New Testimony Reveals Citigroup Knew Exactly What Crap It Was Selling

The Subprime Debacle

John Mauldin, Thoughts From The Frontline | Oct. 24, 2010

"All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems."

Real problems indeed. Seems the Fed, PIMCO, and others are suing Countrywide over this very topic. We will go into detail later in this week's letter, covering the massive fraud involved in the sale of mortgage-backed securities. Frankly, this is scandalous. It is almost too much to contemplate, but I will make an effort.

But first, let me acknowledge the huge deluge of emails I got over last week's letter, the most I can ever remember. I thought about just making this week's letter a response to many of them, but decided I needed to go ahead and finish the topic at hand. Maybe another time. As a side note, I quoted a letter that came to me anonymously via David Kotok. I said if I found out who wrote it, I would give them credit. It was originally written by Gonzalo Liro, at www.gonzalolira.blogspot.com.

Many of you wrote to point out that his argument about the tracking of title was not correct, but others pointed out many other issues as well. This is one of the most complex problems we face, and I got a lot of good information from readers. It just makes me wish I had our new web site finished so you could avail yourselves of the wisdom among my readers. We are close, down to final changes. And now, on to today's letter.

They Knew What They Were Selling

It's hard to know where to start. There is just so much here. So let's begin with testimony from Mr. Richard Bowen, former senior vice-president and business chief underwriter with CitiMortgage Inc. This was given to the Financial Crisis Inquiry Commission Hearing on Subprime Lending andnd Securitization andnd Government Sponsored Enterprises. I am going to excerpt from his testimony, but you can read the whole thing (if you have a strong stomach) at http://fcic.gov/hearings/pdfs/2010-0407-Bowen.pdf. (Emphasis obviously mine.)

"The delegated flow channel purchased approximately $50 billion of prime mortgages annually. These mortgages were not underwriten by us before they were purchased. My Quality Assurance area was responsible for underwriting a small sample of the files post-purchase to ensure credit quality was maintained.

"These mortgages were sold to Fannie Mae, Freddie Mac [We will come back to this - JM] and other investors. Although we did not underwrite these mortgages, Citi did rep and warrant to the investors that the mortgages were underwritten to Citi credit guidelines.

"In mid-2006 I discovered that over 60% of these mortgages purchased and sold were defective. Because Citi had given reps and warrants to the investors that the mortgages were not defective, the investors could force Citi to repurchase many billions of dollars of these defective assets. This situation represented a large potential risk to the shareholders of Citigroup.

"I started issuing warnings in June of 2006 and attempted to get management to address these critical risk issues. These warnings continued through 2007 and went to all levels of the Consumer Lending Group.

"We continued to purchase and sell to investors even larger volumes of mortgages through 2007. And defective mortgages increased during 2007 to over 80% of production."

Mr. Bowen was no young kid. He had 35 years of experience. He was the guy they hired to pay attention to the risks, and they ignored him. How could a senior manager not get such an email and not notify his boss, if only to protect his own ass? They had to have known what they were selling all the way up and down the ladder. But the music was playing and Chuck Prince said to dance and rake in the profits (and bonuses!). More from his testimony:

"Beginning in 2006 I issued many warnings to management concerning these practices, and specifically objected to the purchase of many identified pools. I believed that these practices exposed Citi to substantial risk of loss.

Warning to Mr. Robert Rubin and Management

"On November 3, 2007, I sent an email to Mr. Robert Rubin and three other members of Corporate Management... In this email I outlined the business practices that I had witnessed and attempted to address. I specifically warned about the extreme risks that existed within the Consumer Lending Group. And I warned that there were 'resulting significant but possibly unrecognized financial losses existing within Citigroup.'"

And now taxpayers own 75% of Citi, and our losses to them are huge. They are going to get worse, as we will see.

Now let's turn to the testimony of Keith Johnson, who worked for various mortgage companies and in 2006 became the president and chief operating officer of Clayton Holdings, the largest residential loan due diligence and securitization surveillance company in the United States and Europe. This is testimony he gave before the Financial Crisis Inquiry Commission. Part of the testimony is by his associate Vicki Beal, senior vice-president of Clayton. The transcript is some 277 pages long, so let me summarize.

Investment banks would come to Clayton and give then roughly 10% of the mortgages that they intended to buy and put into a security. Clayton rated them on whether the documentation was what it was supposed to be, not as to whether they thought it was a good loan. Still, 46% of the loans did not have proper documentation (out of a pool of 9 million loans) and 28% had what was determined to be level 3 disqualifications that simply had no mitigating circumstances. Understand, these were loans that were already written, and there was no effort to check the facts, just the documentation.

And ultimately 11% of these loans (39% of the level 3's) were put back in by the investment bank. And what happened to the loans that were rejected? (This might require an adult beverage and a few expletives deleted.)

Popping Through

They were put back into another pool, where again only 10% of the loans were examined. Quoting from the testimony:

"MR. JOHNSON: I think it goes to the 'three strikes, you're out' rule.

"CHAIRMAN ANGELIDES: So this was a case of - okay, three strikes.

"MR. JOHNSON: I've heard that even used. Try it once, try it twice, try it three times, and if you can't get it out, then put -

"CHAIRMAN ANGELIDES: Well, the odds are pretty good if you are sampling 5 to 10 percent that you'll pop through. When you said the good, the bad, the ugly, the ugly will pop through."

Yes, you read that right. If a loan was rejected a second time, it went back into yet another pool for a third try. The odds of coming up three times, when only 5 or 10 percent are sampled? About 1 in a thousand. Popping through, indeed.

Clayton presented their data to the ratings agencies, investment banks, and others in the industry. They were frustrated that no one was really paying attention or taking heed of their warnings.

Here is what Shahien Nasiripour, the business reporter for the Huffington Post, wrote (his emphasis). For those interested, the entire article is worth reading. ( http://www.huffingtonpost.com/2010/09/25/wall-street-subprime-crisis_n_739294.html):

"Johnson told the crisis panel that he thought the firm's findings should have been disclosed to investors during this period. He added that he saw one European deal mention it, but nothing else.

"The firm's findings could have been 'material,' Johnson said, using a legal adjective that could determine cause or affect a judgment.

"It's unclear whether the firms ended up buying all of those loans, or whether Wall Street securitized them all and sold them off to investors.

"'Clayton generally does not know which or how many loans the client ultimately purchases,' Beal said. That likely will be the subject of litigation and investigations going forward.

"'This should have a phenomenal effect legally, both in terms of the ability of investors to force put-backs and to sue for fraud,' said Joshua Rosner, managing director at independent research consultancy Graham Fisher & Co.

"'Original buyers of these securities could sue for fraud; distressed investors, who buy assets on the cheap, could force issuers to take back the mortgages and swallow the losses.

"'I don't think people are really thinking about this,' Rosner said. 'This is not just errors and omissions - this appears to be fraud, especially if there is evidence to demonstrate that they went back and used the due diligence reports to justify paying lower prices for the loans, and did not inform the investors of that."

"Beal testified that Clayton's clients use the firm's reports to 'negotiate better prices on pools of loans they are considering for purchase,' among other uses.

"Nearly $1.7 trillion in securities backed by mortgages not guaranteed by the government were sold to investors during those 18 months, according to Inside Mortgage Finance. Wall Street banks sold much of that. At its peak, the amount of outstanding so-called non-agency mortgage securities reached $2.3 trillion in June 2007, according to data compiled by Bloomberg. Less than $1.4 trillion remain as investors refused to buy new issuance and the mortgages underpinning existing securities were either paid off or written off as losses, Bloomberg data show.

"The potential for liability on the part of the issuer 'probably does give an investor more grounds for a lawsuit than they would ordinarily have', Cecala said. 'Generally, to go after an issuer you really have to prove that they knowingly did something wrong. This certainly seems to lend credibility to that argument.'

"'This appears to be a massive fraud perpetrated on the investing public on a scale never before seen,' Rosner added."

It's Time for Some Putback Payback

Investment banks large and small originated a lot of subprime garbage in the 2005-2007 era. This week PIMCO, Black Rock, Freddie Mac, the New York Fed, and - what I think is key and no one has picked up on - Neuberger Berman Europe, Ltd., an investment manager to a managed-account client, came together and sued Countrywide for not putting back bad mortgages to its parent, Bank of America. This is the first of what will be a series of suits aimed at getting control of the portfolio and peeking into the mortgages. (Text of lawsuit at http://www.ritholtz.com/blog/2010/10/full-text-of-letter-to-bofa-from-ny-fed-maiden-lane-freddie-mac-pimco-western-asset-mgmt-neuberger-berman-kore-advisors/)

Basically, if buyers of 25% or more of a mortgage-backed security can come together, they have standing to sue the mortgage servicer to do its duty to the investors and make putbacks of bad mortgages, and if they fail to do so the plaintiffs can take control of the process and take the issuer to court directly (that's a very simplistic description but roughly accurate).

There are two key take-aways. First, note that a European entity is involved. Hundreds of billions of dollars of this junk was sold to European banks and funds. And these guys get together at conferences (sometimes they even invite me to speak). So Helmut will be talking to Lars who will talk to Jean Pierre and they will realize they all own some of this junk. They will be watching with very real interest to see how the big boys at PIMCO and Black Rock and the New York Fed fare in their efforts. And then you can count on them all piling on (more later on this).

Second, little noticed this week was the fact that The Litigation Daily wrote that Philippe Selendy of Quinn Emanuel Urquhart & Sullivan has been retained by the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, to investigate billions of dollars in potential claims against banks and other issuers of mortgage-backed securities.

Who? Not on your celebrity list? Just wait. He will soon be getting the best tables everywhere. He and his firm are the guys representing MBIA in all their cases against Countrywide and Merrill Lynch. And they are kicking ass. Slowly to be sure, but very steady. That means Fannie and Freddie are getting ready to get serious.

They were sold well over $227 billion of the subprime garbage issued in 2006 and 2007. And the bad stuff started before then. But they have one advantage that the guys at PIMCO, et al. don't have: they (or actually the FHFA) are a federal agency. That means they have subpoena power. The agency has sent 64 subpoenas to issuers of mortgage-backed securities, and although they have not said who they went to, they obviously include almost everyone and clearly all the big players. (They couldn't have ignored Goldman, could they? Naah. Too obvious.)

From American Lawyer.com (I know, this website is probably already on your favorites list, but for those souls who actually have a life I provide the text):

"Through those subpoenas, the agency could gain access to the loan files for the mortgages that backed the securities it bought and thus establish whether the mortgages were what the issuers represented them to be in securities contracts. According to the Journal, the difficulty of obtaining loan files has been a big obstacle for investors trying to force issuers to repurchase bonds.

