere down the line, a sale is being lost due to piracy.

You can quibble about the amount, but maybe those claims by the MPAA and RIAA don't sound so ridiculous after all.

"But hang on a second," you bleat. "What if, instead of being cooped up in a house all day like a pale friendless neckbeard, Mike decides to go work in the yard? Or go for a walk? Or play with his son? Or go to the park? Or build a bookshelf in his garage?"

If you thought that, congratulations! You've fucking failed!!! If Mike had wanted to do those things he would have done them. Remember -- Mike wants to watch a movie, not fucking re-create a scene from Leave it to Beaver.

A person who wants to consume media actually wants to consume media. Sounds counter-intuitive...I know.

So if Mike wants to watch Jack Nicholson yell his way out of a cross examination he can do so legally...but admittedly those avenues are a little hit and miss right now. There are all kinds of weird varying costs, blocked countries, arcane release windows, and a poor selection of titles available.

See, online content distribution is a relatively new medium -- it's going to take time to find the right balance between profit and sustainability. This includes problems with worldwide distribution rights, release windows, exclusivity, broadcast deals, et cetera. When entering a market like this, it's hard for any business to wrap it's heads around an appropriate business model.

For example, in the field of home entertainment (leaving box office numbers out of the equation), movies and television shows cost about the same to produce as major release video games. When purchased new, the price point for each is about the same, with newly released video games costing $59.99 while new Blu-Ray DVDs cost $49.99. Yet, the highest grossing Blu-Ray of all time was Avatar, with 2.7 million discs sold. Compare that with a recently released video game, Modern Warfare 3...which sold almost three times that amount in the first 24 hours alone.

Obviously people don't want to pay too much for a movie. Movies engage the consumer for 2 or 3 hours max. Video games can engage the consumer for over 75 hours. The market for each home entertainment product is totally different -- typically people want to buy video games and rent movies.

So, what's the fair price for an online movie rental?

If you think that price is $0.00, then the "no net loss" argument holds water. You'd also be completely wrong, and shut up. Last night I paid $3.99 to rent the movie Wanderlust from Amazon.com (and you should too...because it's fucking hilarious). I think that's a fair price...and I felt good about myself after watching it, because finding it for free online would have been soooo goddamn easy.

What I'm saying is...I understand how hard it is to avoid piracy sometimes. I've struggled with it. The guy who writes The Oatmeal struggled with it (and lost). The guy who composed this image struggled (and lost). But I think we have a responsibility as consumers to give these companies (who create things that so many people enjoy) the benefit of the doubt, and try to pay for the content we consume...even when it's really hard to do so.

Shit...it happened. I'm moralizing. I hate moralizing. 

For the record, I'm not judging you if you've pirated stuff in the past. I really honestly don't care. Just...for the good of the industry I'd like you to consider the other options first, especially if you can afford it (and you all can).

The New York Times' Arcticle about TV-Shack.net

Goddammit.

Okay, I read this article today...and I rolled my eyes at the first goddamn sentence:

"Richard O’Dwyer, an enterprising 24-year-old college student from northern England, has found himself in the middle of a fierce battle between two of America’s great exports: Hollywood and the Internet."

This bullshit has to stop. Seriously. Stop. There is nothing enterprising about this guy. He wasn't the first or the best internet pirate. You could make an argument that someone much larger was a better internet pirate.

I mean, where was your $18 million dollar mansion, Rick?

Good lookin' out, bro.

I also rolled my eyes at the next paragraph.

"Although the site did not serve up pirated content, American authorities say it provided links to sites that did."

Right. It provided links...to illegal content (and only illegal content).

Legal question: let's say a person wants to publish a "drug dealer directory." So they contact local drug dealers, have them purchase advertising space (like the Yellow Pages), then they publish the directory. On top of that, they sell advertising space around the drug dealer contact info. Is that legal?

Legal answer: no. It isn't. It's called aiding and abetting, and provided the defendant "has knowledge of the crime before or after the fact, and may assist in its commission through advice, actions, or financial support" it is against the law.

Shit.

I knew this article was going to be a struggle to finish. Luckily, the rest of the was a kind of top-down look at piracy, chock full of quotes from O'Dwyer's mother.

Yeah. His mom. That's some amazing, un-biased journalism right there -- well done.

First, let's talk about tv-shack.net, which is the website that Mr. O'Dwyer ran for several years. I can't talk about the specifics regarding my role investigating this site over the years, but like all anti-piracy industry professionals, I was was familiar with this site while it was active.

But I can talk about the site.

tv-shack.net is what is known in the industry as a "linking site." These sites are the middle-man sites that allow users to locate content -- this is so everyone keeps their hands clean.

If any of you have seen "The Wire," you can look at it as a drug sale. One guy takes the order and collects the money. Another guy (usually a juvenile) gets the drugs and gives it to the customer. Later, after all of the money has been collected (and away from the prying eyes of the police) it is then distributed to the underage runner.

