The Unwinding: An Inner History of the New America

Alice was passionate about beauty and wanted it around her always. She had a perfect palate and food memory, and her dishes were delightfully simple. Her favorite word was delicious, she was always falling in love, and she always got what she wanted no matter the price (she was careless about money). She had two epiphanies in her life. The first was on a college trip to France where she and her friend ate a delicious meal in a little stone house in Brittany. At the end of the meal, everyone applauded the chef. That was how Alice wanted to live, and she decided to bring her Francophile dreams back to the United States.

Berkeley had a revolutionary air when Alice attended, and she wanted to create a revolution of beauty and cuisine. America in 1970 did not have a refined palate; dominate cuisine was a mix of McDonald’s, frozen food, and the occasional fussy fare at higher-end places. In 1971, Alice opened Chez Panisse in Berkeley, the menu offering just a handful of items written on a chalkboard. Alice, just 27 years old, had created something new. The restaurant celebrated food grown locally and grown seasonally. Alice was disgusted at the idea of serving anything that had been frozen or hauled in from out of state.

Years after opening, Chez Panisse became the best-known restaurant in America. The 1980s saw the birth of the food scene in the country with young people with new money insisting on eating only the best things. Alice’s restaurant became the place where celebrities and the wealthy went to be seen. By the 1990s, she was nationally known, an advocate for sustainability and organic produce. She held fundraisers for Bill Clinton and encouraged him to plant a vegetable garden on the White House lawn as a model for America. He declined, but Americans in big cities took her advice and flocked to farmer’s markets where the word organic came to signal virtue and power.

In the mid-1990s, she had her second epiphany. She pointed out a bad use of land in the eyesore that was Martin Luther King Middle School, a school in such disrepair she figured it was abandoned when she drove by it every morning. The principal there invited her to tour, and she came up with the idea of planting a vegetable garden on a neglected acre of land on the school grounds. She believed fast food was not just unhealthy but also spread bad values to consumers. Her Edible Schoolyard project took off, and she became an evangelist. When the Obamas moved to the White House in 2009, First Lady Michelle Obama finally planted a vegetable garden on the White House grounds.

By the 2000s, food divided Americans just as everything else had done. Some people ate better and more carefully than ever before, while others relied on cheap, processed foods. Though Alice made food a political cause, it was still about class. Alice did not consider herself an elitist, but she had trouble imagining that some consumers, especially children, might find comfort in food she disparaged. She admitted she paid a little extra for food, but it was what she wanted to do.

In 1982, a book declared that Tampa would be America’s Next Great City. Over the next two decades, the county commission became majority Republican with a couple votes safely in the pocket of developers, lawyers, and construction companies. Tampa grew to a population of 300,000 people, but Hillsborough county grew to include over a million. The growth was hostile to city life and occurred an hour away from downtown in new isolated subdivisions. As long as that growth continued, there would always be more growth, meaning higher property values and no need for a state income tax, as budgets could be financed through real estate fees and sales taxes. Some locals pointed out that this sounded like a Ponzi scheme.

The growth cleared out orange groves, ranches, and wilderness all around, creating instant communities known as “boomburgs” with names that evoked English manors and country estates. Developers promised the nearly identical two-story concrete houses with stucco walls would surround recreation centers, lakes, and playgrounds and sold the houses on spec for $230,000. Shopping malls and megachurches sprung up nearby, and the roads were widened to keep up with the traffic. No place was too remote for the growth. Gibsonton on the eastern side of Tampa Bay had once been a part of old rural Florida, a place where carnival workers used to winter. A Miami-based builder called Lennar Homes buried a tropical fish farm there and built up a subdivision of 382 houses which it called Carriage Pointe. The company was even given tax breaks to build it, despite warnings about the development.

The growth machine also became the only source of employment. Tampa itself was settled mostly by conservative and frugal lower-middle-class individuals who had come from midwestern areas hit by hard times in recent years. Hillsborough and the surrounding counties became conservative and religious, but the people lost some of their old values.