"If the FHFA were to decide down the road to initiate litigation, it would still have to have the support of a percentage (usually 25 percent) of its fellow bondholders for each issue. But given what the agency and its Quinn lawyers will be able to see before bringing suit, it probably won't be too hard to get other investors on the bandwagon." (http://www.quinnemanuel.com/media/183456/hurricane%20warnings%20fannie%20mae%20and%20freddie%20mac%20hire....pdf)

It is tough not to jump to the conclusion, but we need one more piece of the puzzle before we get there.

The Worst Deal of the Decade?

Arguably Bank of America had Merrill shoved down their throats, but no one can say that about the acquisition of Countrywide. And Countrywide could end up costing BAC $50 billion or more in losses. That may prove to be a serious candidate for worst deal of the decade. (Although WAMU is a leading candidate too!)

Let's look at a report by Branch Hill Capital, a hedge fund out of San Francisco. And before we start on it, let me point out they are short Bank of America. You can see the full PowerPoint at http://www.businessinsider.com/bank-of-america-mortgage-report-2010-10#-1.

(And let me say a big thanks to the author of the report, Manal Mehta, for all the background material he sent me and his help with this week's letter. It helped make it a lot better. Of course, any erroneous conclusions or outrageous statements are all mine.)

First, they point out that the potential size of Bank of America's (BAC) liabilities is $74 billion (with a B). And that is just for Countrywide. That does not include Merrill, which is also large. Against that they have set aside $3.9 billion. You can count on more suits than just the PIMCO, et al. mentioned above.

In the MBIA case, the judge has ruled that the suit can proceed even though BAC has denied responsibility. Although on appeal, this is high-stakes poker. Countrywide originated over $1.4 trillion of mortgages in 2005-2007. MBIA alleges that over 90% of the defaulted or delinquent loans in the Countrywide securitizations show material discrepancies. Care to take the under in the over/under bet on that?

Further to the case on BAC, Merrill was the largest originator of subprime CDOs during the housing boom, for another $120 billion, along with about $255 billion of residential mortgage-backed securities.

And then there are all those CDOs (collaterized debt obligations). Merrill did a lot of those that went sour. This deserves it own leter, but a gentleman named Wing Chau went from making $140k a year to $25 million in just a few years, putting together CDOs from Merrill, some of which were completely bankrupt in just six months.

Countrywide has already settled with the New York pension funds for $624 million, one of the largest securities fraud settlements in US history. And the line is growing longer.

Of course, BAC CEO Brian Moynihan denied this week that there is a problem. Let's look at Moynihan's statements at the last earnings call and compare them to what the judge in the case said earlier. Moynihan:

"... we execute repurchases on a loan by loan basis... And as we learn more, and again, our perspective on this - we're going to be quite diligent as I said in defending the interest of our shareholders. This really gets down to a loan-by-loan determination and we have, we believe, the resources to deploy against that kind of a review."

Back in June the judge on the case (a Judge Bransten) said (from the transcript):

"I think that it makes all the sense in the world that you can use a sample to prove the case because otherwise I can't imagine a jury listening to 386 thousand cases. Even if you have that available, nevertheless you are not going to present that to a jury or even to a judge. I'm patient but not that patient. So therefore it is going to be a sample in the end..."

OK, let me get this straight, Brian. Your company committed fraud, with robosignings and all the rest, and you won't man up and take responsibility? You and your lawyers want to thrash this out, case by case, fighting a trench-warfare, rear-guard action? Well I'm afraid that's not going to work out for you. There are so many examples of Countrywide outright fraud that it is going to be hard to convince a jury that BAC is not on the hook. Will it take years? Of course.

You can read the PowerPoint for details. Bottom line: BAC is probably liable for putbacks that could total over a hundred billion. And that is just BAC.

Think Citi. And any of the scores of mortgage originators and investment banks. There were a couple of trillion dollars in these securitizations issued. Plus how many hundred of billions of second-lien loans? And can we forget CDOs? And CDOs squared?

And let's not forget all those completely synthetic CDOs that were written at the height of the mania. Most of it AAA, of course. Frankly, anyone stupid enough to buy a synthetic CDO should lose their money, but that is not what the courts will base their decision on. It is all about representations and warranties. And maybe a little fraud.

I picked on BAC because that is the analysis I saw. But it could be any of dozens of banks. Look at this list from the Branch Hill PowerPoint.

Could we see a hundred billion in losses to the major banks? In my opinion we will for sure, over time. $200 billion? Probably. $300 billion? Maybe. $400 billion? It depends on how organized the investors in the securities get and what gets settled out of court. Out of a few trillion dollars in securitizations? It's anybody's guess. I just made mine.

But let's not forget the $227 billion sold to Fannie and Freddie. Taxpayers are on the hook for $300-400 billion in losses. Those putbacks could save us a lot. Will this threaten the viability of some banks? Maybe. But most will survive. BAC made $3 billion last quarter. A steep yield curve (with the help of the Fed) can cure a lot of evils. But it will absorb the profits of a lot of banks for a long time.

And that of course, will come back to haunt the rest of us as banks have to raise more capital and get more conservative.

Anyone who owns stocks in banks with relatively large MBS exposure is not investing, they are gambling that the losses will not be more than management is telling them. There will be no bailouts (at least I hope not) this time around. Fool me once, shame on you; fool me twice, shame on me. There will be little sympathy for shareholders or bondholders this time, if it comes to that.

One more sad point. The FDIC (read taxpayers) is liable for some of this, as they took over some of these institutions. It just keeps on coming.

Final rant. If you were part of a group that knowingly created or sold flawed and fraudulent mortgage-backed securities to pensions and insurance companies and took home tens of millions in bonuses, up and down the management chain, maybe you should consider moving yourself and your money to a country that does not honor US extradition, because my guess is that, as all this comes out, you may have to hire some very expensive lawyers and get measured for pinstripes.

And the Mozilo agreement was a sham. Sigh. That would be the equivalent of fining me $10,000 and letting me keep my tanning bed. I don't have the space to go into the fraud at Countrywide, but their internal documents show they all knew what was going on.

Discolored water at Mississippi River pass could be oil

Coast Guard checks on discolored water near La.
AP News - Oct 23, 2010

The Coast Guard said Saturday that an area of discolored water near a Mississippi River pass south of New Orleans appears to be an algae bloom, but another spot 10 miles away could be oil.

Jeff Hall, spokesman for the Unified Area Command, said tests could determine if the suspected oil is from the BP spill.

The Coast Guard sent two flights over the West Bay area near Venice on Saturday. Two boats also went out to check the waters.

Hall told The Associated Press that tests will be done Monday on water samples from an area where a marine investigator believes there's an algae bloom near Venice. The area of discolored water there was about 2.5 miles long and 300 yards wide, Hall said.

About 10 miles away, Hall said a crew spotted what appears "some kind of silvery, weathered oil." The crew in that area didn't have a sampling kit but investigators could go back out and take samples that could be tested to determine whether it's oil from the Deepwater Horizon spill, he said.

Six months after the spill started, the federal government maintains much of the oil is now gone from the Gulf. But independent researchers say they are discovering significant amounts of crude below the sea's surface, including on the ocean floor. They fear the oil that remains could harm species lower down the food chain.

The Times-Picayune reported in its Saturday editions that fishermen on Friday spotted what appeared to be miles-long strings of weathered oil, and a photojournalist with the newspaper captured the images in a flight over the water.

Hall said the material discovered Saturday that appears to be weathered oil is "away from where those photographs were taken."

The Deepwater Horizon rig exploded April 20, killing 11 people. About 172 million gallons of oil spilled into the Gulf before the well was initially plugged July 15. It was permanently sealed Sept. 19.

Robert Barham, secretary of the Louisiana Department of Wildlife and Fisheries, told the Times-Picayune that if oil is confirmed by his agency, the area will be closed again to fishing.

The Mississippi River delta is a primary wintering ground for hundreds of thousands of ducks and geese, some of which already have begun arriving. The West Bay area leads into several shallower interior bays that attract ducks, geese and myriad species of shore and wading birds each winter.

Is the Mystery Behind the Shocking Die-off of Bees Really Solved?

The New York Times essentially called it 'case closed' on Colony Collapse Disorder, but there is good reason to be wary about their reporting.
By Tom Laskawy, Grist.org
Posted on October 24, 2010

The New York Times made a long-awaited (and much emailed) announcement on its front page last week: The mystery of the ongoing and agriculturally devastating bee die-off (aka Colony Collapse Disorder, or CCD) has been cracked!

I'm not trying to hype the news. Here's the headline and lede:

Scientists and Soldiers Solve a Bee Mystery

It has been one of the great murder mysteries of the garden: what is killing off the honeybees?

Since 2006, 20 to 40 percent of the bee colonies in the United States alone have suffered "colony collapse." Suspected culprits ranged from pesticides to genetically modified food.

Now, a unique partnership -- of military scientists and entomologists -- appears to have achieved a major breakthrough: identifying a new suspect, or two.

A fungus tag-teaming with a virus have apparently interacted to cause the problem, according to a paper by Army scientists in Maryland and bee experts in Montana in the online science journal PLoS One.

It's easy to miss, but in that last sentence, reporter Kirk Johnson takes a wrong turn. In essence, he confuses proximate and efficient causes (i.e. what bees ultimately succumb to vs. what makes hives susceptible to collapse) and from that logical error, a whole series of cascading failures ensue. But don't take my word for it. Go read Katherine Eban's crack piece of reporting for Fortune that dissects the problematic nature of the Times article; the underlying study; its lead author, Jerry Bromenshenk; and the role in the whole debate of the pesticide company Bayer CropScience.

The enigma wrapped in a mystery coated with pesticide

Let's be clear: The study itself makes no conclusive claims about the causes of colony collapse disorder. Eban quotes from the paper that the research does not "clearly define" that the virus/fungus combination is "a marker, a cause, or a consequence of CCD." A scientist interviewed by Eban very helpfully offers the metaphor of HIV to describe what's going on with bees. HIV doesn't kill you -- it's the opportunistic infections and diseases that follow HIV's dismantling of a sufferer's immune system that do. In the case of bees, the virus/fungus combo are most likely the follow-on infections that kill off an already weakened hive.

The Times blunder goes beyond whether Johnson or his editor misinterpreted the results of new research. Unfortunately, as Eban details -- in part drawing on an unpublished piece she wrote for the now-defunct Portfolio magazine -- the Times left out key pieces of the real story of the fight over research into what's killing the bees.

