Florida-Ponzi

The Ponzi State
Florida’s foreclosure disaster.
The New Yorker
George Packer
09 February 2009

All along State Road 54 in Pasco County, Florida—forty-five minutes northeast of Tampa—the pine trees and palmettos and orange groves have been cleared to make way for new developments. Over the past few years, these inland subdivisions, which are sometimes called “boomburgs,” appeared as if overnight. Developers dreamed up instant communities and christened them with names evoking the ease of English manor life: Ashton Oaks, Saddle Ridge Estates, the Hammocks at Kingsway. Across flat and empty fields of wire grass, the developers paved suburban streets and called them Old Waverly Court and Rolling Greene Drive. They parcelled out lots smaller than a quarter acre and built, with concrete blocks and stucco, look-alike two-story beige and yellow houses; columned archways over the front doors lent an illusion of elegance.

The houses sold for two or three hundred thousand dollars to some of the thousand or so people who moved to Florida every day, or to middle-class people who already lived there but wanted to get farther away from Tampa, where most of them had jobs. Nearby, shopping malls and megachurches sprang up. By last year, Pasco County, where twenty thousand people lived in 1950, had nearly half a million residents. A few days after the Presidential election of 2004, the Times devoted an article to Pasco County, saying that it was the kind of place that had given Florida, and the White House, to George W. Bush. The county’s growth fuelled a real-estate boom that, by the middle of this decade, was bigger and gaudier than anything the state had ever seen.

Recently, I drove around some of the subdivisions on State Road 54, as well as in other parts of Tampa Bay and in southwest Florida. A friend from Tampa, who accompanied me on one outing, called them “ghost subdivisions.”

I didn’t understand what he meant until we drove into a development called Twin Lakes, where there was nobody on the gently curving streets except for a solitary middle-aged woman, who was watering her lawn in hip-hugging Capri jeans, a sleeveless top, and silvery-green eyeshadow. Her name was Bunny—“just Bunny”—and she was a native New Yorker who had grown up on Utopia Parkway, in Queens. She had pursued the sun and the good life to Hawaii, Arizona, and West Palm Beach, before ending up in Twin Lakes. Some of the houses around Bunny’s were occupied, she said, but a good number were for sale. In the past two years, property values in Twin Lakes had dropped by more than a hundred thousand dollars. One house had been for sale for almost two years.

Farther east on State Road 54, in a subdivision called Country Walk, there were streets whose pavement stopped a few feet from where it began, as if the developer had changed his mind. I saw streets with signs and street lamps but no houses, and streets with houses but no occupants. Overhead, the sky was brilliant aquamarine, and the structures looked like cardboard cutouts. Dozens of houses had “For Sale” signs in the front yard, some of them standing next to collapsed inflatable Santa Clauses. On Pumpkin Ridge Road, house after house appeared to be waiting for inhabitants—carpeted white rooms with no furniture—or deserted. Five minutes after I rang the doorbell at one house, an old woman missing two front teeth opened her door a few inches and peered out. I asked where her neighbors had gone. “I don’t know anything,” she said. “I’ve only been here since October.” In front of the house at the corner, three copies of the Tampa Tribune—one of them dated September 27th—lay on the pavers. I looked through the kitchen window: the refrigerator doors hung open and on the floor were piles of trash, including a sign that said “For Sale by Owner.” The grass outside was overgrown, and yellow from a recent drought.

To the south, on a rural road off U.S. 301 in Hillsborough County, I turned in to a subdivision called Tanglewood Preserve. The sales center was shuttered and construction had been arrested: thirty-two lonely houses were scattered around three hundred and sixty-six lots, with patchy fields for back yards. At the corner of Tangle Brook Boulevard and Tangle Bend Drive, there was a two-story beige stucco house with a black Ford Explorer and a Chevy Venture parked in the driveway. A woman named Angie Harris lived there with her five children. She was thirty-six years old, a Navy veteran, black, with short hair and a stout, powerful body. She was the wife of a sailor stationed in Bahrain who was not due to return home until 2010. He had found the place in Tanglewood Preserve online, marked down from three hundred and twenty-six thousand dollars to two hundred and twenty-six thousand. “Go look,” he told her. “There’s something wrong, for that price.” But there was nothing wrong, other than the head-high grass out back, and so Harris bought it and moved in this past July. She placed four leopard-skin-patterned chairs around a table in the dining nook and put a brown leatherette sofa set in the carpeted living room. When I visited, Harris’s two younger daughters were watching cartoons on a large plasma television, with the volume low. On the kitchen counter were audio CDs of Dave Ramsey, a personal-finance adviser. Other than a few military plaques above the TV, the walls were bare. The blinds were drawn against the sunlight.