There were many people who bought “pick a pay” mortgages in which they named their rate. There were people who bought multiple investment homes. There were people who got into flipping homes. And there was Usha Patel, who had grown up in India. She saved up to buy a Comfort Inn for $3.2 million, taking out loans, including one she believed was fraudulent (the lenders, Business Loan Express, told her what to write on the loan application, and she did). There was also Mike Ross, a former boat repairmen. In 2003, Mike and his wife bought their first investment with a loan at 3% above the normal rate, known as a subprime or liar’s loan. Still, the house he bought was able to turn an $18,000 profit. He fixed up his own house (which he’d paid under $50,000 for in 1985) and sold it for $169,000 before buying a century-old farmhouse in Georgia. It was the market’s highpoint, and flipping was easy.

Then there was Michael Van Sickler. In 2003, he took a job with the St. Petersburg Times, the best paper in the region and one that, unlike its peers, was not for profit, meaning it was not being bought up by private equity investors and restructured to turn a profit. Van Sickler found the idea that Tampa was the “Next Great City” suspect. In a previous job, he had gotten interested in urban planning and become something of a Jane Jacobs disciple, agreeing with her that city life should be defined by short blocks, mixed uses, safety, pedestrians, and density. Tampa offered nothing like that. These people wanted corporate-built houses in isolated subdivisions where they could retreat from the world even as they grew more paranoid about their neighbors.

In 2006, Van Sickler wrote a story about the people buying homes in the Tampa Area and discovered that at least half the sales were going to investors as disposable commodities, warping the very idea of home ownership. Van Sickler was an optimist and didn’t buy the idea that investigative journalism necessitated cynicism; however, he also didn’t think readers needed to hear both sides of every story, since some things were just objectively factual. He earned a reputation as a person who investigated and exposed wrongdoing, but he only ever took down one man: Sonny Kim.

In the spring of 2006, Van Sickler began to hear about a man who preached to

poor Black people in Tampa Heights that they could get a piece of the hot real estate market for themselves by buying up distressed properties and flipping them. As it turned out, Tampa Heights was the planned sight for a new development called Heights of Tampa, and the man was fronting for two of the most powerful developers in the area. He had netted well over a million dollars on the deal, but the redevelopment project was worth 500 times that. The stories led Van Sickler to the underside of the nation’s hottest real estate market and then Sonny Kim, the man’s partner. By that point, the market was no longer hot.

Some could identify the exact moment when the market turned and prices began to decline (something thought to be impossible in real estate), but it took a year to notice the effects. The collapse of the growth Ponzi scheme led to empty subdivisions and houses worth less than their mortgages. Usha Patel’s Comfort Inn earned a million dollars in her first year and then declined each year after that. Mike Ross had to sell his Georgia property for $70,000 less than he had paid for it and move back to St. Petersburg, where lived on food stamps, shocked that a middle class man like himself had come so close to living in a homeless shelter before he could find work again.

Van Sickler and his colleagues analyzed the data about the houses foreclosed in Hillsborough County and found they were widespread but had two big clusters: the older city slums and the now ghostly subdivisions, especially Carriage Pointe. He and a photographer from the paper began driving out there in the evenings to investigate. The people left living in Carriage Pointe had mostly viewed the subdivision as a place for a good starter home, but when prices dropped in half, they were stuck. The foreclosed homes were being used by drug dealers and other criminals.

Sonny Kim had come to Tampa from South Korea and was the owner of a tattoo parlor as well as a hundred homes at one point or another in the early 2000s. By the summer of 2008, Sonny had made more than $4 million in profit and had more than a third of his properties foreclosed. Van Sickler noticed a pattern with Kim buildings: derelict buildings with a minimal purchase price, an inflated resale price, no-questions-asked loans, and fake buyers (often a person completely made up or a victim of identity theft). Everyone was making money off Kim’s fraud.

Van Sickler kept reporting into September. That month, Lehman Brothers, one of the banks making loans to Kim’s straw buyers, folded. The other big loan companies were also in the news, and it dawned on Van Sickler that his story about a tattoo parlor owner committing fraud was a national story connected to the massive financial crisis. He had eyes on the damage those banks did, and Wall Street’s collapse could be traced right back to those houses north of Tampa. The banks had thrown their money at fraudulent buyers because they immediately passed their risk onto someone else by selling bundles of loans called mortgage-backed securities as bonds for other investors. Van Sickler believed that the talking points about the crisis—that all of us are to blame due to greed—provide a lazy and inaccurate accounting. His story was published just after Thanksgiving. The FBI got on the case, and Van Sickler waited to see who the FBI would nab above Kim.