As I wrote last January, many scientists believe that a novel class of pesticides called neonicotinoids -- which are insect neurotoxins -- has played a major role in CCD worldwide. An Italian entomologist at the University of Padua, Vincenzo Girolami, has research currently undergoing peer review showing that bees can be exposed to lethal levels of these pesticides through the use of seeding machines that sow neonicotinoid-coated seeds. These devices throw up a toxic cloud of pesticide as they work: bees fly through the cloud and either die or take the pesticide back to the hive. Once inside, even at low doses, it can cause disorientation or, as Girolami calls it, "intoxication" of whole hives.

The maker of this pesticide is Bayer CropScience. What does a corporation do when it discovers it may have developed and marketed a dangerous and potentially devastating product? Here in America, you confuse, you obfuscate, and you buy off scientists.

And as Eban skillfully details, that's exactly what Bayer has been doing for the last decade or so.

Beeing clear

Which brings us back to Bromenshenk. He was an expert witness for a group of beekeepers that in 2003 sued Bayer over the pesticide Imidacloprid. Bromenshenk later backed out of the lawsuit and, soon after, Bayer gave Bromenshenk a "research grant." But it gets worse. Eban reports something the Times piece doesn't: that Bromenshenk's consulting company, Bee Alert Technology, is developing diagnostic tools for "various bee ailments." The company stands to profit from curing bee diseases -- and thus it's rather convenient that Bromenshenk has published research that points the finger towards "treatable" conditions, rather than pesticides, as the primary culprit in bee deaths. Indeed, he had admitted as much to Eban while she was researching her Portfolio piece.

While this tremendous potential conflict doesn't necessarily invalidate Bromenshenk's findings, it certainly warrants a mention.

So where does this leave us? In an email exchange with me, the Italian scientist Girolami said he agrees with many of the experts Eban interviewed: The virus/fungus combination is secondary. In Girolami's opinion, the underlying causes of CCD -- the factors that are weakening the hives and making them susceptible to infection and die-offs -- are most likely neonicotinoids along with the Varroa mite, a parasite that can infect and destroy hives all on its own.

In fact, last year Italy banned neonicotinoid-coated corn seeds and, according to this report, after the first non-neonicotinoid sowing, nary a hive was lost, although neonicotinoid spraying is still allowed in some areas -- and still linked with bee deaths. France has also banned coated seeds -- though there, as in Germany, the pesticide lobby has fended off total bans for now. As for the U.S., Bayer successfully convinced a judge to throw out crucial evidence in the beekeeper lawsuit and has, to date, prevented the EPA from releasing the data the agency used to approve neonicotinoids in the first place.

Eban concludes with the observation that little neonicotinoid research is going on in the U.S .at the moment, thanks in large part to Bayer's efforts to "support" scientists who work in other, shall we say, less-sensitive areas. It seems it is up to scientists outside the U.S., in countries less beholden to corporate interests, to do the scientific heavy lifting.

Ah, America. Fighting hard for the freedom to spray toxic chemicals everywhere.

How to Grow and Store the 5 Crops You Need to Survive

Food in Uncertain Times
Having food resiliency is as much about learning how to store and use food properly as it is about growing it. The key is learning interdependence not independence
By Makenna Goodman, Chelsea Green Publishing
Posted on October 24, 2010

In an age of erratic weather and instability, it's increasingly important to develop a greater self-reliance when it comes to food. And because of this, more than ever before, farmers are developing new gardening techniques that help achieve a greater resilience. Longtime gardener and scientist Carol Deppe, in her new book The Resilient Gardener: Food Production and Self-Reliance in Uncertain Times, offers a wealth of unique and expansive information for serious home gardeners and farmers who are seeking optimistic advice. Do you want to know more about the five crops you need to survive through the next thousand years? What about tips for drying summer squash, for your winter soups? Ever thought of keeping ducks on your land? Read on.

Makenna Goodman: Many gardeners (both beginners and more serious growers) come across obstacles they might not have planned for. In your new book, The Resilient Gardener: Food Production and Self-Reliance in Uncertain Times, you talk about the need for real gardening techniques for both good times and bad. What is the first step toward achieving this kind of resilience?

Carol Deppe: The basic issues are getting more control over our food, getting lots higher quality and more delicious food, and enhancing the resilience of our food supply. There are three ways to do that. The first is through local buying patterns and trade. A second is through knowing how to store or process food that is available locally, whether we grow it ourselves or not. The third is gardening. In The Resilient Gardener, I talk as much about storing and using food as growing it. I love gardening, but not everyone is in a position to garden every year of their lives.

However the person who has learned to make spectacular applesauce or cider or apple butter or pies can often trade some of the processed products for all the apples needed. Buying local food supports local food resilience. A couple hundred pounds of gourmet-quality potatoes tucked away in the garage -- potatoes that you have learned to store optimally -- represent serious food security, whether you grew them or bought them from a local farmer right after the harvest. Our buying and trading patterns and our skill at storing and using food as well as gardening are all part of our food resilience. All can serve as the starting point to begin taking greater control over our food.

So the first thing I would say is, garden if you can and if you enjoy it. Whether you garden right now or not, though, learn more about how to store and use the food that is grown locally. Lots of times, it is storing and using that is more of the missing link than gardening. Most gardeners know how to grow field corn. But most don't have the knowledge to turn corn into gourmet-quality fast-cooking polenta or savory corn gravy or even cornbread (without using wheat or other things they can't grow), let alone fine-textured cakes. Most gardeners can grow potatoes. But most don't know how to store their potatoes optimally. Most can grow blue potatoes. But most try to prepare their blue potatoes just like whites or reds. Few know how to turn a blue potato into spectacularly delicious food. In The Resilient Gardener, I spend as much time on how to store and use food as how to grow it.

We humans trade. We enjoy it, and it greases the social wheels. Sometimes we use intermediaries like money, sometimes not. Sometimes the trades are formal. Sometimes we call it gifts. I trade or sell or gift part of the best I have. Part of the best of others comes back to me. My friends, neighbors, and exchange networks are part of my resilience. I aim for greater self-reliance. I like to enjoy doing more for myself. And I love to garden, and to grow food. But I don't aim at "independence." Healthy humans are never independent. We are interdependent. What we want is to be self-reliant enough to hold up our end of honorable interdependence. Our skill at growing, storing, processing, using, or trading food can all be part of our contribution to honorable interdependence.

Neanderthal stone tools, interestingly, are all found within a few miles of where the rocks originated. And the tools didn't change very much over time. But Homo sapiens that lived at the same time had tools made from rocks that were clearly traded over long distances. And H. sapiens tools changed and developed rapidly. We traded our ideas along with all our stuff. Any Neanderthal tribe that met a sapiens tribe was one tribe against an entire species. I'm a Homo sapiens, and I follow Homo sapien traditions. I aim for appropriate self-reliance, not for independence. Independence is for Neanderthals.

MG: It's kind of a relief, actually, to think about gardening outside the realm of those perfect photos so prevalent in other gardening books. For people who have day jobs taking them away from their farms and gardens, resilient gardening might seem like a miracle. How would you compare resilient gardening to more traditional forms?

CD: Much of our garden writing is about the gardens of rich people who have employees to do the work. Even non-rich people with full-time jobs and no hired help are encouraged to take the gardens of rich people as the model. Beauty and showing off and ornamental plantings and huge high-maintenance inedible lawns have mattered more than food, for example. I'm not rich enough and haven't the time or inclination for that sort of gardening. I delight in all the knowledge about plants, ecology, and gardening we have today. But I take peasants as my basic model. I aim to be a modern peasant. I focus primarily upon growing food, especially upon staple crops and crops of special nutritional value. And I want lots of delicious food for the least possible work.

In addition, in the real world, things are always going wrong. These can be private or personal, such as an injury or family emergency that removes your labor from the garden for a while. Or they can be financial. Loss of a job can mean you really need to know how to get most of your food from the garden, not just fruits and vegetables. I also look at things over a thousand years. Over that kind of period, humans experience mega-crises of various kinds.

On average, the Pacific Northwest experiences two or three mega-earthquakes per thousand years, for example, which would destroy our roads and bridges and cut us off for years. Many kinds of natural and societal disasters occur over such time frames. Gardeners who know how to grow food can be reservoirs of knowledge, skills, and seeds for their communities. For this, though, the gardeners need to know how to grow staple crops, that is, calories and protein, not just fruits and vegetables. In good times, gardeners don't necessarily need to grow all their staple crops. But in good times, resilient gardeners learn to grow and use some of their staple crops so that they at least know how.

The resilient gardener knows we have our ups and downs, as individuals, families, societies, and as a species. The resilient garden is designed and managed so that when things go wrong, they have less impact. Most gardens are good-time gardens. They self-destruct rapidly if deprived of our labor. They depend upon constant imports of fertilizer and seeds. They need relatively stable weather. The resilient gardener has learned to operate with minimal external inputs, and in a world where climate is changing and weather is more erratic. The resilient gardener knows how to save seeds. The resilient garden is one that thrives and helps its people and their communities survive and thrive through everything that comes their way, from tomorrow through the next thousand years.

MG: In an era with unpredictable climate conditions -- hurricanes, floods, droughts, etc -- what, in your opinion, is the most widespread condition today's gardeners face? Why do you think this is?

CD: The unpredictability itself is the greatest problem. This summer, for example, is the coldest summer I have ever experienced in Oregon in 30 years. By mid-August there had been only one week all summer that had any days above 90°. Many days in June and July didn't even make it to 80°. Meanwhile, much of the East Coast had a record-breakingly hot summer.

For the last fifty years, the weather patterns have generally been unusually stable. Our modern gardening and agricultural practices actually depend upon that stability. Our farms and gardens have become good-time farms and gardens. They are likely to fail just when we need them most. We now need gardens and farms that survive and thrive in the face of greater unpredictability.

Wild erratic weather is typical of climate change, and is much more important to gardeners and farmers than a fraction of a degree's change in average global climate. However, humanity has made it through the transition from relative stability to instability in climate before, for example, in our adjustment to the erratic weather of the Little Ice Age. There are agricultural patterns and methods we have developed in the past when we needed them that we can relearn and expand upon today.

MG: Gardening for resilience, as you discuss, also means choosing your crop varieties for optimum self-reliance and hardiness. What's the most fantastic quality of each of the five crops you talk about in your book -- potatoes, corn, beans, squash, and eggs?

CD: Potatoes are a great source of both carbohydrates and protein. They have protein levels comparable to the most protein-rich grains by the time you adjust for water. They yield more carbohydrate per square foot than anything we can grow in temperate climates. They yield more protein per square foot than anything we can grow except beans. They have good levels of vitamin C and significant amounts of calcium and other minerals. They are the easiest of all staple crops to grow. They yield much more carbohydrate and protein than anything else per unit labor. Small grains take fine seed beds, meaning tillers, tractors, or draft animals.

