377: Scenes From a Recession

Ira Glass

A reporter's finding unusual signs of the recession all over the place. But that did not prepare me to hear about this side of the recession from a dentist, [UNINTELLIGIBLE], outside Washington, DC.

Ira Glass

On the day we interviewed Dr. [UNINTELLIGIBLE], of 10 patients, two had cracked teeth and one needed a night guard for grinding teeth in their sleep. As for around the country, urologists in New York and Cleveland have reported a rise in vasectomies.

Traffic delays dropped by 1/3 last year. Two women in Pennsylvania, in separate incidents, according to newspapers, robbed banks and then immediately went out with the money and bought cashier's checks with the money they had stolen, cashier's checks to pay their rent. Porn video sales are down 10% to 30%, depending on how you measure it.

And shark attacks, yes, shark attacks, are at their lowest point in five years, thanks to the recession. That figure according to the International Shark Attack File at the University of Florida. Fewer people on vacation apparently means fewer people getting bit by sharks.

Well, from WBEZ Chicago, it's This American Life, distributed by Public Radio International. I'm Ira Glass. Today on our program, scenes from the recession, including tips on what not to say to somebody who is working at a store that is being liquidated. And we go on a government raid, a government raid on a bad bank. Stay with us.

Ira Glass

Act 1, Is the Condo Half Empty, or is the Condo Half Full?

We've all heard about these suburbs in Florida and California and Las Vegas where lots of people took out subprime mortgages just before the housing bubble burst, suburbs where today you have entire neighborhoods where most of the houses are empty. But you hear less about how this is playing out in big cities. And in big cities, the boom and bust took a different form.

In Chicago, for instance, you don't see entire neighborhoods vacated, but you also see lots of empty apartment buildings, and half-empty ones, like 1633 W. Farwell in Chicago's Rogers Park neighborhood. Classic old courtyard building. Then at the end of the housing boom, it's being converted into condos, condos with granite countertops and beautiful stainless steel appliances.

Until the Chicago housing market collapsed in late 2007, leaving 19 of its 39 units empty.

Ira Glass

This is Jon Miller, who lives in a first-floor unit, where for days he and his wife would hear this noise, this noise coming from this vacant apartment upstairs from theirs. Then, they'd be lying in bed, and they would hear the sound of crumbling rocks and drywall coming from inside the walls and ceiling. Until finally, the culprit actually came through a big hole in the utility closet and they spotted it, a cat. It was black and it was feral, and it ran back up the hole.

Ira Glass

So to review, the housing market collapsed in Chicago, and as a result, Jon got scratched by a feral cat. He and the other people in this building have done nothing wrong. They didn't take out crazy loans that they couldn't afford. They played by the rules. They've paid their mortgage payments. And yet, they find themselves in an increasingly difficult situation.

A month after Jon moved in, winter arrived in Chicago in earnest. And with two empty apartments above his, apartments that had no heat because the developer stopped renovations, pipes froze.

Ira Glass

Two other frozen pipes in the building damaged another guy's kitchen, and pretty much destroyed a ground-level apartment across the courtyard from Jon. Now, if Jon sounds unsurprisingly calm about all this, there are two reasons. One, he practices meditation regularly, which, by the way, he'll be glad to tell you about.

Ira Glass

But also, he is in the real estate business. And what it means to be in the real estate business these days is that he is a mortgage broker who has seen his own income drop in half, and that has forced a kind of Zen attitude on him.

Jon has run some numbers to try to understand exactly what happened with the developer of this building, a small-time operator who moved to Chicago from Bosnia back in 1994, named Haso Meseljevic, who's currently unreachable, at least by us or anybody in 1633 Farwell. Though more about that in a bit.

Public records show that Meseljevic and his son took out a loan of $5.1 million to buy and rehab this building, and that by 2007, he still owed $2.9 million to the bank for the unsold units. Which means, Jon calculates, that Meseljevic was paying the bank at least $20,000 a month on that debt.

So, back in October 2007, Jon bought the last unit sold in this building, right as the market was turning.

