March 21 (Bloomberg) -- When Rebecca Black bought the three-bedroom house at 698 Hazelwood Road in southwest Memphis in May 2005 and moved in with her two teenage sons, it was a quiet community. Children played in the street and neighbors tended their yards. She could afford the $57,000 mortgage if she skipped oil changes for the car and served the boys store-brand groceries.
Then trouble came.
Her next-door neighbor died, and his family lost the house. Across the street, there were two foreclosures. One morning, the abandoned house three doors down had gang graffiti spray-painted on the side. A girl in the neighborhood pulled a gun on Black’s son.
In 2010, it was Black’s turn to go. She’d gotten one of those 2–28 mortgages that slowly strangled so many borrowers -- two years of a low, fixed interest rate followed by 28 years of rising payments -- and she’d reached her limit.
“I was crazy about that house, and so proud of it,” said Black, a U.S. Army veteran. “I just didn’t have enough money.”
She got a letter from her mortgage company saying it was starting the foreclosure process, and rather than hear a knock on the door one morning from a sheriff’s deputy ordering her to get out, Black packed whatever she could fit into her Chevy Astro and left the home she loved so well.
By 2011, the property two doors down had sold for $3,000, and Black was in bankruptcy.
If homes are living things, sustaining their inhabitants and contributing to the vitality of their communities, then Hazelwood Road is dying. On nine of the fifteen parcels on Black’s side of the street, houses sit empty, have been bulldozed flat, or the lots have reverted to a tangle of sumac and poison ivy.
In the hottest part of 2012, four years after bad mortgages triggered a meltdown in the world’s most resilient economy, the biggest banks were reporting record profits and government agencies were trumpeting statistics showing that a robust recovery from the worst hard times since Dorothea Lange’s Great Depression photo “Migrant Mother” was just around the corner.
Though Hazelwood Road was never a paradise -- a place where Black could buy a three-bedroom house for $57,000 couldn’t be described as anybody’s ideal of “location, location, location” -- conditions there indicated that something essential about America had shifted in the aftermath of the 2008 financial crisis.
Hope for advancement was that much tougher for most people to sustain after 2008. And just as the crisis was no accident but rather a tragic convergence of stupidity and poor oversight, so too were its consequences a result of calculation.
Just about all the behavior by the biggest banks and their Washington regulators described in this book occurred after the 2008 financial crisis. The book is divided into seven chapters, each corresponding to one of Catholicism’s seven deadly sins.
Wall Street’s seven sins -- size, secrecy, regulatory capture (when government supervisors identify more with the industry they police than with the people they’re supposed to protect), excessive pride, complexity, impunity, and a predatory greed -- risk the second avoidable economic cataclysm of the baby boom era.
After Black left Hazelwood Road, one of her old neighbors complained about a snake that got into her kitchen. Memphis city workers mowed Black’s grass. Vandals roamed the neighborhood ripping out copper plumbing, appliances, anything left behind, so the city workers nailed plywood over Black’s old windows and doors. For the plywood and the yard work at 698 Hazelwood, Rebecca Black got a bill for $520.
She hadn’t lived there for more than a year, but she got the tax bill, too. Her lender, a division of JPMorgan Chase & Co. called EMC Mortgage, never took ownership. The house was technically still hers.
So few people are better off financially than they were before the 2008 crisis, and so few of the lessons have been learned from that near-death experience, that it may take another plummet before the people in charge do something meaningful to repair this broken system.
Black and the seven million other mortgage borrowers who’ve lost their homes to foreclosure since 2008 have had their futures written off as the cost of doing business. The Treasury Department did seem to understand that without a housing recovery the U.S. economy would never shake its funk. How do you bail out the lenders and then let the borrowers twist?
This is how.
In 2009, Treasury earmarked $50 billion to help failing homeowners. By October 2012, the department had spent $5.5 billion, with another $5 billion committed. That might seem like a staggering bounty, until you compare it to assistance for the banks, which in 2008 -- the depths of the financial crisis -- collectively got $1.2 trillion of loans from the Federal Reserve on a single day.
Overnight borrowing by JPMorgan Chase, Black’s lender, peaked on October 1, 2008, at $68.6 billion.
All Black got was the landscaping bill.
The views expressed are those of the author and not Bloomberg News. PublicAffairs is a member of The Perseus Books Group. Copyright (c) 2014.
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