Anyone with a shovel can grow potatoes. And potatoes can be grown on rough land, land just converted from lawn or pasture or patch of weeds. Grains usually require special grinding equipment. Anyone who can build a fire can cook potatoes. Potatoes grow well in places too cold or wet for grains. Potatoes are far more impervious to nasty weather than grains. Cool or cold or wet stormy weather that can harm, delay, or even destroy, corn, squash, and other summer crops are likely to make the potatoes grow more happily than ever. So growing both potatoes and other crops provides a balance that provides resilience. Potatoes yield well on limited fertility, too. And in most areas of the country, they can be grown unirrigated, even where all other summer crops require irrigation.

People these days tend to remember the Irish Potato Famine, when late blight destroyed the entire Irish potato crop. But we should also remember that the potato was one of the major saviors of Europeans during the Little Ice Age, a crop that was central to their adjustment to the erratic weather associated with climate change, a crop that yielded year in year out, decade in decade out before there were any problems. European populations suffered famines and disease epidemics because their grain crops couldn't handle the colder, wetter, stormier, less predictable weather. After incorporating potatoes into their repertoire, European populations thrived and expanded, erratic weather, Little Ice Age, or no.

Potatoes are delicious. With all the varieties and flavors and cooking methods, we can eat potatoes every day and never get tired of them. Nate and I grow major amounts of potatoes. And with our sophisticated but low-tech storage methods, we have prime potatoes for eight or nine months of the year. Remembering the vulnerability of the potato to disease, though, unlike the Potato-Famine-era Irish, we grow many varieties, we have learned to save potato seed with near-certified-seed level of proficiency, and we use potatoes as only one among several staple crops.

Grains and beans are the ultimate survival crops because they are so long-storing. It is stored grains and beans we would need if a planet-wide disaster such as a comet strike or mega-volcano wiped out agriculture worldwide for an entire year or more. Grains are not as easy to grow as potatoes, though. We grow corn, the easiest of all grains to grow and process on a small scale. Corn is also, in areas where it grows well, by far the highest yielding of the grains. In addition, unlike the small grains, you can grow corn with nothing but a shovel or heavy hoe. You don't need a finely tilled bed as is needed for the small grains. We grow special people-food grade gourmet-quality corn that is completely unlike anything you can buy commercially. Cornbread and polenta are our major carbohydrate staples during late spring and early summer after the potatoes and winter squash are gone, and they provide variety year round.

Most of our corn is very early varieties that dry down during August instead of needing to be irrigated heavily then. They can make a crop on no irrigation, and a good crop on just two or three irrigations. We also grow a little late flint corn. It has to be watered all August and finishes late, full into the rainy season. We grow our pole beans on the late corn most years. And the pole beans need irrigation all season anyway.

Grain legumes, that is, beans, peas, teparies, garbanzos, cowpeas, lentils, soybeans, and others, keep well and are prime for a little beyond a year. There are many species that are associated with specific regions or growing patterns. So we plant fava beans in fall and overwinter them, for example, garbs in early spring, and common beans and cowpeas and teparies in spring to grow during summer.

We prefer to plant one variety of each of five species rather than five varieties of one species. This helps give us disease resilience. We grow one pole bean (common bean), one fava, one garb, one tepary, and one cowpea. Each is selected for spectacular flavor as well as resilience for its particular growing niche. This gives us five different species, which greatly facilitates saving pure seed; so we never have to buy seed. In addition, with winter, spring, and summer growing niches, a severe weather event is likely to wipe out only some, not all our beans.

We grow a lot of squash. We grow lots of winter squash of gourmet varieties that make spectacular food, and we know how to harvest, cure, and store it optimally. 'Sweet Meat-Oregon Homestead' is the line we use for our main winter squash food supply. It gives us prime winter squash through March. We also grow lots of delicatas, especially 'Sugar Loaf-Hessel' and 'Honeyboat' for fall eating.

We grow lots of summer squash for both fresh eating and drying. The dried summer squash is one of our major long-storing staples. Dried sliced summer squash of the right varieties makes wonderful soups and stews and chips. I have had a soup made mostly from six-year-old dried summer squash that was as delicious as it was the year I dried it.

Many people cannot make long-chain omega-3 fatty acids of the sorts we need from plant omega-3s. Some people can do the conversion reactions. Others cannot. So some people can be vegetarians. Others cannot. I'm one of the people who needs to have my long-chain omega-3s provided to me by eating animal products. Commercial animal products don't work. The omega-3s have been stripped out of them by the unnatural ways the animals are raised. I need grass-fed meat or milk, or cold-water wild fish, or free-range eggs. Of these, it's the laying flock that is easiest to keep on a home scale. So to create a full diet, in addition to my garden, I need a home laying flock. So there is a chapter in The Resilient Gardener on keeping the home chicken or duck laying flock, integrating them with your gardening, and feeding them as much as possible on garden produce and home-grown feed.

MG: Talk more about slicing and drying your squash -- which is a delicious idea. How did you decide to store your squash this way?

CD: I stole the basic idea from a peasant, naturally. In this case it was Buffalo Bird Woman, the Hidatsa Indian whose expert gardening is described in Gilbert Wilson's book, Buffalo Bird Woman's Garden. We grow plenty of delicious gourmet-quality winter squash and use them as one of our main staples. But we also grow lots of zucchinis and other summer squash, eat them as summer squash, and slice and dry the oversized squash to produce an additional long-storing staple. For Buffalo Bird Woman, it was this sliced dried summer squash that was the main product of the squash patch, with fresh summer squash and mature winter squash being delicious but minor components. Buffalo Bird Woman had specially shaped knives, special squash sticks, and big drying racks -- an elaborate sophisticated technology -- all designed to produce huge amounts of dried summer squash as efficiently as possible.

I studied, tried, and created modern variants of Buffalo Bird Woman's methods. Then I evaluated dozens of different modern summer squash varieties for flavor and usefulness as dry squash.

Most dried summer squash actually don't taste like much. Some actually taste bad. However, some varieties have powerful, delicious, unique flavors when dried as summer squash slices, flavors so good that I would be happy to grow the squash just for drying. These varieties can be dried to be the basis for delicious soups and stews in winter. Different varieties give different flavors. In addition, some varieties make great dipping chips. Others make great sweet chips.

Delightfully, the fruits that are best for drying are bigger than those that are optimal for eating as summer squash. This means that with the right varieties, you can have all the stir-fried zucchini you want, and you can dry all those that escape you and get past the optimal stage for green eating. In this way, our summer squash patch produces both the fresh crop and an additional crop that is a long-storing staple. It also means that never again do we have to creep out in the dead of night to leave anonymous baskets of oversized zuchs on the doorsteps of our neighbors.

MG: Can you take us on a verbally illustrated tour of your garden? What does it look like? What do you have planted next to each other, and how do you space your rows?

CD: I've gardened in many ways in different years and eras, and I talk about them all in The Resilient Gardener. Sometimes I've had a few raised beds of tomatoes and greens in the back yard and a bigger patch of potatoes, corn, beans, and squash at the home of a friend. These days, my farm partner Nate and I garden on a couple of acres of good soil a few miles from home, a real luxury. Much of what is going on is determined by the fact that it is just our second season on that land.

About one acre is tilled. It's divided into six sections. One section we're turning into permanent garden beds to grow a big variety of garden crops, everything from amaranth greens and garlic to lettuce and strawberries. The rest is field crops that get rotated around each year. The field crops are all in rows spaced at 3'. (Or 7' for the big squash.) The basic 3' spacing is what is needed to get our rototiller between the rows, that is, when the rototiller works. Which it doesn't always. The acre of crops is as much as we want to tend by hand when the rototiller is uncooperative. In addition, it's as much as we want to water. This kind of spacing means we need to water the most water needy crops only once per week in August, the most water-short month, and less the rest of the time. And with this spacing, the potatoes don't have to be watered at all. And everything could at least survive a good while if it didn't get watered at all, even in August.

The permanent beds are 4' across, the biggest we can reach across comfortably, with aisles between them that are alternating 3' and 1'. That space is a compromise. Nate, being 32, can tend and harvest a garden by bending over or squatting. So if the garden was just his, he would space the beds with aisles 1' wide. That way, he would have the most possible planting area for the total area that needs to be watered. And there would be as little aisle space that needs to be weeded as possible. I'm 64. My back and knees rebel against squatting or bending over for very long. I can hoe comfortably using the right kinds of tools that permit me to work standing upright with my back straight. I can also tend and harvest comfortably on my hands and knees, but that takes aisles 3' across. If we split the difference, I wouldn't be able to harvest from any of the rows. With alternating aisle widths, and Nate tending and harvesting preferentially from the narrow aisles, we can both tend and harvest. And we have lots more bed space than if we used 3' aisles for everything.

We don't put sides on our beds, incidentally. If we did that, we would have to tend all the space near the sides by hand, squatting or on hands and knees. With no sides on beds, the beds can mostly be tended by hoeing from a comfortable standing position, with a straight back. In The Resilient Gardener, I talk a good bit about the labor implications of various gardening styles and practices as well as what tools and methods to use if you have back problems. Most people garden in a way that strains or trashes their backs or knees. That is totally unnecessary if you match gardening styles and tools to your physical needs. When gardening bigger areas, this matching is especially important.

In our field, one major section is potatoes, about 23 varieties. Yellows, blues, reds, whites, bakers, boilers, early varieties, late varieties. The number of varieties gives us some resilience with respect to diseases as well as potatoes that are great for every possible cooking method, and that have many different flavors. We choose varieties based primarily upon spectacular flavor, but also upon storage ability and yield and disease resistance when grown under our conditions.

We grow our spuds organically, with no irrigation, and with only the modest levels of fertility of the sort that can be obtained simply by turning under a legume cover crop. Our spud patch should give us at least a thousand pounds of spuds, which will be prime eating quality through February, through April for certain varieties. Part of that long storage is appropriate choice of varieties. The rest of it is our method of storage, which is "sophisticated low tech." We store the potatoes in our attached garage. That's low tech. What is sophisticated is that we have figured out exactly what containers to use for optimum storage, and a maximum-minimum thermometer-hygrometer sits in the storage area. We occasionally open the garage door or the door to the house as needed in winter to control temperature or humidity.

Our potatoes don't get irrigated. We grow them at 16" in the rows instead of the 8 -- 12" so as to have one important staple crop that doesn't require irrigation. That cuts down our water use and gardening labor. In addition, if the electricity failed and we couldn't irrigate, our practice of growing potatoes without irrigation would really matter. Not irrigating also gives us especially clean, disease-free spuds. In addition, the flavors are much more intense than when the potatoes are irrigated. Water and fertility needs are very much affected by spacing. If we crowded the spuds more, we would need more fertile soil, probably imported fertilizer, and irrigation.