This way, there is no direct exchange of money for drugs. At least...not in plain sight.

Linking sites work the same way. They take the order while someone else delivers the content. The site can then claim that only the users posted the links, and because of safe harbor, the site owner is not responsible.

In instances like this, typically that's a bullshit argument.

If you're wondering what an "Internet site dedicated to infringing activities" looks like, look no further than tv-shack.net. At its peak, the site had links to hundreds of TV shows and movies (all infringing). It did not appear to offer legitimate user-generated content (as can be found on YouTube) -- everything belonged to someone else.

This is what the front page of the site looked like in 2009, courtesy of crunchbase.com. Do you buy the argument that "some" links were infringing? Or is it more likely that "every single goddamn link on the site" was infringing? Do you see any original content here, or even any attempt at indicating there is original content available?

LOL thumbnail!!!

These site operators know what they're doing; they know what they are doing is illegal, so they attempt to hide behind what they perceive to be legal grey areas (such as safe harbor) without fully complying with the DMCA (such as being required to designate a DMCA agent if you can afford to).

And could he afford it?

Yeah. He could. It costs $115. O'Dwyer made over $230,000 from advertising revenue on tv-shack.net, and the site operated from December 2007 to June 2010. That's over $92,000 a year. That might not seem like a lot to you rich motherfuckers out there...but this was all done while he was a full-time student at Sheffield Hallam University...so he was basically running TV Shack in his spare time.

How much of that $230,000 did he give the studios to distribute their content? Probably about the same amount you and I did.

How much did the movie industry lose? That's a hotly contested topic, but helpfully, Mr. O'Dwyer gives us some idea:

The Justice Department examined the site on June 15, 2010 and found that the most popular films were “Sex in the City,” with 37,000 views and “The A Team,” with 29,000. They were both playing in theaters at the time, the authorities concluded.


Helpfully for the authorities, Mr. O’Dwyer also did the math for his users, spelling out, according to the Justice Department, exactly how much money its users were saving. It reminded users that they could have spent up to $10 on a movie ticket, $10 on "a typical US nacho-Coke or popcorn-Coke combo," and another $5 on "typical US parking."

 Dumb.

So, if he's a UK citizen, and all of his crimes were committed in the UK, why is he being extradited to the US?

Well, firstly, the films pirated by tv-shack.net were mostly US films (as the screen capture shows). Pirating these shows put him in violation of US law, and we have a nifty little extradition treaty with the UK. Other web operators with the same business model as tv-shack.net have already been convicted.

He is not going to rot in jail. If convicted, he's going to spend up to 2 years in jail for his illegal activities, then he can go back to the UK, where he can continue "playing Super Mario games on his computer."

Oh, and Jimmy Wales? Please just shut up.

How I Personally Caused the Financial Crisis (part 3)

This is the last part...unless I decide to write another part, which is unlikely.

This part is about Washington Mutual...re-branded as WaMu at some point in 2006, then again as "Chase" when the company went tits-up in 2008.

I worked for WaMu for over 2 years -- starting as a temp in 2004, then as a full-time employee until 2006...when I was laid off.

I enjoyed my time at WaMu. I worked with great people, including two of the finest managers I've ever worked for. I was grossly overcompensated for the position I maintained, but I felt valued, and I felt that I made valuable contributions. In spite of the flip title of this series, I do not think I can be held truly accountable for WaMu's demise (which led to further collapses).

No, that distinction goes to three WaMu executives who really screwed the pooch, broke the bank, and helped ruin the US economy.

 

The first, of course, is Kerry Killinger...CEO and Chairman of Washington Mutual starting in 1991. I don't blame him entirely -- he ran a very good company for over two decades, and made some shrewd business decisions in that time. Washington Mutual was a fantastic bank with a good reputation locally, and it was starting to expand nationally with well-timed, ambitious acquisitions. It had one of the best retail banks in the nation, and its mortgage division was growing rapidly.

Unfortunately in 2005 Mr. Killinger decided to hire some New York asshole named:

Stephen Rotella, who is the second guy I blame. I actually think he was the most responsible for the collapse of the business. Honestly...all I have to do is show you a picture of the dude's face. I mean, just look at it:

Ugh.

Shortly after I was hired full-time, I remember, reading that long-time executive Deanna Oppenheimer was leaving the company in 2005. She was a well-liked, highly valued member of the company with deep Seattle roots. I never met her personally, but she seemed incredibly competent and (as it turns out) she was heavily responsible for the success and growth of the retail bank.

Unfortunately for WaMu, in 2005 she made the incredibly prudent decision to work at Barclays...which is the 4th largest bank in the entire world.

In her place Kerry Killinger hired that above-pictured jag-off from New York, who had worked as an executive at JPMorgan Chase for a couple of decades. Once he got to Seattle, Mr. Rotella immediately set about attempting to convert WaMu from a well-liked, local-feeling, friendly thrift bank into a soulless multinational corporation full of money. And it might have worked too...if the economy hadn't collapsed into a pile of shit beneath his feet -- quite a bit of which was shit of his own creation.