Ira Glass

Even before the housing crisis and the recession, residents say this is a developer who seemed to cut corners and do the bare minimum. His business seemed perpetually strapped for cash, even though he and his family drove around in a yellow Hummer. And this right here is where the ugliness of the recessions intersects with the normal, everyday seediness of a lot of real estate development in a particularly toxic way.

Residents had all kinds of problems they couldn't get him to fix, problems that go way, way beyond the normal kinds of final details you need a builder to repair when you move into a place.

Ira Glass

Jen and Peter Benedetto have a ground-floor unit that is jammed with musical gear and DJ equipment and the stuff that he uses to publish a quarterly journal of goth art. They show me how the floor is sinking away from the walls and the walls are separating from the ceiling of the unit, because there's nothing underneath the thin floor boards. There's no concrete slab, just dirt.

Ira Glass

Also when they moved in, the whole condo smelled like sewage. When they would drain the bathtub, little bubbles of sewage gas would come up in the toilet. At first, the developer told them that he had no money to fix this. He told him that he was using all of the money that they had paid for their condo to rehab the other units in the building.

But then Jen and Peter but a big handmade sign in the window facing the street, saying that their apartment smelled like sewage and the developer wouldn't fix it, which is the kind of thing that could keep somebody from buying a condo unit in the building, so the developer decided to send out some relatives to fix this.

Ira Glass

Remember, this is a condo building with granite countertops and brand new hardwood floors. But Jen and Peter say that, underneath the surface, everything's fake. When they brought out an independent plumber about the sewage smell, this plumber informed them that the entire building's plumbing needed to be redone.

Part of the problem is that so much building and condo conversion was going on during the boom that the city of Chicago did not have enough inspectors to keep up. And two residents in this building told me stories about the developer making cosmetic changes the day the inspector finally did show up and then ripping out the changes once he left.

And in the months after they moved in, residents went to the developer with a list of pretty urgent repairs, but by the spring of 2008, the developer stopped returning their phone calls. Then things deteriorated further.

In June, the electric company posted notices that the power was going to be shut off because of the developer's nonpayment of bills, then the water company did the same, then the garbage collection service. The insurance coverage for the building lapsed in July. And none of this, I learned, is unusual.

Ira Glass

Brian White, the executive director of a community group that deals with housing issues, called Lakeside Community Development Corporation, takes me on a driving tour of the neighborhood. Before the housing bubble, Rogers Park was 80% renters, a shabby neighborhood where students and seniors and young families could get an affordable place.

Then developers threw a lot of money in, hoping that it would be the next gentrified neighborhood of Chicago's north side. A survey that Brian's group did back in 2006 showed that 15% of the housing stock, about 1,000 units, were being turned into condos, all at the same time. And it didn't work, partly because the developers were building for higher income people who simply did not want to move to corners like this one, at Touhy and Rogers.

Ira Glass

The city of Chicago and groups like Brian's tried to convince developers to include some moderately priced units in the mix. And there were government subsidies available to help them do that. But Brian says, understandably, people wanted to make a killing.

Some had taken the money out of the stock market and put it into real estate during the boom, figuring that it was going to be more lucrative. And as a result, every block or two in Rogers Park today, we drive by uninhabited or barely habited buildings, with signs advertising brand new condos with depressingly similar lists of super deluxe amenities. Yes, granite counters, stainless steel appliances.

Ira Glass

At the corner of Seeley and Birchwood, the sign advertises all the usual amenities, plus one more, a 42-inch plasma TV with each unit.

Ira Glass

And in fact, most of that is starting to happen at 1633 W. Farwell. There's nobody to fix the building's roof, which they'd been told was brand-new when they moved in, but which leaks, ruining drywall in some units. One estimate put the repair job at $56,000. There's no money to redo the building's plumbing. There's no money to put in a buzzer and intercom system, or to pay the liens on the building from contractors who were never paid. Those liens total at least $175,000.