The tomatoes are at one end of the potato patch for purposes of rotation, since they are potato relatives. We water the tomato end.

About 1/6 of the garden is in legumes, but not in one section because we plant different species that are grown at different times of year, a common trick for spreading many kinds of risks and enhancing resilience. In addition, overwintering cool-season legumes don't require watering. Staple crops that don't require watering (or electricity) cuts the labor in good times and might be essential in bad times. So we plant 'Iant's Yellow', in fall and overwinter them. Winter is our rainy season. 'Iant's Yellow' is delicious as a dry bean (but not as a shelly). It usually overwinters well. It was an unusually cold winter, though. Most of our favas died out. These things happen. That's why overwintered favas is just one of our beans and overwintering is just one of our patterns of growing beans.

We planted 'Hannan Popbean', a garbanzo, in early spring. It was unusually cool and wet, but they did fine. I've selected 'Hannan' to grow well when grown organically, to germinate cheerfully in cold mud, to be highly resistant to all the aphid-borne legume diseases that are rampant in the Willamette Valley, and to finish a crop in late July and without irrigation. We harvested the 'Hannan' yesterday. This year, there has been almost no summer heat, and everything is delayed. So the 'Hannans' took until mid-August. But they still did fine. The fact that they finish so early gives us resilience that we called upon this year.

Our vetch cover crop died out instead of growing last winter because of the unusual cold. So we're short of fertility in the patch for summer-grown legumes. In addition, we didn't get that area tilled during the short spring tilling window before an unusually wet spring ensued. (We got the ground tilled for the potatoes, garbs, and one corn planting, but didn't have enough of a weather break for the rest.) So we got a late start planting the warm-season legumes. And it was already looking like a cool summer. This meant that any summer-grown beans might not mature until the rainy season. Common dry beans (Phaseolus vulgaris) tend to mold, rot, or split if they are asked to dry down in the rainy season. So we planted 'Fast Lady Northern Southern Pea' on all the land for summer grown legumes.

'Fast Lady', our Northern -- and maritime-adapted cowpea, is very fine in texture and delicious, and like other cowpeas, doesn't need to be soaked before cooking. Cowpeas are much better at making their own nitrogen than P. vulgaris dry beans, so our cowpea should be less affected by the fertility problem. Also, cowpeas are less harmed by getting rained upon when drying down than common beans. Cowpeas are also more drought resistant and better at scrounging water. That means we don't have to water them as often as most summer grown beans. And we can eat the shoots, leaves, green pods, and shelly beans during the summer as well as harvest the dry seed. It adds flexibility when your main staple crops give you good summer green crops as well. And I've harvested 'Fast Lady' right in the middle of the rainy season before, and it was fine. The drying pods shed rain very nicely instead of absorbing it. In addition, being a cowpea, we can save pure seed from 'Fast Lady' even if we are growing pole beans, since the cowpea and common beans are different species. And 'Fast Lady' is by far the easiest to thresh of any bean I have ever grown.

We did an early planting of 'Magic Manna', the early corn that provides our parching corn, savory corn gravy, sweetbreads, some flavors of cornbread, and cakes. I'm talking about fine-grained cakes, such as angle food cake or sponge cakes. Real cakes. True flour corns can give you a flour almost as fine in texture as commercial wheat flour. 'Magic Manna' is a flour corn that gives us four different colors of ears, each with different flavors and cooking characteristics, all from one patch. Red and pink ears make great parching corn and sweetbreads. Pancake ivory and white ears make great pancakes, sweetbreads, and cakes. And brown ears make a delicious gravy as well as savory (non-sweet) cornbreads. 'Magic Manna' is very early. I bred it by selecting for flavor, and culinary characteristics from 'Painted Mountain'. I designed the genetics so that one variety could produce corns with several flavors and culinary niches all from one patch. 'Magic Manna' should also be a great ornamental corn.

Then there is a much later planting of a late flint corn. Usually I grow pole beans on late corn, but we put the corn in too late for that this year.

We planted our early flint sister varieties 'Cascade Creamcap', 'Cascade Ruby-Gold', and 'Cascade Maple-Gold Polenta' on the farm of a cooperating grower. It pollinates at the same time as 'Magic Manna', so we don't grow both on our land. The Cascade sister lines are so designed genetically that they can be planted in adjacent patches and still allow for saving seed. The Cascade planting will give us all our polenta, johnny cakes, and five different colors of ears for five more different flavors of cornbread, all from a single patch. Corn is my basic grain staple. I'm gluten intolerant. With these corns, I can make cornbread that holds together well enough to make sandwiches, and that requires only corn, water, eggs, butter or fat or oil of some sort, salt, baking powder, and water. I've bred these Cascade lines to be the ultimate survival corns as well as to be spectacularly delicious.

The squash patch provides winter squash, summer squash, and dry squash.

Then there is a huge patch of brassicas, mostly kale but also cabbage, broccoli, and others. We plant those mostly in late July and eat them all fall and winter and spring. Nate and I both love kale. Nate also makes lots of sauerkraut.

The backyard is now heavily shaded by trees on neighboring properties. I gardened there when I first moved into the house. At this point, we garden on our leased land, and the back yard is duck pasture. My flock of 35 laying ducks (Anconas) provides all the eggs we want as well as some to sell to cover the feed bills. They also provide all our breeding stock as well as generate ducklings for sale to others in the area. The Anconas eat commercial chow and forage in summer, but in fall, winter, and spring they eat mostly cull and small potatoes and winter squash, and such goodies as worms, sowbugs, and slugs. Ducks are a better choice for free-range layers in the maritime Northwest than chickens. In our climate, they are the ultimate ecologically well-adapted livestock. Compared with chickens, ducks lay better (especially in winter), are happy outdoors year round, can scrounge a much large portion of their feed, eat even big banana slugs, and are the best at yard and garden pest control. And they love our weather.

One of our friends is a melon grower. We trade potatoes for melons. We also sell potatoes to the duck egg customers. And starting in December this year, we plan to start selling seeds of some of the varieties I've been breeding for the last two decades. We forage wild cherries and serviceberries and sometimes hazelnuts. And we buy huge amounts blueberries from a blueberry farm down the street.

Ideally, we would like to have a small farm with some sheep and maybe water buffalo for milk, meat, and draft, and a full orchard, and of course, a pond for the ducks in addition to land for our garden and seed crops. But resilience is about just doing something now, making a start, doing what you can with what you have. And what we can do at the moment is lease some good gardening land that isn't too far from our home, and grow lots of food, and breed new varieties selected specifically for flavor and resilience. And we can just play around and try things and have fun.

MG: For gardeners who are just starting out, do you think there's something intimidating about the idea of the "perfect" garden?

CD: The issue of how to get a garden as perfect as possible -- that isn't my issue. My issue is, how can I get the highest yield of the most delicious food for the least possible time and effort? I'm lazy. I want to garden efficiently. Perfectionism really gets in the way of gardening efficiently. I don't talk about very much about perfectionism. Instead, I talk about what I call "selective sloppiness." I have spent a lot of time figuring out what I can get away with not doing. I even have a section in The Resilient Gardener that lists lots of things gardeners are frequently told to do that are unnecessary or even counterproductive.

Then, of those things that actually do matter, the question is, exactly how sloppy can I be about them and still get the results I want? What is the most appropriate level of sloppiness? What is, if you will, perfect sloppiness?

While I'm at it, I have to bring up that old adage that goes "Anything worth doing is worth doing well." Nonsense! Most things worth doing are not worth doing well. They are only worth doing sloppily. And lots of what most of us spend much of our lives doing is not worth doing at all. Anything not worth doing at all is certainly not worth doing well.

Forget perfectionism! I'm not perfect. You're not perfect. The rest of our lives aren't perfect. Why should our gardens be? Let's make practical gardens, resilient gardens. And let's manage our resilient gardens with cheerful, unapologetic selective sloppiness.

Not much "public" about "public television" these days...

PBS Just as Corporate, White, Male and Republican as Commercial TV
by Lauren Kelley

There’s not much public about public television these days.

According to a multi-part report in the latest issue of Extra! magazine, published by media watchdog group FAIR (Fairness & Accuracy in Reporting), PBS is not the indie alternative to corporate-owned television it once was. In fact, in many ways, PBS now is corporate-owned television. At the same time, many PBS shows’ guest lists are woefully non-diverse.

It’s not exactly news that PBS is suckling at the corporate teat (we wrote about that a whole decade ago). But the FAIR exposé sheds light on some new and disturbing findings:

NewsHour, the network’s signature show, is mostly privately owned, despite being known as “public TV’s nightly newscast”; since 1994, the for-profit conglomerate Liberty Media has held a controlling stake in the show. Likewise, the Nightly Business Report was sold to a private company earlier this year, and details of the sale by public station WPBT are still largely unknown to the, um, public.

NewsHour viewers were five times as likely to see corporate representatives than guests from “public interest groups who might counterweigh such moneyed interests – labor, consumer and environmental organizations.” Although Democrats outnumbered Republicans as guests on the show by nearly 2-to-1, Republicans were featured more prominently than Democrats (3-to-2) in the longer-format, live segments. An earlier study showed that Republicans were featured more than Democrats overall when the GOP controlled the White House and Congress.

NewsHour’s guest list was 82% white and 80% male, with women and people of color appearing far more often in “person on the street” interviews than in any positions of authority. Appearances by women of color actually declined by a third since 2006.

The guest list for Need to Know, the news magazine that replaced Now and Bill Moyers Journal (RIP), didn’t fare any better in the pale male department. During the first three months of the show, the guest list was 78% white, 70% male and featured a corporate-representative-to-activist ratio of 20 to 12. Black people were “overwhelmingly” tied to stories on drugs and crime.

As the report points out, PBS has strayed quite far from the original tenets of public television: to give voice to those “who would otherwise go unheard” and help viewers “see America whole, in all its diversity.”

The Perfect Storm That Threatens American Democracy

The top one-tenth of one percent of Americans now earn as much as the bottom 120 million of us.
By Robert Reich, Robert Reich's Blog
Posted on October 24, 2010

It’s a perfect storm. And I’m not talking about the impending dangers facing Democrats. I’m talking about the dangers facing our democracy.

First, income in America is now more concentrated in fewer hands than it’s been in 80 years. Almost a quarter of total income generated in the United States is going to the top 1 percent of Americans.

The top one-tenth of one percent of Americans now earn as much as the bottom 120 million of us.

Who are these people? With the exception of a few entrepreneurs like Bill Gates, they’re top executives of big corporations and Wall Street, hedge-fund managers, and private equity managers. They include the Koch brothers, whose wealth increased by billions last year, and who are now funding tea party candidates across the nation.

Which gets us to the second part of the perfect storm. A relatively few Americans are buying our democracy as never before. And they’re doing it completely in secret.

