Boiler Room And "Predatory Lending"
March 12, 2009, 03:56 PM
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While reading up on Ameriquest, the top subprime mortgage originator in America before going belly-up in 2007, I was struck by this bit from a 2005 LA Times article by Mike Hudson and E. Scott Reckard:
Many of the ex-employees likened Ameriquest's culture to the rough-and-tumble world of "Boiler Room," a 2000 movie about fast-talking, young stock swindlers who revel in their powers of anything-goes salesmanship.

The comparison is more than happenstance: "That was your homework – to watch 'Boiler Room,' " Taylor said. Managers and employees passed around the film to keep themselves fired up, she and others explained. Kendall, in a sworn declaration in the Redwood City class-action case, said that watching "Boiler Room" was part of his Ameriquest training.

It was all about "the energy, the impact, the driving, the hustling," Taylor said.

So, I rented the 2000 movie. It's well worth seeing, as are so many movies that give you an inside view of some masculine institution.

A movie about the U.S. Marines, for instance, doesn't have to be terribly good to still be entertaining. There's just so much lore the screenwriter can crib. For example, there was a spat over "Jarhead," about a Marine in the First Gulf War, because the author of another memoir about that war pointed out that that a speech a colonel gives welcoming the Marines to the war zone was lifted nearly word for word from his book. Veteran screenwriter William Broyles ("Apollo 13") replied that that, sure, it's the same speech, but it's also the same speech Broyles heard from his colonel when he arrived in Vietnam in 1965. Marines don't let a good speech go to waste.

Similarly, it's fitting that the real life subprime peddlers at Ameriquest all watched "Boiler Room" because the crooked stockbrokers in "Boiler Room" all watch "Glengarry Glen Ross" and "Wall Street." They get together in the evening in one broker's giant empty house and watch "Wall Street" on the big TV and see who can do Michael Douglas's Gordon Gekko lines best.

High pressure salesmen watch movies about high pressure salesmen for pointers. The rest of us need could use a refresher in the games they are playing on us. The chief reminder, of course, is that they persuade men to make dumb outlays of money by challenging their manhood.

"Boiler Room" has lots of great lines, although it's a little clunky overall. This is a very young writer-director's first movie (Ben Younger was 27 when it was released) and it shows.

The casting is a little off. I wonder if somebody told Ben Younger that for his lead, the conflicted college dropout who can't decide whether he wants the money or his soul back, he should get, "You know, what's-his-name, that young guy, the pale one with the really Italian-sounding name," but instead of getting Leonard DiCaprio, he got Giovanni Ribisi instead. (Of course, there are a lot of movies that could have gone from half empty to half full just by DiCaprio in the title role.)

Ribisi's quite good in the selling scenes, but he never sold me on the idea that he should be a Hollywood leading man — he's too toad-like and his complexion resembles the singer's in My Bloody Valentine.

Ben Affleck has the Alec Baldwin in "Glengarry Glen Ross" role as the sales manager who gives motivational speeches. (Here's the Youtube clip of the "group job interview" — language NSFW.) Affleck is a guy who has shown some talent as a director and screenwriter, and has had enough work done that he looks like a leading man, but he's not really quite good enough of an actor. He's fine here giving motivational soliloquies, but there's fifty guys who could have done them even better.

Vin Diesel plays the one senior broker who is not a total jerk. I like Diesel, and I think he's a rather good actor when he's not talking (his control of his facial muscles is surprisingly delicate). But Diesel has some kind of speech impediment. I'm not sure exactly what it is — some times it's a lisp, some times something else. But "Boiler Room" is the wrong movie for him: way too talky. Here's a Youtube clip of him reeling in a client where his charisma is locked in uneasy conflict with his speech impediment. (The really odd thing about Vin Diesel is how much his facial expressions resemble those of Jerry Seinfeld.)

With DiCaprio starring, Martin Scorsese directing, and an extra $100,000 of script doctoring, "Boiler Room" would be one helluva movie. But it's still worth seeing to learn some of the tricks of the selling trade, both for playing offense and defense.

Now, Ameriquest, where "Boiler Room" served as a training manual in salesmanship, was owned by Roland Arnall, whom Bush appointed U.S. Ambassador to the Netherlands — after this series of articles in the LA Times came out. And the Senate approved his nomination.

Something to keep in mind is how Boiler Room operators like Arnall and Angelo Mozilo of Countrywide used political correctness to keep regulators off their backs. Is it any surprise that having made the concept of diversity sacred and above question, it gets exploited by the Boiler Room Boys?