Because this is a condo building, the way it's supposed to work is that all the condo owners pay each month into a maintenance and repair fund. But there's a catch. In Illinois, until 75% of the units are sold, that fund is controlled by the developer, the guy who disappeared. In this case, supposedly back to Bosnia. And all that money seems to be gone, too.

Brian says this is not unusual. It is so not unusual that a move is underway to change the laws to make it easier for condo owners to control that money. Brian's take on all this, by the way, is very different from the real estate guy who lives at 1633 Farwell, Jon Miller. Brian says that lots of developers have vanished.

Ira Glass

I tried to get the developer-- again, his name is Haso Meseljevic-- to come on the air and tell his side of the story. He never answered at the phone number listed for him. His son, Samel Meseljevic, who was his business partner in developing this particular building, is the one who said in a quick phone conversation that his father has moved back to Bosnia.

I repeatedly tried to get Samel to agree to a real conversation about what happened on tape. He invited me to his house, gave me his address, and then didn't show up. When I tried to reschedule, he insisted that the next morning he was going to be going out of the country for a week, though he didn't seem to leave Chicago. And I say that because he picked up his phone the next afternoon when I called.

One time that I raised the possibility of an interview, Samel simply hung up on me. The lawyer working for him and his dad, whose name is Hugh Howard, and who has a downtown office in Chicago on Monroe Street, didn't return calls. And once, when somebody in his office accidentally picked up the phone when I called and identified myself, that person hung up on me as well.

Ira Glass

In a top-floor apartment, the five elected officers of the condo association, and a black-and-white cat named Checkers, are at the condo association's regular meeting. If this meeting is typical, I think it is safe to say that a year of trying to fix all the problems in this half-empty building is taking some very nice, very responsible people, and driving them all slowly crazy.

They are in an impossible legal limbo. The bank was scheduled to finally foreclose on the developer's 19 units in March, and then the bank pushed it to April. And they'll probably push it back again and again. Banks don't want to take these properties onto their books, and they put it off as long as possible.

And it is only when the bank finally does foreclose that, from a legal perspective, these units will finally have an owner. The owner will be the bank, and the building will be 100% sold, which means that this group will finally be a real condo association and will finally have the power to address their problems in the way that any normal condo association does.

They can make residents pay monthly fees and use those fees to do maintenance and repairs. And then the issue for them will be, will the bank, as owner of 19 units, kick in its share of the maintenance and repair fees like all the other owners? Often it doesn't.

As you might imagine, the repairs, the legal complications, the money problems, the meetings, the worry of owning property in a half-empty building that is deteriorating and not insured, has taken its toll on everybody here, stressed them out. Of course, they could walk away.

Jen and Peter, the couple with the sewage smell and the sinking floor, pay exactly the same to live here that they used to pay in rent, $1,100 a month. If they defaulted on their mortgage and moved out now, all they would lose is the $3,000 down that they paid back when they bought. Jen would have bad credit for seven years, since her name is on the mortgage, but Peter wouldn't.

But for now, they're staying put. They've all been organizing and fighting for over a year now, and it's sort of become their identity. They see themselves as the responsible ones. In a world of irresponsible developers and bankers, they're the people who won't renege on their obligations. It's now a point of pride.

Karen Webber lives in a top-floor unit.

Ira Glass

On the other hand, Maria Hadden, who runs the condo association, says she sometimes wonders if it really matters if she defaults. So she'd lose maybe $10,000 that she's put into her place, have bad credit for seven years. She could stop paying her mortgage for a few months, save up her cash, and then when she got kicked out, rent a nice place, cheap.

Ira Glass

Lately, the developer's family has tried to move some renters into the vacant units, to raise a little money, possibly to stall the bank from foreclosing. True to form, one woman moved here from England in the middle of a Chicago winter to find her unit had no heat or hot water. Another renter, somebody on a Section 8 public housing voucher, was put into a unit which didn't even have a toilet.

Coming up, real-life secret agents who work for the government and are out on the front lines to save our economy. That's in a minute, from Chicago Public Radio and Public Radio International, when our program continues.