Hundreds of millions of dollars are pouring into advertisements for and against candidates — without a trace of where the dollars are coming from. They’re laundered through a handful of groups. Fred Malek, whom you may remember as deputy director of Richard Nixon’s notorious Committee to Reelect the President (dubbed Creep in the Watergate scandal), is running one of them. Republican operative Karl Rove runs another. The U.S. Chamber of Commerce, a third.

The Supreme Court’s Citizens United vs. the Federal Election Commission made it possible. The Federal Election Commission says only 32 percent of groups paying for election ads are disclosing the names of their donors. By comparison, in the 2006 midterm, 97 percent disclosed; in 2008, almost half disclosed.

We’re back to the late 19th century when the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. The public never knew who was bribing whom.

Just before it recessed the House passed a bill that would require that the names of all such donors be publicly disclosed. But it couldn’t get through the Senate. Every Republican voted against it. (To see how far the GOP has come, nearly ten years ago campaign disclosure was supported by 48 of 54 Republican senators.)

Here’s the third part of the perfect storm. Most Americans are in trouble. Their jobs, incomes, savings, and even homes are on the line. They need a government that’s working for them, not for the privileged and the powerful.

Yet their state and local taxes are rising. And their services are being cut. Teachers and firefighters are being laid off. The roads and bridges they count on are crumbling, pipelines are leaking, schools are dilapidated, and public libraries are being shut.

There’s no jobs bill to speak of. No WPA to hire those who can’t find jobs in the private sector. Unemployment insurance doesn’t reach half of the unemployed.

Washington says nothing can be done. There’s no money left.

No money? The marginal income tax rate on the very rich is the lowest it’s been in more than 80 years. Under President Dwight Eisenhower (who no one would have accused of being a radical) it was 91 percent. Now it’s 36 percent. Congress is even fighting over whether to end the temporary Bush tax cut for the rich and return them to the Clinton top tax of 39 percent.

Much of the income of the highest earners is treated as capital gains, anyway — subject to a 15 percent tax. The typical hedge-fund and private-equity manager paid only 17 percent last year. Their earnings were not exactly modest. The top 15 hedge-fund managers earned an average of $1 billion.

Congress won’t even return to the estate tax in place during the Clinton administration – which applied only to those in the top 2 percent of incomes.

It won’t limit the tax deductions of the very rich, which include interest payments on multi-million dollar mortgages. (Yet Wall Street refuses to allow homeowners who can’t meet mortgage payments to include their primary residence in personal bankruptcy.)

There’s plenty of money to help stranded Americans, just not the political will to raise it. And at the rate secret money is flooding our political system, even less political will in the future.

The perfect storm: An unprecedented concentration of income and wealth at the top; a record amount of secret money flooding our democracy; and a public becoming increasingly angry and cynical about a government that’s raising its taxes, reducing its services, and unable to get it back to work.

We’re losing our democracy to a different system. It’s called plutocracy.

Fascist America: Is This Election the Next Turn?

It's not fascism yet...
By Sara Robinson, Blog for Our Future
Posted on October 24, 2010

In August 2009, I wrote a piece titled Fascist America: Are We There Yet? that sparked much discussion on both the left and right ends of the blogosphere. In it, I argued that -- according to the best scholarship on how fascist regimes emerge -- America was on a path that was running much too close to the fail-safe point beyond which no previous democracy has ever been able to turn back from a full-on fascist state. I also noted that the then-emerging Tea Party had a lot of proto-fascist hallmarks, and that it had the potential to become a clear and present danger to the future of our democracy if it ever got enough traction to start winning elections in a big way.

On the first anniversary of that article, Jonah Goldberg -- the right's revisionist-in-chief on the subject of fascism -- actually used an entire National Review column to taunt me about what he characterized as a failure of prediction. Where's that fascist state you promised? he hooted.

It's funny he should ask. Because this coming election may, in fact, be a critical turning point on that road.

The Fascist America series of three articles (the other two are here and here) was built out of Robert Paxton's Anatomy of Fascism -- a landmark work of scholarship that lays out that specific conditions and prognosis of fascism as a political form. Paxton defined fascism as:

...a form of political behavior marked by obsessive preoccupation with community decline, humiliation or victimhood and by compensatory cults of unity, energy and purity, in which a mass-based party of committed nationalist militants, working in uneasy but effective collaboration with traditional elites, abandons democratic liberties and pursues with redemptive violence and without ethical or legal restraints goals of internal cleansing and external expansion. (For the good of the global multinational corporations--he forgot that part--jef)

Paxton laid out the five basic lifecycle stages of successful fascist movements. In the first stage, a mature industrial state facing some kind of crisis breeds a new, rural movement that's based on nationalist renewal. This movement invariably rejects reason and glorifies raw emotion, promises to restore lost national pride, co-opts the nation's traditional myths for its own purposes, and insists that the country must be purged of the toxic influence of outsiders and intellectuals who are blamed for their current misery.

(Sound familiar yet?)

In the second stage, the movement takes root, turns into a real political party, and seizes a seat at the table. Success at this stage, Paxton writes, "depends on certain relatively precise conditions: the weakness of a liberal state, whose inadequacies condemn the nation to disorder, decline, or humiliation; and political deadlock because the Right, the heir to power but unable to continue to wield it alone, refuses to accept a growing Left as a legitimate governing partner."

(Paging the Party of No....)

In the face of this deadlock, the corporate elites forge an alliance with rural nationalists, creating an unholy marriage that, if it continues, will soon breed a fascist state. And, of course, this is precisely what's happening now between the Koch Brothers, the oil companies, Americans for Prosperity, and the Tea Party.

The majority of history's would-be fascist movements have died right at this stage -- almost always because of the basic authoritarian ineptitude of their leadership, which ensured that they'd never gain anything more than a small and temporary handful of seats at the political table. The successful fascisms, on the other hand, were the ones that held together and to gained enough political leverage that capturing their governments became inevitable. And once that happened, there was no turning back, because they now had the political power and street muscle to silence any opposition. (Fascist parties almost never enjoy majority support at any stage -- but being a minority faction is only a problem in a functioning democracy. It's no problem at all if you're willing to use force to get your way.)

According to Paxton, there are three quick questions that let you know you've crossed that fail-safe line beyond which an emerging fascist regime has too much power to be stopped:

1. Are [neo- or protofascisms] becoming rooted as parties that represent major interests and feelings and wield major influence on the political scene?

2. Is the economic or constitutional system in a state of blockage apparently insoluble by existing authorities?

3. Is a rapid political mobilization threatening to escape the control of traditional elites, to the point where they would be tempted to look for tough helpers in order to stay in charge?

If the answer to all three is "yes," you're probably on for the rest of the ride, which can run for at least a decade or two before it burns through.

A year ago, I noted that we were already three for three on these questions. Now, the "yes" answers are far more resounding. With over 70 Tea Party candidates running for major state and federal offices on the ballot this November, it's fair to say that the 2010 election is shaping up as a national referendum on the Tea Party's future viability. And if they succeed at winning enough of these races, it may very well be the last vote on the subject we ever get.

The Alternatives
There are only a few ways this plays out. A few scenarios:

1. The Tea Party is rejected outright by the voters on November 2. A handful of their candidates do win their races; and for the next few years, the Democrats have a grand time pointing out their sheer wingnuttitude, bolstering a compelling case against electing any more of them in the future. The party begins to lose momentum, and in a few years is defunct.

2. The Tea Party elects a credible number of these 70-odd candidates -- enough to make a solid showing and establish its political bona fides, but not enough to get anything serious done. If this happens, progressives need to work fast and hard. If this right-wing tide continues to build as we head into the 2012 election, we'll still be cruising straight into a fascist future -- just not quite yet. There's time to stop it, but the momentum is not on our side -- and stopping it only gets harder with every passing week.

3. A solid majority of the Tea Party candidates win their races, cementing the movement's lock on the GOP and turning it into a genuine political power in this country. They've already promised us that if they take either house of Congress, the next two years will be a lurid nightmare of hearings, trials, impeachments, and character assassinations against progressives. (Which could, in the end, backfire on the GOP as badly as the Clinton impeachment did. We can hope.) Similar scorched-earth harassment awaits officials at every other level of government, too. And casual violence against immigrants, gays, and progressives may escalate as the Tea Party brownshirts become bolder, confident that at least some authorities will either back them up or look the other way.

In this scenario, the fail-safe point -- the point beyond which no country has ever turned back from the full fascist nightmare -- may well be behind us when we wake up on November 3. From there, the rest will play out in agonizing slow motion; and the character of the rest of this decade will hinge almost entirely on whether the corporatists, the militarists, or the theocrats ultimately get the upper hand in the emerging regime.

Really? Are you serious?
It's fair to wonder if the Tea Party deserves to be taken this seriously. After all, there's always been this faction in US politics -- the 10-12% rightwing authoritarian hard core that fueled McCarthyism and the Bircher movement and the Moral Majority; that voted for Goldwater and then George Wallace and even put KKK leader David Duke into office for a time. The far right has always been with us. It's one of the constants in our political landscape.

But they've always been a fringe movement, and it's mostly kept to itself. What's different now is that all the crazy ideas of the radical right -- climate and evolution denialism, banning contraception, sovereign citizenship, End Times theology, white nationalism, all of it -- have been catalyzed by the magic of the Internet and widespread economic disaster into one coherent mass subculture that, according to a Wall Street Journal poll released yesterday, has attracted a full 35% of the country's likely voters. According to Chip Berlet of Political Research Associates, the Tea Parties are a broad movement that brings together several preexisting formations on the political right:

-- Economic libertarians who worry about big government collectivist tyranny

-- Christian Right Conservatives who oppose liberal government social policies

-- Right-wing apocalyptic Christians who fear a Satanic New World Order

-- Nebulous conspiracy theorists who fear a secular New World Order

-- Nationalistic ultra-patriots concerned that US sovereignty is eroding

-- Xenophobic anti-immigrant white nationalists who worry about preserving the “real” America.

This unification of right-wing forces around radical far-right ideas has never happened on anything like this scale in modern American history. And it's why we need to recognize the Tea Party as something unique under the political sun -- and seriously evaluate the future that awaits us if it becomes any more powerful.

That future is a painful thing to contemplate. I've been called an alarmist for even daring to use the F-word to describe the situation we're facing. But that's one of the universal hallmarks of fascism: by the time everybody finally wakes up and realizes that they're in it, it's usually too late to do anything about it. Here's how Milton Mayer described his experience of this as the Nazi thrall descended in Germany:

In the university community, in your own community, you speak privately to your colleagues, some of whom certainly feel as you do; but what do they say? They say, ‘It’s not so bad’ or ‘You’re seeing things’ or ‘You’re an alarmist.’