After PayPal was sold, Reid Hoffman launched LinkedIn, through which he met Sean Parker, and through Sean Parker, Mark Zuckerberg. In the spring of 2004, Thiel and Hoffman were trying to talk the younger Parker out of suing some of the investors who had driven him out of his previous company. Thiel encouraged him to simply start a new company, and a few months later, Parker told Thiel he had just become president of a college social network with just four employees: Thefacebook. Parker said the Harvard sophomore who founded the company, Zuckerberg, needed investors, and Hoffman declined due to a potential conflict of interest with LinkedIn. Thiel stepped in because he had been interested in social networks for a while. He agreed to meet with Zuckerberg in San Francisco.

Parker did most of the talking at the meeting, but Thiel was impressed by Zuckerberg and agreed to become an angel investor. For a half million dollars of seed money, he’d get 10.2 percent of the company and a seat on its five-man board of directors. The same year (2004) Thiel cofounded Palantir Technologies, which took PayPal software designed to combat fraud and developed it for complex data analysis. Palantir eventually was worth $2.5 billion, and Thiel was one of the most successful technology investors on the planet. By the summer of 2008, Clarium Capital’s fund was worth seven billion dollars, a seven-hundred-fold increase in just over a half decade. In Clarium’s new offices overlooking the Golden Gate Bridge, Thiel and his team had lively strategy and trading meetings to discuss world events. He had hired mostly people who were like him, and the company became something of a Thiel cult with a staff of young libertarians. He was convinced of a housing bubble and adamant that his employees did not own their own homes. He himself rented a giant mansion nearby.

He began to live the life of a billionaire too, hosting lavish dinner parties and taking friends on private jet trips to exotic locations. He was amiable but also unreadable emotionally, yet he still liked to show off his decadence. Thiel donated millions to conservative candidates and movements, and, after the housing bubble burst, bought the mansion he had been renting for $6.5 million, then another home in Maui for $27 million.

Later, he would note that in that era, the amount of inequality just kept growing. As a libertarian, Thiel welcomed a new world in which people could not rely on communities or old institutions. But he also lived in a privileged world in which everyone he knew just one day had more money than was ever possible. He told an interviewer in 2008 that he felt the world was becoming more libertarian as a symptom of how good things are.

After a series of bad financial decisions and a short move to New York that coincided with the mortgage crisis, Clarium’s fund was back to $350 million, just a hundred million more than it had started with less than a decade earlier. Most of the losses were Thiel’s own money. For the first time, he had failed, and he was humbled by it, although he took losing well publicly, especially in front of his employees. During that time, his view of America turned pessimistic, leading him to create radical new ideas about the future.

A mix of headlines, and quotations tells the story of the 2008 presidential election, with Barack Obama beating Hillary Clinton, Sarah Palin reigniting the culture war and describing a “real America,” John McCain lauding free trade, and Obama announcing the beginning of the next great chapter in a unified America. Other headlines tell of the real estate market collapse, predictions of $7 gas, buyouts at GM plants, the bankruptcy of Lehman Brothers, and Bush’s call for a $700 billion bailout. Headlines also reveal that Silicon Valley is barely touched by the crisis and laud Facebook. Snippets from Obama’s victory speech ends the year as a headline announces change has come.

Robbie Rubin was surprised to be elected class president of his Miami Beach fourth-grade class in 1947. He got into Harvard years later because a lawyer friend of his lawyer dad’s introduced him to the dean of admissions. Because he was unlikely to make a partner at a law firm, Robert Rubin went to Wall Street, joining Goldman Sachs’ arbitrage department even though he didn’t know what arbitrage was. He asked stupid questions, according to Gus Levy, the head of Goldman, but Levy mentored him, and he became a partner in 1971. He always carried a yellow legal pad with him and would write down notes and calculate risk and reward.

