The fall of the house of Thornburg

Corey Pein of the Santa Fe Reporter has put out a great profile piece on Garrett Thornburg, chairman of Thornburg Mortgage. The Santa Fe-based company recently filed for bankruptcy and let go 130 of its staff.

The story is a complete microcosm of the current mortgage and banking crisis and illustrates how money and power allow an individual or entity to operate beyond the rules that the average citizen or business are subject to. From questionable tax incentives to the over-leveraging of loans, Thornburg's story is the embodiment of an American capitalism that believes inflated returns are legitimate and deserved.

Unlike other mortgage companies that have gone under, Thornburg did not specialize in the sub-prime market:

The company sold “super-prime” “jumbo” mortgages—big houses for rich people—which few New Mexicans could afford. Thornburg often said that 97 percent of his business was out of state.

But the thing that Thornburg had in common with many of his financially elite peers was greed. Like many people who were making huge profits in the last five years, Thornburg was often hailed as a genius. In the last 6-8 years money was cheap to borrow and Thornburg was making profits off the difference in interest rates that he was borrowing on and then lending out. But that wasn't enough. According to a "retired Wall Streeter":

“The ‘genius’ element was very simple. There were two parts to it. No. 1, we had 1 or 2 percent short-term interest rates. He’s making loans at 5. And he can borrow money at 2. Of course he’s making money. The other part is he wasn’t content with making money at that spread, and he leveraged. He started borrowing and borrowing and borrowing to make more loans and make more income at that spread between 2 and 5 [percent],” Collins says. “He wasn’t a genius because Bernanke set the short-term interest rate at Thornburg’s benefit. He just happened to be in the right place at the right time.”

In stories like this there are always a slew of bureaucrats and politicians who willingly enable this behavior, whether because of pure infatuation of money, or because they were financed and easily manipulated by the person or entity in question. In this case these public officials happen to be in Santa Fe as well as Washington.

The piece goes on to document the questionable deals Thornburg worked out with the city and state which saved him hundreds of thousands of dollars a year in taxes, much of it property taxes that should have been going to schools and the community.

This is a great read and it reminded me of a well-done Vanity Fair piece... great details and great interviews. Kudos to the Santa Fe reporter for their consistently good long-form journalism.