And you are an alarmist. You are saying that this must lead to this, and you can’t prove it. These are the beginnings, yes; but how do you know for sure when you don’t know the end, and how do you know, or even surmise, the end? On the one hand, your enemies, the law, the regime, the Party, intimidate you. On the other, your colleagues pooh-pooh you as pessimistic or even neurotic.

And yet the day comes when it's all too clear, Mayer writes -- and on that day, it's too late to stand up.

Suddenly it all comes down, all at once. You see what you are, what you have done, or, more accurately, what you haven’t done (for that was all that was required of most of us: that we do nothing). You remember those early meetings of your department in the university when, if one had stood, others would have stood, perhaps, but no one stood. A small matter, a matter of hiring this man or that, and you hired this one rather than that. You remember everything now, and your heart breaks. Too late. You are compromised beyond repair.

There are only a few days left before the election. Whatever you do between now and then will be a small matter -- a matter of making a few phone calls, of knocking on some doors, of following up with friends. And yet any compromise now could be the one we will remember with breaking hearts five years from now, when the country we knew is gone, and our future has been seized by people who represent the worst of everything we are.

Be the one who sees where this is taking us. Be the one who stands while you still can. The future these people have in mind for us is one that dozens of countries have already lived through; and all of them will carry the scars for centuries. It's not fascism yet; but if the Tea Party manages to get its hands on the levers of power, it will be.

How a Gang of Predatory Lenders and Bankers Fleeced America, and Launched a Global Crisis

Exposing the major players behind the biggest financial hurricane in the history of global capitalism.
By Michael Hudson, Times Books
Posted on October 24, 2010

The following is an excerpt from Michael Hudson's THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – And Spawned a Global Crisis (2010, Times Books)

A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a coworker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeles's Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebody's signature.

Glover was new to the mortgage business. He was twenty-nine and hadn't held a steady job in years. But he wasn't stupid. He knew about financial sleight of hand -- at that time, he had a check-fraud charge hanging over his head in the L.A. courthouse a few blocks away. Watching his coworker, Glover's first thought was: How can I get away with that? As a loan officer at Ameriquest, Glover worked on commission. He knew the only way to earn the six-figure income Ameriquest had promised him was to come up with tricks for pushing deals through the mortgage-financing pipeline that began with Ameriquest and extended through Wall Street's most respected investment houses.

Glover and the other twentysomethings who filled the sales force at the downtown L.A. branch worked the phones hour after hour, calling strangers and trying to talk them into refinancing their homes with high-priced "subprime" mortgages. It was 2003, subprime was on the rise, and Ameriquest was leading the way. The company's owner, Roland Arnall, had in many ways been the founding father of subprime, the business of lending money to home owners with modest incomes or blemished credit histories. He had pioneered this risky segment of the mortgage market amid the wreckage of the savings and loan disaster and helped transform his company's headquarters, Orange County, California, into the capital of the subprime industry. Now, with the housing market booming and Wall Street clamoring to invest in subprime, Ameriquest was growing with startling velocity.

Up and down the line, from loan officers to regional managers and vice presidents, Ameriquest's employees scrambled at the end of each month to push through as many loans as possible, to pad their monthly production numbers, boost their commissions, and meet Roland Arnall's expectations. Arnall was a man "obsessed with loan volume," former aides recalled, a mortgage entrepreneur who believed "volume solved all problems." Whenever an underling suggested a goal for loan production over a particular time span, Arnall's favorite reply was: "We can do twice that." Close to midnight Pacific time on the last business day of each month, the phone would ring at Arnall's home in Los Angeles's exclusive Holmby Hills neighborhood, a $30 million estate that once had been home to Sonny and Cher.On the other end of the telephone line, a vice president in Orange County would report the month's production numbers for his lending empire. Even as the totals grew to $3 billion or $6 billion or $7 billion a month -- figures never before imagined in the subprime business -- Arnall wasn't satisfied. He wanted more. "He would just try to make you stretch beyond what you thought possible," one former Ameriquest executive recalled. "Whatever you did, no matter how good you did, it wasn't good enough."

Inside Glover's branch, loan officers kept up with the demand to produce by guzzling Red Bull energy drinks, a favorite caffeine pick-me-up for hardworking salesmen throughout the mortgage industry. Government investigators would later joke that they could gauge how dirty a home-loan location was by the number of empty Red Bull cans in the Dumpster out back. Some of the crew in the L.A. branch, Glover said, also relied on cocaine to keep themselves going, snorting lines in washrooms and, on occasion, in their cubicles.

The wayward behavior didn't stop with drugs. Glover learned that his colleague's art work wasn't a matter of saving a borrower the hassle of coming in to supply a missed signature. The guy was forging borrowers' signatures on government-required disclosure forms, the ones that were supposed to help consumers understand how much cash they'd be getting out of the loan and how much they'd be paying in interest and fees. Ameriquest's deals were so overpriced and loaded with nasty surprises that getting customers to sign often required an elaborate web of psychological ploys, outright lies, and falsified papers. "Every closing that we had really was a bait and switch," a loan officer who worked for Ameriquest in Tampa, Florida, recalled. " 'Cause you could never get them to the table if you were honest." At companywide gatherings, Ameriquest's managers and sales reps loosened up with free alcohol and swapped tips for fooling borrowers and cooking up phony paperwork. What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documents -- the ones indicating the loan had an adjustable rate that would rocket upward in two or three years -- near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.

At the downtown L.A. branch, some of Glover's coworkers had a flair for creative documentation. They used scissors, tape, Wite-Out, and a photocopier to fabricate W-2s, the tax forms that indicate how much a wage earner makes each year. It was easy: Paste the name of a low-earning borrower onto a W-2 belonging to a higher-earning borrower and, like magic, a bad loan prospect suddenly looked much better. Workers in the branch equipped the office's break room with all the tools they needed to manufacture and manipulate official documents. They dubbed it the "Art Department."

At first, Glover thought the branch might be a rogue office struggling to keep up with the goals set by Ameriquest's headquarters. He discovered that wasn't the case when he transferred to the company's Santa Monica branch. A few of his new colleagues invited him on a field trip to Staples, where everyone chipped in their own money to buy a state-of-the-art scanner-printer, a trusty piece of equipment that would allow them to do a better job of creating phony paperwork and trapping American home owners in a cycle of crushing debt.

Carolyn Pittman was an easy target. She'd dropped out of high school to go to work, and had never learned to read or write very well. She worked for decades as a nursing assistant. Her husband, Charlie, was a longshoreman.In 1993 she and Charlie borrowed $58,850 to buy a one-story, concrete block house on Irex Street in a working-class neighborhood of Atlantic Beach, a community of thirteen thousand near Jacksonville, Florida. Their mortgage was government-insured by the Federal Housing Administration, so they got a good deal on the loan. They paid about $500 a month on the FHA loan, including the money to cover their home insurance and property taxes.

Even after Charlie died in 1998, Pittman kept up with her house payments. But things were tough for her. Financial matters weren't something she knew much about. Charlie had always handled what little money they had. Her health wasn't good either. She had a heart attack in 2001, and was back and forth to hospitals with congestive heart failure and kidney problems. Like many older black women who owned their homes but had modest incomes, Pittman was deluged almost every day, by mail and by phone, with sales pitches offering money to fix up her house or pay off her bills. A few months after her heart attack, a salesman from Ameriquest Mortgage's Coral Springs office caught her on the phone and assured her he could ease her worries. He said Ameriquest would help her out by lowering her interest rate and her monthly payments.

She signed the papers in August 2001. Only later did she discover that the loan wasn't what she'd been promised. Her interest rate jumped from a fixed 8.43 percent on the FHA loan to a variable rate that started at nearly 11 percent and could climb much higher. The loan was also packed with more than $7,000 in up-front fees, roughly 10 percent of the loan amount. Pittman's mortgage payment climbed to $644 a month. Even worse, the new mortgage didn't include an escrow for real-estate taxes and insurance. Most mortgage agreements require home owners to pay a bit extra -- often about $100 to $300 a month -- which is set aside in an escrow account to cover these expenses. But many subprime lenders obscured the true costs of their loans by excluding the escrow from their deals, which made the monthly payments appear lower. Many borrowers didn't learn they had been tricked until they got a big bill for unpaid taxes or insurance a year down the road.

That was just the start of Pittman's mortgage problems. Her new mortgage was a matter of public record, and by taking out a loan from Ameriquest, she'd signaled to other subprime lenders that she was vulnerable -- that she was financially unsophisticated and was struggling to pay an unaffordable loan. In 2003, she heard from one of Ameriquest's competitors, Long Beach Mortgage Company.

Pittman had no idea that Long Beach and Ameriquest shared the same corporate DNA. Roland Arnall's first subprime lender had been Long Beach Savings and Loan, a company he had morphed into Long Beach Mortgage. He had sold off most of Long Beach Mortgage in 1997, but hung on to a portion of the company that he rechristened Ameriquest. Though Long Beach and Ameriquest were no longer connected, both were still staffed with employees who had learned the business under Arnall.

A salesman from Long Beach Mortgage, Pittman said, told her that he could help her solve the problems created by her Ameriquest loan. Once again, she signed the papers. The new loan from Long Beach cost her thousands in up-front fees and boosted her mortgage payments to $672 a month.

Ameriquest reclaimed her as a customer less than a year later. A salesman from Ameriquest's Jacksonville branch got her on the phone in the spring of 2004. He promised, once again, that refinancing would lower her interest rate and her monthly payments. Pittman wasn't sure what to do. She knew she'd been burned before, but she desperately wanted to find a way to pay off the Long Beach loan and regain her financial bearings. She was still pondering whether to take the loan when two Ameriquest representatives appeared at the house on Irex Street. They brought a stack of documents with them. They told her, she later recalled, that it was preliminary paperwork, simply to get the process started. She could make up her mind later. The men said, "sign here," "sign here," "sign here," as they flipped through the stack. Pittman didn't understand these were final loan papers and her signatures were binding her to Ameriquest. "They just said sign some papers and we'll help you," she recalled.

To push the deal through and make it look better to investors on Wall Street, consumer attorneys later alleged, someone at Ameriquest falsified Pittman's income on the mortgage application. At best, she had an income of $1,600 a month -- roughly $1,000 from Social Security and, when he could afford to pay, another $600 a month in rent from her son. Ameriquest's paperwork claimed she brought in more than twice that much -- $3,700 a month.

