The New Financial Industrial Firm

Below, in the usury post, there was a quote “And this addicted the financial sector to very, very, very high rates of return compared to what investors were used to getting in the real economy, the manufacturing sector, General Motors, which would give piddling five, six, seven percent returns. So the capital in this country began to shift in the financial sector. That’s why the financial sector began to bloat up.”

I don’t want to comment at length on that, but did you see the Giant Pool of Money episode of This American Life? It is really good, and I’ve blogged about it before. During it, we meet a mortgage dealer named Glen. Read about meeting Glen here from the transcript:

Alex Blumberg: This is Glen Pizzolorusso, who was an area sales manager at an
outfit called WMC mortgage in upstate New York. Just to repeat, he was making 75
to a 100 grand a month. That’s over a million dollars a year. Glen was just out of
college. His job was a lot like Mike Garner’s, he was the same link in the chain, and
Glen loved his job.

Glen Pizzolorusso: What is that movie? Boiler Room? That’s what it’s like. I
mean, it’s the cooling thing ever. Cubicle, cubicle, cubicle for 150,000 sq.
ft. The ceilings were probably 25 or 30 feet high. The elevator had a big
graffiti painting. Big open space. And it was awesome. We lived
mortgage. That’s all we did. This deal, that deal. How we gonna get it funded?
What’s the problem with this one? That’s all everyone’s talking about.

Alex Blumberg: And when Glen wasn’t working, he was doing his next favorite
thing, spending … preferably in the company of, and this is his term, b-list

Glen Pizzolorusso: We rolled up to Marquee at midnight with a line, 500
people deep out front. Walk right up to the door: Give me my table. Sitting
next to Tara Reid and a couple of her friends. Christina Aguilera was doing
some, I’m-Christina-Aguilera-and-I’m-gonna-get-up-and-sing kind of thing.
Who else was there? Cuba Gooding and that kid from Filthy Rich: Cattle
Drive. What was that kids name? Fabian Barabia? We ordered 3, 4 bottles of
Cristal at $1000 per bottle. They bring it out, you know hey’re walking
through the crowd, they’re holding the bottles over their heads. There’s fire
crackers , sparklers. You know, the little cocktail waitresses. You know so you
order 3 or 4 bottles of those and they’re walking through the crowd and
everyone’s like: Whoa, who’s the cool guys? We were the cool guys. They
gave me the black card with my name on it. There’s probably 10 in
existence. You know? And that meant that I spent way too much money

Alex Blumberg: Glen had five cars, a 1.5 million dollar vacation house in
Connecticut, and penthouse that he rented in Manhattan. And he made all this
money making very large loans to very poor people with bad credit.

Glen Pizzolorusso: We looked at loans. These people didn’t have a pot to piss
in. They can barely make a car payment and we’re giving them a 300, 400
thousand dollar house.

So I want you to reflect on this guy for a second. Who would employ such a person? He’s paid over a million dollars a year to give out loans he doesn’t believe will be paid back. Think if the cashier at McDonalds starting giving out McNuggets not expecting to get paid for them. That level of irresponsibility.

So who did employ such a person? Check again – WMC Mortgage, in upstate New York. What’s their deal? Now either NPR didn’t know, or didn’t want to say, but WMC was the mortgage wing of General Electric’s GE Capital division (it has since gone under). So GE Capital was the ultimate boss. The unit that was created to help Mom-And-Pa Main Street stores have enough of a credit line to sell refrigerators, decided in the 2000s to get in the business of giving millions of dollars to go and Boiler Room people into signing into loans the douchebags knew could never be paid back.

A lot of MBAs I know who went into general business management ended up working in the new finance wings of normal industrial-type businesses. Airplane manufactures, cell phone companies, electronics, etc. All spawned massively profitable financial services wings to deal with credit during the 2000s. And all were very profitable, until they weren’t. Now everyone is trying to unwind them and forget the whole thing ever happened. I hope they remember why they had to forget them.

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2 Responses to The New Financial Industrial Firm

  1. AlanM says:

    Nice catch on the GE connection, and that radio show you mentioned is one very worthwhile way to pass an hour. The episode you highlight has haunted me since I first heard it.

    Did you see the NYT piece today about banks walking away from properties? The comments on the state of the paperwork that the likes of Pizzolorusso left behind are interesting.

    BTW I just found out about your blog via Felix Salmon, saw you mentioned on Economist’s Free Exchange too. Cheers!

  2. Paperwork I left behind? I was not GE, you may want to talk to them about paperwork, I was a sales rep, not a mortgage broker. Get the truth here



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