Ira Glass

It's This American Life, I'm Ira Glass. Each week on our show, we choose a theme and bring you different kinds of stories on that theme. Today's show, scenes from the recession. We've arrived at act two of our show.

Act two, Unbreaking the Bank.

In an office park in Irvine, California, in a conference room with fluorescent lights, wheelie chairs, a whiteboard, something totally unrecession-like is taking place, new employee orientation.

Ira Glass

32 new employees arranged in three long rows. These are the FDIC's newest recruits. The FDIC, the Federal Deposit Insurance Corporation, not only insures the money that you and I keep in the bank, it's also the agency that closes down banks when they fail.

Since banks fail almost every weekend now-- yes, a bank fails every weekend; and in fact, most weekends, lately it's two banks-- the FDIC needs help. These people here are only 32 of 600 people the agency is hiring for this regional office, 600 new agents to train about bank failures, 600 new computer accounts.

Ira Glass

Got that? No fear, then ENTER. The FDIC's mission is to ensure stability in the banking system. What that means, actually, when a bank fails, is something pretty dramatic. The government rolls in unannounced, shuts the bank down, and takes it over as a way to protect our deposits. The whole thing is planned like a SWAT team, if SWAT teams had accountants in them.

And then reason that they do it this way is that if the public found out that the bank was failing before the government actually stepped in, people might pull their deposits out and cause a run on the bank. Also, if the people working at the bank knew that the government was going to be seizing the bank, they might steal, they might destroy paperwork.

The government believes that this is the best way to protect depositors, you and me. This is Tom Murray, one of the FDIC bosses here.

Ira Glass

Today we take you on that secret mission, when the FDIC takes over. Chana Jaffe-Walt talked to all kinds of people involved in one bank failure, a place called the Bank of Clark County in southwest Washington State.

Chana Joffe-Walt

Long before most of the Bank of Clark County employees knew their bank was dead, the FDIC was planning its demise. They'd been having meetings, contacting other banks in the region, trying to find one that would take over the Bank of Clark County's assets after it failed. All of these negotiations were top secret.

And then the time came. Thursday, January 15, 2009, the operation begins. 80 FDIC agents pull into Vancouver, Washington. Their rental cars are generic. Their arrival times staggered. One by one, the agents check into the hotel, each quietly offering a fake name to the guy at the desk.

9:00 PM, the FDIC calls the CEO of another bank nearby, Umpqua Bank. Your bank, they tell him, has been selected to take over the Bank of Clark County. You can't tell anyone. Come to a meeting tomorrow at noon. The FDIC will tell you everything you need to know.

And so, Friday morning, the Bank of Clark County employees get up, go to work, turn on the lights and go about their day. And Ric Carey, a vice president from Umpqua Bank, sits down with the FDIC and begins to plan.

Chana Joffe-Walt

Todd Zalk is what you call a team player, total bank loyalist to the end, beyond the end. Four weeks after the failure, Todd's still wearing his Bank of Clark County name tag. still passing out his bank business cards, always with a warm handshake, constant eye contact, inserting your name whenever possible.

Friday, as Ric Carey snuck into the nondescript FDIC secret location, Todd was playing for the team.

Chana Joffe-Walt

Todd and his coworkers had no idea the bank was about to be taken over. He knew they were going through a rough time. Just last week the CEO had called a staff meeting about it. But the CEO was clear. Things were under control.

Chana Joffe-Walt

Many, many Bank of Clark County employees told me about the ship meeting. Mostly it made sense to them. The CEO said they were doing OK, they were doing OK. But in fact, things had been changing at the bank since 2005. That's when they went big into commercial and real estate loans.

They were a young bank. They felt they had to be aggressive. And sometimes that meant making loans other banks wouldn't have made, loans that ended up killing them. Washington State regulators audit every bank several times a year, and they noted the Bank of Clark County's declining health.

Its capital reserves were getting low, so low the bank was in danger of not being able to cover its debts and obligations. And then, you know the story, housing prices dropped, developers couldn't make payments. The story finally ends Friday, January 16, 5:01 PM.