Mr. Rotella hired the last guy I blame -- David Schneider; also from New York and JPMorgan Chase. Mr. Schneider was brought in as the new "President of Home Loans." A few months before I was laid off I attended an event introducing David to the "WaMu family," where he was set to give a speech to the adoring faithful.

During his presentation, he looked and sounded a bit like Ray Romano...and he joked about the difficulties of moving to Seattle, made lighthearted comments about the weather, and poked fun at Seattle's sports teams.

Needless to say, I did not like him. At all.

Here's a video of him getting "grilled" by Senator Levin: http://www.youtube.com/watch?v=XvFBJVhNpiM

Ahhh....schadenfreude.

So what did those three guys do? How did they screw things up?

I don't know specifically...since I was not privy to any meetings at the "executive" level. But there are hundreds of articles online detailing the shady lending practices at WaMu, and explaining the decisions that led to the company's eventual demise. Drew DeSilver wrote a very good two-part series for the Seattle Times. If you want a macro view of what happened, you ought to read that...because all of that shit is beyond my purview.

Hell, if you want an even better examination of the collapse, read "The Lost Bank" by Kirsten Grind. I mean, I haven't read it (though I plan to), but I hear it's pretty good.

What I will detail for you is my own "micro" view of what happened...drifting out from my lowly position in a cubicle near a window on the 6th floor of the Washington Mutual Tower.

My first hint that things were not right with the company was when my manager Paulette (one of the finest people I have ever worked for) was going over the details of a loan with me. She was perplexed by something, and whispered aloud:

"What are we doing giving a $1.5 million dollar low-doc Option-ARM to someone with a 587 FICO?"

I didn't know what she was talking about...but it turns out it was a good question....a very, very good question that should have been screamed at the upper management repeatedly.

But it was a question that, apparently, no one else was asking. And if they were asking it, no one was actually doing shit about it.

To explain, low-doc was the WaMu term for a "Stated-Income Stated-Asset" loan...also known as a liar loan. 

An Option-ARM loan is a loan with four monthly payment options -- the minimum payment (you pay a very small amount, essentially losing equity via negative amortization), the interest-only (you only pay the interest, and build zero equity), the 30-year fully amortized (the standard payment option) and the 15-year fully amortized (for people with too much goddamn money). This product was created to give the borrower options -- say one month they had to get car repairs...all they had to do was pay the "minimum payment" for one month, then return to normal payments the next month.

Easy peezy.

Gone were the rigid confines of a set monthly payment. Payments were now fully controlled by the borrower! Huzzah!!!

At least, that's how it was advertised. I should know -- they pitched me the product at my employee initiation. At the time, I thought it sounded like a pretty good idea...because I was a stupid 25 year-old idiot who didn't know a damn thing about home loans.

Because, what the loan officers probably failed to tell you was that you could only go up to 110% of your original loan amount using the "minimum payment" option. After that, you had to start paying the full amount and then some. Stupid doing what stupid does, a large number of people (up to 80% by some reports) only payed the "minimum" amount, expecting their situations to improve or their home values to go up.

But situations for everyone deteriorated rapidly. Home prices sunk like a rock. Many people lost their jobs. And many more people lost their homes. 

Bing bang boom.

But like I said, WaMu loved that Option ARM bullshit. It was, by far, the most popular product we offered. I should know -- our group looked at a lot of the loans that came through the pipeline. A large percentage (some reports say up to 55%) were Option ARMs.

Upper management was pushing this product hard. The group situated next to ours was the crew that published the daily rate sheets. More and more we could see that the credits standards were being relaxed. Penalties for low FICOs were being eased. Penalties for Low Doc loans were also being removed. I wish I'd have saved some of those sheets, because the permissiveness (compared to today's market) was fairly absurd in retrospect.

Speaking of things I wish I'd saved, I remember reading an internal Q&A from Mr. Rotella (or perhaps it was Mr. Schneider) that talked about the company's intended shift from A-Paper (good) loans to Alt-A (shitty) loans. The executive answering questions (either Rotella or Schneider) seemed to think it was a splendid idea. The question was something like, "Are we still going to be pursuing A-Paper loans in our portfolio?" To when the executive responded with something to the effect of "We will be significantly scaling back our A-paper mortgages, and aggressively pursuing exciting opportunities in the Alt-A and subprime markets."

I feel like I printed that out or saved it somewhere...but I could be wrong. I don't know...I've moved a lot and I have a lot of new computers. I feel like printed out a page with Steve Rotella's head, surrounded by all of the shitty quotes I could find from his terrible business decisions.

Of course, speaking personally, the most damaging change that Mr. Rotella made was the decision to send our group (along with many other regulatory oversight groups and loan processors) to a "low cost" area in Columbia, South Carolina.