The new deal left her with a house payment of $1,069 a month -- nearly all of her monthly income and twice what she'd been paying on the FHA loan before Ameriquest and Long Beach hustled her through the series of refinancings. She was shocked when she realized she was required to pay more than $1,000 a month on her mortgage. "That broke my heart," she said. For Ameriquest, the fact that Pittman couldn't afford the payments was of little consequence. Her loan was quickly pooled, with more than fifteen thousand other Ameriquest loans from around the country, into a $2.4 billion "mortgage-backed securities" deal known as Ameriquest Mortgage Securities, Inc. Mortgage Pass-Through Certificates 2004-R7. The deal had been put together by a trio of the world's largest investment banks: UBS, JPMorgan, and Citigroup. These banks oversaw the accounting wizardry that transformed Pittman's mortgage and thousands of other subprime loans into investments sought after by some of the world's biggest investors. Slices of 2004-R7 got snapped up by giants such as the insurer MassMutual and Legg Mason, a mutual fund manager with clients in more than seventy-five countries. Also among the buyers was the investment bank Morgan Stanley, which purchased some of the securities and placed them in its Limited Duration Investment Fund, mixing them with investments in General Mills, FedEx, JC Penney, Harley-Davidson, and other household names. It was the new way of Wall Street. The loan on Carolyn Pittman's one-story house in Atlantic Beach was now part of the great global mortgage machine. It helped swell the portfolios of big-time speculators and middle-class investors looking to build a nest egg for retirement. And, in doing so, it helped fuel the mortgage empire that in 2004 produced $1.3 billion in profits for Roland Arnall.

In the first years of the twenty-first century, Ameriquest Mortgage unleashed an army of salespeople on America. They numbered in the thousands. They were young, hungry, and relentless in their drive to sell loans and earn big commissions. One Ameriquest manager summed things up in an e-mail to his sales force: "We are all here to make as much fucking money as possible. Bottom line. Nothing else matters." Home owners like Carolyn Pittman were caught up in Ameriquest's push to become the nation's biggest subprime lender. The pressure to produce an ever-growing volume of loans came from the top. Executives at Ameriquest's home office in Orange County leaned on the regional and area managers; the regional and area managers leaned on the branch managers. And the branch managers leaned on the salesmen who worked the phones and hunted for borrowers willing to sign on to Ameriquest loans. Men usually ran things, and a frat-house mentality ruled, with plenty of partying and testosterone-fueled swagger. "It was like college, but with lots of money and power," Travis Paules, a former Ameriquest executive, said. Paules liked to hire strippers to reward his sales reps for working well after midnight to get loan deals processed during the end-of-the-month rush. At Ameriquest branches around the nation, loan officers worked ten- and twelve-hour days punctuated by "Power Hours" -- do-or-die telemarketing sessions aimed at sniffing out borrowers and separating the real salesmen from the washouts. At the branch where Mark Bomchill worked in suburban Minneapolis, management expected Bomchill and other loan officers to make one hundred to two hundred sales calls a day. One manager, Bomchill said, prowled the aisles between desks like "a little Hitler," hounding salesmen to make more calls and sell more loans and bragging he hired and fired people so fast that one peon would be cleaning out his desk as his replacement came through the door.As with Mark Glover in Los Angeles, experience in the mortgage business wasn't a prerequisite for getting hired. Former employees said the company preferred to hire younger, inexperienced workers because it was easier to train them to do things the Ameriquest way. A former loan officer who worked for Ameriquest in Michigan described the company's business model this way: "People entrusting their entire home and everything they've worked for in their life to people who have just walked in off the street and don't know anything about mortgages and are trying to do anything they can to take advantage of them."

Ameriquest was not alone. Other companies, eager to get a piece of the market for high-profit loans, copied its methods, setting up shop in Orange County and helping to transform the county into the Silicon Valley of subprime lending. With big investors willing to pay top dollar for assets backed by this new breed of mortgages, the push to make more and more loans reached a frenzy among the county's subprime loan shops. "The atmosphere was like this giant cocaine party you see on TV," said Sylvia Vega-Sutfin, who worked as an account executive at BNC Mortgage, a fast-growing operation headquartered in Orange County just down the Costa Mesa Freeway from Ameriquest's headquarters. "It was like this giant rush of urgency." One manager told Vega-Sutfin and her coworkers that there was no turning back; he had no choice but to push for mind-blowing production numbers. "I have to close thirty loans a month," he said, "because that's what my family's lifestyle demands."

Michelle Seymour, one of Vega-Sutfin's colleagues, spotted her first suspect loan days after she began working as a mortgage underwriter at BNC's Sacramento branch in early 2005. The documents in the file indicated the borrower was making a six-figure salary coordinating dances at a Mexican restaurant. All the numbers on the borrower's W-2 tax form ended in zeros -- an unlikely happenstance -- and the Social Security and tax bite didn't match the borrower's income. When Seymour complained to a manager, she said, he was blase, telling her, "It takes a lot to have aloan declined."

BNC was no fly-by-night operation. It was owned by one of Wall Street's most storied investment banks, Lehman Brothers. The bank had made a big bet on housing and mortgages, styling itself as a player in commercial real estate and, especially, subprime lending. "In the mortgage business, we used to say, 'All roads lead to Lehman,' " one industry veteran recalled.Lehman had bought a stake in BNC in 2000 and had taken full ownership in 2004, figuring it could earn even more money in the subprime business by cutting out the middleman. Wall Street bankers and investors flocked to the loans produced by BNC, Ameriquest, and other subprime operators; the steep fees and interest rates extracted from borrowers allowed the bankers to charge fat commissions for packaging the securities and provided generous yields for investors who purchased them. Up-front fees on subprime loans totaled thousands of dollars. Interest rates often started out deceptively low -- perhaps at 7 or 8 percent -- but they almost always adjusted upward, rising to 10 percent, 12 percent, and beyond. When their rates spiked, borrowers' monthly payments increased, too, often climbing by hundreds of dollars. Borrowers who tried to escape overpriced loans by refinancing into another mortgage usually found themselves paying thousands of dollars more in backend fees -- "prepayment penalties" that punished them for paying off their loans early. Millions of these loans -- tied to modest homes in places like Atlantic Beach, Florida; Saginaw, Michigan; and East San Jose, California -- helped generate great fortunes for financiers and investors. They also helped lay America's economy low and sparked a worldwide financial crisis.

The subprime market did not cause the U.S. and global financial meltdowns by itself. Other varieties of home loans and a host of arcane financial innovations -- such as collateralized debt obligations and credit default swaps -- also came into play. Nevertheless, subprime played a central role in the debacle. It served as an early proving ground for financial engineers who sold investors and regulators alike on the idea that it was possible, through accounting alchemy, to turn risky assets into "Triple-A-rated" securities that were nearly as safe as government bonds. In turn, financial wizards making bets with CDOs and credit default swaps used subprime mortgages as the raw material for their speculations. Subprime, as one market watcher said, was "the leading edge of a financial hurricane."

This book tells the story of the rise and fall of subprime by chronicling the rise and fall of two corporate empires: Ameriquest and Lehman Brothers. It is a story about the melding of two financial cultures separated by a continent: Orange County and Wall Street.

Ameriquest and its strongest competitors in subprime had their roots in Orange County, a sunny land of beauty and wealth that has a history as a breeding ground for white-collar crime: boiler rooms, S&L frauds, real-estate swindles. That history made it an ideal setting for launching the subprime industry, which grew in large measure thanks to bait-and-switch salesmanship and garden-variety deception. By the height of the nation's mortgage boom, Orange County was home to four of the nation's six biggest subprime lenders. Together, these four lenders -- Ameriquest, Option One, Fremont Investment & Loan, and New Century -- accounted for nearly a third of the subprime market. Other subprime shops, too, sprung up throughout the county, many of them started by former employees of Ameriquest and its corporate forebears, Long Beach Savings and Long Beach Mortgage.

Lehman Brothers was, of course, one of the most important institutions on Wall Street, a firm with a rich history dating to before the Civil War. Under its pugnacious CEO, Richard Fuld, Lehman helped bankroll many of the nation's shadiest subprime lenders, including Ameriquest. "Lehman never saw a subprime lender they didn't like," one consumer lawyer who fought the industry's abuses said.Lehman and other Wall Street powers provided the financial backing and sheen of respectability that transformed subprime from a tiny corner of the mortgage market into an economic behemoth capable of triggering the worst economic crisis since the Great Depression.

A long list of mortgage entrepreneurs and Wall Street bankers cultivated the tactics that fueled subprime's growth and its collapse, and a succession of politicians and regulators looked the other way as abuses flourished and the nation lurched toward disaster: Angelo Mozilo and Countrywide Financial; Bear Stearns, Washington Mutual, Wells Fargo; Alan Greenspan and the Federal Reserve; and many more. Still, no Wall Street firm did more than Lehman to create the subprime monster. And no figure or institution did more to bring subprime's abuses to life across the nation than Roland Arnall and Ameriquest.

Among his employees, subprime's founding father was feared and admired. He was a figure of rumor and speculation, a mysterious billionaire with a rags-to-riches backstory, a hardscrabble street vendor who reinvented himself as a big-time real-estate developer, a corporate titan, a friend to many of the nation's most powerful elected leaders. He was a man driven, according to some who knew him, by a desire to conquer and dominate. "Roland could be the biggest bastard in the world and the most charming guy in the world," said one executive who worked for Arnall in subprime's early days. "And it could be minutes apart."He displayed his charm to people who had the power to help him or hurt him. He cultivated friendships with politicians as well as civil rights advocates and antipoverty crusaders who might be hostile to the unconventional loans his companies sold in minority and working-class neighborhoods. Many people who knew him saw him as a visionary, a humanitarian, a friend to the needy. "Roland was one of the most generous people I have ever met," a former business partner said.He also left behind, as another former associate put it, "a trail of bodies" -- a succession of employees, friends, relatives, and business partners who said he had betrayed them. In summing up his own split with Arnall, his best friend and longtime business partner said, "I was screwed."Another former colleague, a man who helped Arnall give birth to the modern subprime mortgage industry, said: "Deep down inside he was a good man. But he had an evil side. When he pulled that out, it was bad. He could be extremely cruel." When they parted ways, he said, Arnall hadn't paid him all the money he was owed. But, he noted, Arnall hadn't cheated him as badly as he could have. "He fucked me.But within reason."

Roland Arnall built a company that became a household name, but shunned the limelight for himself. The business partner who said Arnall had "screwed" him recalled that Arnall fancied himself a puppet master who manipulated great wealth and controlled a network of confederates to perform his bidding. Another former business associate, an underling who admired him, explained that Arnall worked to ingratiate himself to fair-lending activists for a simple reason: "You can take that straight out of The Godfather: 'Keep your enemies close.' "

From the Book THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – And Spawned a Global Crisis by Michael W. Hudson. Copyright © 2010 by Michael W. Hudson. Reprinted by arrangement with Times Books, an imprint of Henry Holt and Company LLC.