Two FDIC agents and a Washington State regulator enter the Bank of Clark County. Casual, head straight for the CEO's office. There, behind closed doors, they deliver the news. They tell him his bank is under-capitalized. It has failed.

5:03 PM, an agent positioned by the CEO's office door types this news into a BlackBerry. It's received by everyone on the FDIC takeover team. 5:05 PM, FDIC agents begin closing in on the bank. A few are already inside, quietly and discreetly securing the cash in the vaults.

Todd Zalk, oblivious to all this, heads back into the office after a long day of work.

Chana Joffe-Walt

Todd hung around, said hello to some customers, did some banking.

Chana Joffe-Walt

6:03 PM, down the street from the bank, where he's been told by the FDIC to wait in his car, Ric Carey with Umpqua Bank hears his phone vibrate.

Chana Joffe-Walt

6:05, Ric gets out of the car and starts walking toward the bank. Inside, a woman from the FDIC takes the stage.

Chana Joffe-Walt

6:10 PM, Ric Carey from Umpqua Bank is introduced to the confused employees of the bank he now owns. They have a whole bunch of questions running through their heads. First among them, do we get to keep our jobs? Ric can't answer that. Umpqua will only need about 1/3 of the Clark County staff, people who actually deal with customers in the branches.

Most of the support staff and administration will be let go. But it's too soon to let each person know whether he or she has a job. Ric is put in charge of supervising a full-on manual hand count of all the bank's cash. A couple of his staff grab the cash and begin to count. The Bank of Clark County people watch Umpqua. The FDIC watches them both.

This takes three hours. Meanwhile, Bank of Clark County staff come up to Ric to introduce themselves, tell him how important they are at the bank. They're worried for their jobs. And Ric has other things on his mind.

He bought the bank from the FDIC for a pretty good price, and he only has to take the good parts, the insured deposits and the actual branch buildings. The FDIC will keep all the bad stuff, the problem loans. But there's still a lot to think about.

Chana Joffe-Walt

Meanwhile, FDIC agents have already secured the vaults and the cash. They've grabbed a couple hard drives. Now they need to inventory the entire bank. Every account needs to be transferred to Umpqua. The bank has to open its doors Tuesday morning. Monday was Martin Luther King Day, bank holiday.

To get all this done, the FDIC needs the Bank of Clark County staff to help them, to show them where the files are, who the customers are, how to get to the bathroom. And so, at 6:15 PM, the FDIC makes an announcement: we need you all to sign in on this sheet of paper, everyone. As of right now, for the weekend, you're all temporary employees of the FDIC. We're going to need you to stay late tonight, work through the weekend. You will be paid for your time. We'll feed you. We need your help.

Ken Moody was vice president of information systems at the Bank of Clark County.

Chana Joffe-Walt

6:20 PM, agents take over offices, storage rooms, hallways, any space available. They tape handmade signs to the doors, written on 8.5 x 11 sheets of printer paper, saying things like, audit, security, investigations. It's a little chaotic.

The FDIC moves room to room. They go through files, transfer accounts, they change the website, they check the safe deposit boxes, make sure everything that's supposed to be in there is in there. They go through desk drawers. They toss out bank letterhead.

Once agents have scanned a room for all critical information, they place a green dot on its door frame. Then they take all that paperwork, all the hard drives, all the files, and the FDIC has to reconstruct the bank's entire balance sheet. It has to know what it's selling to Umpqua, what's actually there.

Any account with a balance up to $250,000 is fully insured by the FDIC. If the bank doesn't have the money to cover the balance, the government will pay it out. But some people have more than $250,000, and there are business accounts and loans, and it gets complicated.

Some is covered, some is not. The FDIC now sorts all that out.

Chana Joffe-Walt

6:25 PM, in the IT department, three agents approach Ken Moody, the IT guy. They hand him a thumb drive. Please plug this in, they say. It has all the software to change your computer systems over to Umpqua Bank.