This move cost me my job, along with the entirety of my over-inflated salary.

I had the "pleasure" of visiting Colombia to train my replacements.

Now, one of the side-effects of a move to a "low-cost" area is that you have to hire local, "low-cost" employees. I mean...I'm not saying that everyone in Columbia was dumb...I'm just saying that the people who were taking over my job were dumb. While I was there, I gave a very simple presentation, which was met with a lot of glassy-eyed stares.

There were competent folks among them, sure...but most of those competent folks came to Columbia from other parts of the country because they wanted to keep their job (the options: move to Columbia or be laid off). Once those competent employees gained a smidge of self respect, they realized that they were in Columbia and that no job was worth living in that god awful shit-hole..

Of course, there's a whole 'nother part of the company that played a big part...but I never witnessed much of that (subprime loans were handled by a different department). But if you want to read about Long Beach Mortgage's contribution, you go to this article...also from the Seattle Times. It's pretty damning.

I also distinctly remember Paulette looking at loans from one of the "big producers" in California. The loan officer was untouchable due to his incredibly high volume, and he received more than a few "pricing exceptions" from our office. I don't remember his name or even where he was from...but there's a damn good chance he was one of the people mentioned during senate testimony, which revealed that the office where he worked "had levels of fraud exceeding 58 percent and 83 percent of the loans."


I'm pretty sure we knew he was cheating...but we couldn't do anything about it even though we tried.

Anyway, shortly after my presentation in Columbia I left the company...with a surprisingly generous severance package. Consequently, I didn't get to see WaMu in its final death throes. But the company's fate had already been sealed at that point, in my opinion. Once you add all the things I talked about -- the championing of the Option ARM, Long Beach Mortgage, the relaxing of borrower credit standards, and the outsourcing of those tasked with pricing oversight...what you get is a heap of shitty shit mortgages that drowned the company.

I guess I should go read that "The Lost Bank" book now...to see if my instincts about this thing were right after all...

How I Personally Caused the Financial Crisis (part 2)

"So, Tyler...why did this whole thing happen? And how?"

Truthfully, I don't really know that much. But I'll attempt to explain...using an analogy. I suck at analogies, but I'll try anyway.

Basically, as I'm sure you're all aware, this whole thing happened because of equal parts greed and stupidity. Folks like Matt Taibbi will argue that "criminal behavior" is a large component...though I'm not qualified to speak to that. He's much smarter than I am...and also a much better writer...and his penis is probably a lot longer than mine.

So I'll just confine myself to my own personal experience, and hopefully that will explain enough for the layperson to understand.

When I started working at WaMu we had two families of loans -- "portfolio loans," and "secondary market" loans. Our portfolio loans featured two boutique products -- the 1-month Option ARM, and the 5/1 Interest-Only. These products were geared toward people who wanted low monthly payments. Equity would be accrued when property values increased (as they had for decades), or when borrowers paid for home improvements.

Our secondary market loans were all of your standard 30-year, 15-year, 5/1, 3/1, and 1/1 loan types.

Because of the risk involved, portfolio loans were marketed to very dependable borrowers; folks with a stable income and good credit. Since these products were considered too risky to sell on the secondary market (I'll get to that later), portfolio loans were held and serviced by Washington Mutual. Hence, "portfolio."

With me so far? Okay. Good.

This went on for some time, continuing throughout the housing boom of the 1990s. It worked fairly well -- people were qualifying for loans, but banks were still being held accountable for their more risky offerings.

But in the early 2000s, the secondary market started purchasing those risky "portfolio loans." All of those absurd, low-monthly-payment loans looked pretty tasty, for some reason. The driving force behind that decision were the biggest investors on the secondary market: Fannie Mae and Freddie Mac. They are two government organizations that I still don't really understand (just like the rest of America, I'll wager). Though I do know a little bit. I'll also get to them later.

Anyhow, once Fannie Mae and Freddie Mac started buying all of these shitty loan pools...suddenly everyone wanted to get into the shitty loan pool business. Borrower credit standards were loosened. Property values started skyrocketing (which was okay, because anyone could get a loan!). Companies started targeting low-income borrowers via "sub-prime" "alt-a" and "emerging market" loans. Everyone was making money hand-over fist, and best of all, poor people were moving in to homes they couldn't normally afford. It was the American dream! Everyone wins!!!

Then the bubble popped, surprising nobody and everybody at the same time.

Now, for my analogy, where I will attempt to explain the issue with the "secondary market," what is meant by "the bubble," and why it suddenly "popped."

Imagine that money is a length of twine. You might own some twine, and you might make a good amount of twine...but it's not nearly enough to get you a home. So you go to a bank. Depending on how much twine you have and how much twine you make, the bank agrees to give you a much longer length of twine to buy a home with.

Shit, this analogy is falling apart already, isn't it? Keep it together, stupid...let's go.