I've quoted before from Mozilo's prestigious 2003 Harvard address in which he promised to lend $600 billion to low income and minority borrowers over seven years. Mozilo's big speech is very similar to Bush's speeches of the same era about how America must create 5.5 million more minority homeowners. Here's a part I didn't get to, in which Mozilo repeatedly invokes the mantra from the Community Reinvestment Act about increasing lending to "low-income and minority borrowers" to argue against anti-predatory lending regulations. It all makes sense if you assume that a big problem in America in the 2000s is racist financial institutions not lending enough money to minorities. I've put in bold the places where he invokes diversity:

The next structural obstacle I would like to address is predatory mania, or to be more exact, the predatory lending legislation that is causing regulatory mania. From my perspective, there is absolutely no question that lending abuses have and are taking place relative to loans to low-income and minority borrowers. These abuses — whether they are loan flipping, the bait and switch, packing of fees, or any other unfair practice — must be addressed so that all Americans who desire to become homeowners will be treated equitably.

There is also no doubt, in my opinion, that we’ve worked together to make progress in this area — exposing many of the worst predators feeding in the sub-prime markets. And at Countrywide, we’re proud to have been the first lender to sign the Declaration of Fair Lending Principles and Practices with HUD in 1994 and the first lender to renew that Declaration in the year 2000. But now we are running the real risk, as the saying goes, of throwing the baby out with the bathwater. During 2001 and 2002, approximately 145 predatory lending bills were introduced by states, cities and various municipalities. ...

I don’t mind the attention, nor do I question the intention. These laws were allegedly enacted to protect borrowers from lenders who abuse the unsophisticated, low-income, elderly and minority communities by charging high interest rates and fees and fraudulently imposing unfair terms. These lenders deserve unwavering scrutiny and, when found guilty, an unforgiving punishment. But while there is a formal definition of what constitutes sub-prime lending, there is currently no formal definition of predatory lending. Thus, the Federal Government, not to mention each state, city, and county, is left to its own interpretation. Lenders are then left with a patchwork of legislation and a pile of regulation that is sometimes contradictory, often confusing, and increasingly, as new evidence is suggesting, counter-productive.

A clear example of this counter-productive phenomenon is the state of Georgia. The anti-predatory lending measure that became law in Georgia last October is so complex, and the consequences of a violation — intended or otherwise — are so severe, that lenders and the secondary market have been forced to stop making or buying so-called highcost loans. As a result, the availability of credit to many families has been curtailed out of the fear of possible lawsuits or other intended or unintended consequences. The immediate result of this unfortunate legislation is that Freddie Mac, a company chartered by the Federal Government, has ”seriously” curtailed its mortgage purchase activities in Georgia, and Fannie Mae has promptly followed suit. Their obvious concerns are related to the egregious consequences to lenders and investors who are involved with loans that are traditionally made tolow income borrowers, many of whom are minorities. I don’t blame Freddie Mac or Fannie Mae; I blame a system that is spiraling out of control.

North Carolina, the birthplace of predatory lending laws, is another example. It was originally believed by the author of the North Carolina predatory legislation that there was no adverse impact on lending in their state resulting from the passage of the law. But two recent studies — one conducted by Georgetown University’s Credit Research Center, the other by Keith Harvey of Boise State and Peter Nigro of the Treasury Department — show that sub-prime lending in North Carolina is decreasing, not just in the number of loans, but in the number of low-income and minority families applying for those loans. ...

The conclusion we can draw from these examples is that all lenders, and the entire sub-prime lending market for that matter, cannot be brushed with one broad stroke. Sub-prime lending is not the same thing as predatory lending. And there is no way that a reputable, national lender — whether it is Countrywide, Washington Mutual, Wells Fargo, or Chase — can operate under hundreds of laws that bear no similarity to one another apart from the fact that they all contain the word ”predatory.” In the end, this patchwork of legislation, or ”zoo” as one of the Governors on the Federal Reserve Board described it, will only inhibit lending by major, mainstream lenders, not encourage it. That, in turn, will leave the door open for the true predatory lenders.

And it will ultimately shut the door to homeownership for hard-working, low-income and minority families. If mortgage credit dries up in Georgia, in North Carolina and elsewhere, not only will the reasonable parity in homeownership rates [among the races] become a pipedream, but there will be an inevitable slowdown in other sectors of our industry because of the sequential nature of the homebuying cycle. We cannot allow that to happen. To make sure it doesn’t, we must work together — politicians, lenders, and community groups alike — to encourage preemptive Federal legislation that clearly defines predatory lending by addressing the real, rather than the imagined abuses. We must, in other words, keep our eyes on the prize: helping the American people — all the people — move along the road to homeownership at the lowest possible cost. Plainly put, we should beremoving barriers, not creating new ones.

There's a Kabuki theatre aspect to these ritual controversies over predatory lending. Community reinvestment activists complain about predatory lending to low income and minority borrowers until such time as they all agree that low income and minority borrowers will get even more money loaned to them. To the Man from Mars, this "solution" of more lending sounds like the exact opposite of what was being complained about (too much lending).