Chana Joffe-Walt

At the Bank of Clark County, everyone I talked to said this one thing about the FDIC that stuck with me, something you don't often hear about a government agency, that it did a really good job, that the agents were kind, courteous, and efficient. In fact, everything is ordered, structured. Everything, even how and when to grieve.

Here's Lisa Stapleton. She was an assistant loan officer with the bank.

Chana Joffe-Walt

The Bank of Clark County had 100 employees and assets of $446 million, which, if you're not used to bank numbers, is a really small bank. But it took 80 FDIC agents, about 50 Bank of Clark County employees, and 100 Umpqua employees working around the clock for three days to take it over and have it reopened for business.

Most of the largest banks in trouble right now, Citibank, Bank of America, are about 6,000 times the size of Bank of Clark County, not to mention much, much more complicated. So the Secretary of Treasury's latest plan to save the banks does everything it can to avoid using this process on those big banks.

When you do this to a little bank, it's called receivership. When you do it to a big bank, people start to throw around the word nationalization. Every week, FDIC agents get more experience taking over banks. In the 10 weeks since they took over the Bank of Clark County, 18 more banks have failed, bringing us to a grand total of 20 failures since the start of this year, before this weekend, that is, when most likely they'll add a few more to that list.

Ira Glass

Chana Joffe-Walt in Seattle. She's a regular contributor to the Planet Money podcast, which you can hear at npr.org/money.

Ira Glass

Act three, Short-Circuit City.

Among the big chain stores that have gone out of business in this recession, Circuit City, the second biggest electronics store in the country, shutting down after 60 years. Earlier this month, the Chicago Tribune described the atmosphere in a Chicago Circuit City outlet the week before it shut down as funereal. Quote, "employees, wearing sullen faces, who, when asked if a display model Sony VAIO laptop missing nine keys is still $623.99, answer with a mechanical, leave me the hell alone, 'yep.'"

It's not as if they object to helping, but they're also texting while ringing up customers at the checkout line. Because, really, what are they going to do? Fire them? The day after that was published in the paper, the reporter who wrote that story-- his name is Kevin Pang-- got an email from one of that store's employees.

Ira Glass

That's Jonathan Mullens. We invited him here to read his email.

Ira Glass

34,000 people lost their jobs in the liquidation. Some of them had worked at Circuit City for years. In January, when the stores began selling off their last merchandise, the website Gizmodo invited Circuit City employees to write in and describe what it was like in the trenches of liquidation. Gizmodo published their emails in a story called, "Their Final Words as Grunts of Circuit City."

And what you're going to hear now are excerpts from those dispatches, along with other emails that we solicited from Circuit City employees in stores around the country, Peoria, North Carolina, Florida, Pennsylvania. The way that it worked is that special liquidation companies came in to run the stores during the last few weeks, to sell off the final merchandise, as much of it as possible, because the more money they brought in the door, the more they could pay off creditors and, not incidentally, the more profit the liquidation companies got to keep themselves. Which explains why one of the very first things they did in most stores was raise prices.

Ira Glass

Those were all former Circuit City employees. Only one of the five, James Armitage in Florida, has found another job. Allen in North Carolina, the car stereo installer, is planning to go to school this summer to become either a nurse or an electrician. People always need nurses and electricity, he wrote us. John Gallagher, Chris Evans, and Jonathan Mullens are still looking.

[RAP SONG] Starting lineup. D. Baxter, B. Smith, J. Milligan, baby. 4506, yeah. Where you go to get your gifts in time? Circuit City up, Best Buy down. You want gifts? Then you better come around. Circuit City up, Best Buy down.

Well, this song was actually written and performed by employees of Circuit City store number 4506 in North Little Rock, Arkansas. Our program was produced today by Robyn Semien and me, with Alex Blumberg, Jane Feltes, Sarah Koenig, Lisa Pollak, Alissa Shipp and Nancy Updike. Our senior producer is Julie Snyder. Production help from Andy Dixon. Seth Lind is our production manager. Music help from Jessica Hopper.

Ira Glass

I'm Ira Glass, back next week with more stories of This American Life.

Announcer

PRI, Public Radio International.