Anyhow, after the bank gives you the twine, it measures that amount plus an extra amount (interest) and forms it into a little imaginary ball. Over time, this imaginary ball grows in theoretical size as other imaginary lengths of twine from other home owners are added to the theoretical ball...and pretty soon you've got a nifty, substantial, incorporeal ball of twine which you can take to the Twine Ball Avenue (Wall Street).

So the bank then goes to Twine Ball Avenue and shows a picture of that imaginary twine ball to twine investors.

"Look at the size of this damn thing!" the bank says.

"Wow. That's pretty big!" Twine Ball Avenue says.

"I know, right?"

"Totally."

"So, you want in on this action?"

"Sure, but, uh...where's all that twine going to be coming from?"

"Okay, I'll be real wichoo', because I like you. These borrowers aren't very good, so it's pretty risky. But the good news is that we're charging them massive interest rates, so the potential rewards are HUUUGE! High risk, yeah, but you could get a SUPER-DUPER HIGH REWARD!!! If you don't believe me, just ask those two."

The bank points to Fannie Mae and Freddie Mac...two immaculately dressed government officials with an armful of  "twine pictures" in their hands that they are cutting up and selling (mortgage-backed securities) to other hungry twine investors.

Behind Fred and Fanny is a boring poster that looks like this:

Yawn...amirite? The poster is pretty much ignored.

"GIMME DEM FINE-ASS TWINE PIKCHURZ, YO!!!!" Twine Ball Avenue screams...now literally frothing at the mouth.

And so it goes.

Essentially, the banks cobbled together a bunch of shitty loans. Fannie Mae and Freddie Mac decided (after pressure from the Department of Housing and Urban Development) that, to encourage home ownership for low-income borrowers, it would start purchasing these pools of shitty loans. These pools were then chopped up and sold as Mortgage-Backed Securities to investors who should have known better.

But that was the mid-2000s. Money was cheap. Homes prices were skyrocketing. Life wasn't good...but it was better than it had been in a long time.

I was personally doing incredibly well. I'd managed to save a crap-load of money (the most I've ever saved), and I was working in one of the most fun work environments I'd ever been in. On top of that all, I was doing professional theater...and literally earning  butt-loads of money. 

Wait, no. I mean figuratively. Figurative butt-loads.

Whoops.

Back to my analogy:

Of course, as it turns out, giving twine loans to shitty borrowers is not a very good idea. Collecting enormous imaginary balls of these shitty twine loans and selling them to investors is an even worse idea.

This is because people tend to pay more attention to the "Higher Expected Yield" part of a graph, while ignoring the "Highest Risk" part. It's human nature. That's why lottery tickets continue to make millionaires out practically 0% of people every year. It's also why, when I was asked to pick an 401k investment option, I chose the "super-aggressive" portfolio and pretty much lost the entire thing in 2008.

Anyhow, after these shitty twine ball pictures are sold by a bunch of stupid bankers to even dumber investors, a couple of things started to happen. The pretend twine balls start unraveling (homeowners start foreclosing), and the dumb investors started to realize that maybe paying real twine to purchase a piece of a shitty imaginary twine ball wasn't such a great idea after all.

At a certain point, Twine Ball Avenue says: "Sorry! We're not buying these any more!"

"Whoa, wait, what? Why?" the bank asks.

"Yeah, those pictures of twine you've been selling us? Turns out, the paper was made of actual compressed dog shit."

"But, we've got, like, fifty warehouses full of those! What are we supposed to do with them?"

"Not our problem. Sorry, guys. Good luck!"

So the banks were now stuck with several warehouses full of dog-shit-paper pictures of twine balls, and those warehouses are really starting to stink. Of course, they own another smaller warehouse full of actual twine...but there isn't nearly enough to account for all of the pictures of twine, and plus, even the real twine keeps exploding into massive fireballs of stinky poo goo.

So when the going gets tough, the tough put their companies up for sale...or (depending on their political clout) they go begging for money. For those without political connections, the only option was "selling all your shit." Unfortunately, no one wants to buy a bunch of warehouses full of poo paper or twine ball poo goo.

Luckily, the banks had a back-up plan.

See...these banks were smart enough to know that investors would eventually figure out that most of their twine ball pictures were made of dogshit. This is why they bought "dog shit insurance" (credit default swap).

As the shit started to explode or fester, the bank called their dog shit insurance guy:

"Yeah, who dis?" the insurance guy asked, after picking up his telephone receiver, located on his desk in his office in his building in the state and country in which he lived.

"Hey bro!" the bank chirped cheerily into the receiver.

"Hey bank! What up?"

"Oh, you know, not much. Just chillin', mostly."

"Awesome."

"Oh hey, so, you remember that insurance policy we bought from you guys?"

"Yeah, thanks for buying that!"

"No problem, guy! Thank you! But, um...hey...as it turns out we've got a couple warehouses full of pictures of twine and they're starting to stink pretty bad. Can you come exchange all of those pictures with actual twine?"