Back then, Goldman was a smaller and tamer firm than it would become. It was focused on investment banking, not trading, and it was Rubin who pushed the firm to get into options trading and over-the-counter derivatives and commodities in the 1970s. That proved lucrative, and Rubin encouraged the firm to take on more risk by acquiring a commodities trading house in 1981. That required the firm to take on more risk. Rubin stopped the losses and wanted to raise more capital by taking Goldman public, as other firms on Wall Street had done. The younger partners said no. Rubin became vice chairman of Goldman in 1987 and reached the top of the company in 1990.

Rubin was a political moderate, but he was concerned about the poor so he considered himself a Democrat. Plus, he was worried about the deficits that had ballooned under the Reagan administration. Rubin became a big donor to Walter Mondale and Michael Dukakis. After a full career at Goldman, he was worth well over a hundred million dollars, but, despite living in a Park Avenue penthouse, he still wore rumpled suits to work. He always hedged ambition with modesty. When Bill Clinton was elected president in 1992, Rubin was chosen the first director of National Economic Council. Right away, he said Clinton could not keep his campaign promises on education, middle class tax cuts, and job training, as he needed to work on reducing the deficit right away in order to reassure the bond market and prevent interest rates from rising. This was Rubinomics. Clinton was mad he would now have to be an Eisenhower Republican instead of what he had run on, but he accepted it. Robert Reich, the Secretary of Labor, argued for populist policies and language, but Rubin cut him off by telling him that his Wall Street experience proved that such language would be asking for trouble. The bond market was all that mattered.

Rubin gave his best economic advice on the merits, and if it happened to be Wall Street’s view, well that made sense given that the economy was now dominated by the financial sector. In 1995, when Rubin became Secretary of the Treasury, he helped guide the country through the longest period of economic growth in its history while also helping tame financial crises around the world. In 1998, the head of the Commodity Futures Trading Commission, Brooksley Born, suggested the need to regulate the over-the-counter-derivates market that Rubin had led Goldman into decades before. Rubin became angry and lectured Born to stay out of derivatives and listen to the banks’ attorneys, not the government’s. The last law Clinton signed as president prevented derivatives from being regulated by any agency. As he would point out later, by the time the Commodity Futures Modernization Act became law, Rubin was out of government, so he could not be blamed for any negative effects it might have had. This was also true of Gramm-Leach-Bliley, signed into law by Clinton in 1999, which allowed firms to engage in commercial and investment banking at the same time. Rubin had supported the bill but only because the divide that had existed under the 1933 Glass-Steagall Act had already been destroyed.

In 1999, Rubin returned home to New York. Citigroup made him an offer to be chairman of the executive committee for the company, which had just been created the year before by the merger of Citicorp and Travelers. He would be paid 15 million a year with guaranteed stock options to help with strategic thinking at a company that could only exist because of Gramm-Leach-Bliley. Critics complained he was being paid back for supporting that law, but Rubin noted he had nothing directly to do with the Glass-Steagall repeal. He wrote an autobiography, fished, read books and advised senators all while running executive committee meetings at Citigroup and serving on the boards of Ford, Harvard, and other institutions. He celebrated the long economic expansion even as it faded out.

It turned out Rubinomics had not done much to reverse or even slow economic trend lines that had been place for a generation. Between the late 1970s and 2007, the financial sector grew exponentially and the rules that kept it in check disappeared. Financial companies doubled their share of corporate profits, and the top one percent of Americans more than tripled their share of national income. The income of those in the middle rose by only 20%, and the income of those at the bottom leveled off. By 2007, 40% of the nation’s wealth was owned by the top 1%, while the bottom 80% owned just 7%. Rubin had been at the top of Wall Street and Washington during the age of inequality.

At Citigroup, he encouraged more risk but advised that the risks needed to be managed. Citigroup tripled its issuing of mortgage-backed securities and collateralized debt obligations from places like Tampa. Most of the $43 billion in collateralized debt obligations turned out to be worthless. Citigroup needed two rounds of government bailout money to stay afloat after it lost $65 billion. In 2008, Rubin disappeared from public life. In January 2009, after having earned $126 million for his decade of offering strategic advice to Citigroup, he resigned from the board. When he was called to testify before the Financial Crisis Inquiry Commission in Washington in April 2010, Brooksley Born asked if Rubin agreed with her about the need to regulate derivatives, and he said he did. He also said he did not really do anything on the executive committee beyond offer advice between board meanings, meaning he could not be held responsible for what Citigroup did.