There was a stunned silence on the other end.

"Uh, dude...we don't have that much twine."

"But we bought that insurance policy from you guys."

"Yeah, but we never thought you'd call us on it. Because, um...we don't actually have that much twine, bro."

"Oh. Well. Guess you shouldn't have insured us then, huh?"

"Probably not, but whatever, right?"

"No, dude. We need that twine, like, now."

"LOL Bankruptcy!"

"OH NOES!!!!!!!"

Three examples of those dog shit insurers were Lehman Brothers, AIG, and Bear Stearns. As you know now, things did not go well for those three in 2008-2009.

And thus began the great cascading failure of our economy.

At least...that was my view of it.

Of course, as the economy started disintegrating, I made the comparatively safe financial decision of "moving with my wife to Los Angeles to make a living as a creative professional." You know...like what I was supposed to be doing with my Theatre Arts degree all along?

Thus ends my analysis. I've pretty much forsaken the financial field ever since then...and good riddance, frankly.


I thought entertainment was a volatile business. Holy cow.

Anyway, I'm sure I'm missing a lot of details, but I'm writing a blog entry not a book. As I wrote in a lengthy comment to faithful reader, commenter, and friend Evan on my last blog, pretty much everyone (republican, democrat, banker, borrower) deserves their fair share of blame for this.

Some people had good intentions ("We should also give poor families more help to move into homes of their own." -- Bill Clinton at the 1998 state of the union address). Some people had not-so-good intentions ("Despite the problems in the subprime market, emerging markets still represent the future of the mortgage industry. As this nation becomes more racially and ethnically diverse, most of the growth in homeownership will come from minorities." -- Steven Holland, in a May 2007 article in Mortgage Banking magazine).

But there are two commonalities -- most people believed they were doing the right thing, and most people were, in fact, doing something incredibly risky, short-sighted, and stupid.

Myself included...to a lesser extent. I mean, there is nothing I could have conceivably done to fix things -- I was far too low-level. But at the same time, I knew that I was being vastly overpaid, and I knew that I was witnessing some very peculiar things first-hand.

In my next blog, I'll talk about how even low-level employees like myself were confused by the lax lending standards at the time. I'll also talk about the three people I hold personally accountable for the failure of Washington Mutual...which I consider to be a microcosm of the industry at the time.

If I ever write that entry...of course. I mean, shouldn't I finish the entry about how I was almost on a game show first? Or do maybe start the series about the three theater companies I helped found?

Well, for someone with less than 3,000 page views (THANKS FOR THE HUMILIATION, GOOGLE ANALYTICS!!!!) I guess I can just do whatever the hell I want. Like, right now, I'm just going to post one of my theatrical headshots, because I can. Suck it, readers. SUCK IT!

Gorgeous.

Click here to read part 3.

How I Personally Caused the Financial Crisis (part 1)

First, I'll give you my background.

In 2004 I moved from Bellingham to Seattle after completing my BA in Theatre Arts. Like every theater arts major, I eventually found myself working as a financial analyst for the nation's largest thrift bank -- Washington Mutual.

Like everything else in my life, I kinda' just "fell into it." My wife and I, both theater majors, decided to apply to a temp agency -- Adecco. She found a job working for a company that insured ski resorts. I found a job working with "rate locks." Oh...the twisted lives of creative folks.

When I first heard about "rate locks," I thought I was going to be installing actual, physical "locks"...on, like, ATM machines or safety deposit boxes or something. I had no idea. All I knew was that I was to report to the beautiful Washington Mutual Tower (now known as 1201 Third Avenue) to receive my training.

Needless to say, I learned about rate locks. But in actuality, the group that I found myself working for existed solely to publish something called the "Pricing Variance Report." It worked like this: every day a program would scan all of the locked loans and kick out "variances." Our group would research the variances, and either ignore them or assess a penalty that the loan officer, loan processor, or borrower would then have to pay.

Why did they need "people" to do this, when a single computer program could probably catch all of the same errors?

Turns out, it would have to be a pretty complicated program...and the cost of that program would be much more expensive than farming out the task to a bunch of temps. Inefficient efficiency...I guess.

This is because Washington Mutual (WaMu) had acquired several different companies in the late 90s and early 2000s...and each company used their own computer program. These programs were called "origination systems," and they tracked the loan from beginning to end. WaMu did not have its own origination system, so it just used all of the others ad hoc.

When I started working at WaMu, there were about 5 different origination systems. The one I worked in the most was called MLCS...which stood for Mortgage L-something C-something System. I think. It was created in 1984 (seriously) and it had not changed much since then -- it was text-based, and looked like something you'd find on an Apple IIe. It was the most popular origination system we had, mostly because it was so secure.

Anyhow, with all of these various systems, keeping track of lock prices was a hot mess. I'll explain later why "tracking prices" was so important, but let's just say that sometimes the bank and the loan officers did not always share the same motivation.

And the loan officers knew it. Most of the systems were not secure, and there was a shit-ton of human error and (sometimes) straight-up "intentional misrepresentation" that could take place. On top of that, occasionally there were "specials" that the systems just couldn't handle. It was a bureaucratic nightmare that could have been easily repaired by a uniform policy or system. But alas...that would have been difficult to implement across such a large, disparate company. Instead, WaMu tried to function with a cobbled-together mess instead, and I got a paycheck every two weeks.

Lucky me.

Eventually our group bloated to about 15 people as the company expanded. That's 15 people whose job it was to just "look at the variations explain them." Unsurprisingly, I was laid off in late 2006 when my position was "outsourced" to Colombia...........um, South Carolina.

Eventually I found my way to (or rather "fell into a job with") a company named Liberty Financial Group (LFG). LFG was a correspondent lender in a very nice building in Bellevue, and I worked as a "rate lock specialist" at the pricing desk. A correspondent lender is a company that has more infrastructure than a broker, not as much as a retail bank. There are other differences too...but they are boring, and if you want to read about it you can go here: http://mtgprofessor.com/a%20-%20type%20of%20loan%20provider/what_is_a_correspondent_lender.htm

My job was to publish a daily rate sheet and lock loans at various banks (such as Countrywide, US Bank, Chase, GMAC, and Greenpoint Mortgage). It was here that I discovered just how screwed up the entire industry had become -- gone were the days of the vanilla 30 year fixed loan. Now, most lenders were investing in bat-shit crazy programs...like the Option ARMs, interest-only, LIBOR, no-doc, SISA, NINA, CMT, et cetera. I had no idea what any of that shit meant...and I'm assuming neither did the borrowers.

On top of it all, I wasn't very good at that job, unfortunately. I made some pretty big pricing mistakes which still bother me to this day. But I was learning, and getting better with time.

Then, on one inauspicious morning in August (I don't remember the exact date), our boss poked his head into the converted conference room I shared with two other guys. Our boss was a quiet, laid-back, skinny older gentleman with 25 years of experience in the mortgage industry. This morning he looked absolutely terrified. He told us that the market was making massive, unprecedented moves...and that we had to "lock" every loan we had as soon as possible.

We did...but it didn't matter. The market shuddered, companies folded, homeowners started foreclosing, and worst of all I lost my job two months later. Several months after that, Liberty Financial Group also closed down, along with countless other mortgage businesses, both large and small (including my old employer, WaMu).

Turns out, I had entered the mortgage industry at the very start of the sub-prime housing bubble, and I sat and watched as it popped...which caused the financial crisis that ruined the world's economy.

Basically what I'm trying to say is: I'm sorry. For whatever small amount I may have contributed to this mess, I apologize. I had no idea what I was doing...and my biggest problem was that I assumed the people in charge knew what they were doing. I was wrong.

Click here to read part two.

In a State of Perpetual Frustration

I might have a problem.

I get frustrated with strangers very easily.

Now before I get into all of this, let me just say up front that I don't believe this is some kind of crippling psychological issue. The manifestation of this anger has never escalated beyond a "quiet snide remark that the person in question will never hear." It's never prevented me from enjoying life, or going places, talking to people, or making friends. Did I adequately cover all of the concerns for the "you should probably see a therapist" crowd?

Then again, I was recently diagnosed with anxiety. Maybe this might have something to do with it?

Shit.

Oh well. Screw it. Where was I?

 

The beginning. Ah. Okay.

Basically, I'm annoyed with people who are oblivious, indecisive, or distracted. It might be fed by my intolerance for ignorant people, or those who wear their stupidity as a badge of honor (I don't mind stupid or uninformed people...but I do mind when people are proud of being stupid or uninformed). But I think this frustration goes beyond that...because I seem to get annoyed with people when they're doing something that isn't even really their fault, and sometimes when they're actually doing something most would consider "polite."

 

My annoyance comes into play the most when I'm driving somewhere. I'm not an overly aggressive driver -- I don't tailgate, I'm rarely the fastest car on the road, I don't cut in and out of traffic, I don't "race" other cars, if I miss an exit I'll just take the next one instead of diving across a median, I never flash my brights or honk my horn, and I never ever ever make gestures or yell at other drivers.

But I am a somewhat aggressive driver -- I pass people, I don't always come to a complete stop, I generally exceed the speed limit, I get impatient, and I quietly call people the most vile names I can imagine when I see them doing something I deem to be idiotic (like constantly tapping the brakes when no one is in front of you, or not using your turn signal, or driving 10 miles under the speed limit in the fast lane).

I wasn't always like this. When I lived in Seattle, I used to be very patient behind the wheel. But since I moved to Los Angeles I've changed.

Which makes me wonder...is this city just getting to me? Or is this just a byproduct of "getting older, and tired of other peoples' bullshit"? Or is there something else wrong with my brain bits?

If it was limited to the road I think I could just pawn it off as typical "Los Angeles traffic frustration syndrome." But this pissed off at strangers attitude has infected all walks of my life.

For instance, walking. When I walk places I have a destination in mind. I walk with purpose; quickly and decisively. I don't like walking behind people standing four-abreast, having a fun conversation and plodding along at a snail's pace. First, they're blocking the sidewalk. Second, can't you have this discussion when you get wherever you're going?

I don't like lollygagging. If I go to a store, I immediately walk to the product I wish to purchase, pick it up, and move to the next product I wish to purchase. If I can't find a product, I stand out of the way of everyone else and try to locate the product. I'm always aware of my surroundings, and I go out of my way to get out of everyone else's way.

But it seems to me when I go to the store, everyone in there is just wandering about, blocking the aisles, and farting around for no goddamn reason (and don't get me started on the goddamn "self check-out lanes" -- when I have to wait for one of those to open up...watching people stupidly and slowly fumble their way through a simple transaction...I seriously worry that I'm going to have a brain aneurysm).

Sure, I know that people like to "browse the aisles" when they're shopping...I get that. And I know that people who are "taking their time" in the store aren't necessarily dim-witted sociopaths. I understand that everyone's different, and each person moves at a different pace.

But when someone stands in front of the pudding for five minutes with pursed lips and all I want is some goddamn vanilla and chocolate swirl Jell-O pudding which is delicious and it's right there and why won't you just move one foot to the left so I can grab that without me asking you to move or touching you and can't you see I'm standing here waiting for you to move and what is taking you so goddamn long to pick pudding it's just pudding it's not like you're buying a new car or anything just make your choice or get out of the goddamn way goddammit...it gets me cranky.

I just thought of another example. Today was I got into an elevator with a half-dozen other people. The first girl into the elevator took a spot by the buttons, put her finger up to the buttons, but didn't press anything. She just kept her hand there like she was deciding what floor to go to, but apparently she didn't need to go anywhere because she didn't press any of the goddamn buttons.

I tried to do what I always do: I get on the elevator, I push my floor button, then I hug a wall so everyone else can get on and do the same. But this woman took the "pilot" position, and just sat there with her goddamn finger hovering over the buttons for what seemed like an eternity (8 whole goddamn seconds, probably). She was probably just waiting for everyone to tell her their floor number so she could press the buttons for them. Some people would consider this courteous. I was just annoyed...so I reached past her hover-hand and pressed the "2" button and proceeded to board the stupid elevator.

And speaking of courteous, I now actively try to avoid walking too close behind people who are going through doors...because I don't want them to hold the door for me. Once again, I realize this is my issue...but I don't like it when people hold doors for me. I don't mind if they give the door a little "nudge" after they go through it (if the door opens out), or if they pass through the door and open it nice and wide so I can catch it as I follow them through (if the door opens in).

I don't like it when someone opens a door for me, or stops and holds a door for me. I realize this is totally bitchy and grouchy, but I just want them to continue on with their day so I can continue on with mine. Leave the "noble gestures" to your friends, family, and significant others.

Which reminds me -- when it comes to people I know, none of my complaints apply. I'm more than happy to doodle about in the store with my wife. When I drive with my family in the car, I'm more concerned with "their safety" than I am with "getting somewhere as quickly as possible." I don't mind if friends hold the door for me -- I think it's a nice thing to do.

However, strangers will quietly experience my full wrath. Even people who are trying to be "nice" (like the idiot who waves me through a stop sign when it's his turn to go) will feel my whispered vengeance...and if they're looking close they might even see an annoyed head shake and eye roll. I figure this is safe, because anyone that oblivious would never notice my subtle passive-aggressive gestures, but it sure makes me feel better.

All of this worries me, frankly. Not a lot...but a little bit. I'd always kinda' prided myself in believing in the true good nature of people -- that the vast majority of folks, when given the choice, will do the morally correct thing. I believe that most people are kind, intelligent, and are just trying to find happiness without harming anyone else. I love the Ian Maclaren quote: "Let us be kind to one another, for most of us are fighting a hard battle." (this quote is often mis-attributed to Plato). I also despise cynicism, arrogance, and hypocrisy, and try to avoid those things when I can.

I love humankind. It's my favorite kind of -kind.

But at the same time, I can't seem to kick this. I can't seem to stop getting pissed off at people over perceived sleights. It's the height of cynicism, arrogance, and hypocrisy...which is just so hypocritical.

So this is step one for me -- admitting I have a problem. I guess step two is trying to fix that problem. And step three would be "getting help." I don't want to have to go to step three, because it's expensive and time-consuming...so we'll just see how bad it gets. And who knows? Maybe it's not so bad, and there are a lot of people who feel this way.

Yes? No?

Either way...thanks for listening/reading. If you're reading this, it's highly likely that you're a friend or a family member...so thanks for keeping me sane. Seriously. I love you guys.