A group of original homeowners in the subdivision, who paid full price in 2006, had held a Thanksgiving gettogether to which newcomers like Angie Harris, who had bought in for much less, were not invited. She knew the name of only one other family in Tanglewood Preserve—she’d heard it from the real-estate agent. “It used to be people would wave,” she said, standing in her darkened living room in a “Verizon Wireless” sweatshirt and jeans. “Now they don’t, maybe because of the economy. It used to be Southern hospitality. Now it’s, like, grab your purse.”

After the development went into foreclosure and was sold, Harris received a letter from the new developer. It said that the building of new houses remained on indefinite hold, but also promised better maintenance of the vacant lots, and included a gift certificate to Publix, the supermarket chain.

‘Florida is a fraudulent state’—that’s how they explained it.

I asked Harris if she wanted a few more neighbors. “Not really,” she said. “I want them to upkeep the property. And the playground they promised.” She had annual passes to all the theme parks around Tampa for her five kids; when she moved in, her back yard was a breeding ground for snakes, the subdivision’s common areas were not tended, and the open fields had become dumping grounds, so Harris seldom let her children play outside. She had grown up in Baltimore, where neighbors could spank one another’s children, and had lived in Brooklyn, and she had fond memories of street life in those old cities. But at Tanglewood Preserve, Harris was filled with suspicion, as if transience and isolation made her vulnerable. (Valrico, the town a few miles to the northeast where she had lived before, was overcrowded and beset with gangs.) “When we moved to Florida, the auto insurance went up a hundred dollars. ‘Florida is a fraudulent state’—that’s how they explained it. I don’t know if it’s like that across the board. It’s so much stuff that’s going on—in this day and age, you can’t trust people. The neighbors are leery of me, and maybe I’m leery of them.”

On State Road 54, there was a gated community called Hamilton Park. Toward evening, a woman was sitting in her open garage, smoking and talking on the phone. A covered Corvette was parked in the driveway. Exposed to the darkening street, the woman resembled a figure on a lighted stage, an impression deepened by the theatrical amount of clutter surrounding her: pots and pans, Masonic emblems, Art Deco fireplace tools, a metal desk, an Army Air Corps scrapbook from the Second World War, a fiftieth-wedding- anniversary album, piles of photographs and letters, brown porcelain cannisters, a Kodak Brownie Reflex camera with external flashbulb, “The Good Housekeeping Cook Book.”

“I’m liquidating everything at an auction,” the woman said, after hanging up. Her name was Lee Gaither. She had been on the phone with Verizon, trying to keep her Internet service from being cut off. The water bill was past due, and Gaither, who was renting the house, was facing eviction. (To avoid it, she had sold off her mother’s silverware, and some vintage furniture and jewelry, for thirteen hundred dollars.) Gaither, forty-seven years old, was slender and blond, with an educated voice; but her face was lined with exhaustion, and a scar ran under her left eye. She suffered from fibromyalgia, she said, and “something called lupus.” Disability payments were her only income. She was from Ohio by way of Virginia, and around her lay the precious debris that her family had passed down to her, including a document dated March 11, 1830, transferring from Kentucky to Ohio the remaining balance of a Revolutionary War veteran’s pension. In November, 2007, after financial ruin forced her to sell the family house in Vienna, Virginia, she had moved to Florida. She apologized for the disorder in the garage. “These are family heirlooms,” Gaither explained. “I might get a little for it.”

Gaither traced her disaster to her third husband, whom she’d met in Virginia. “He asked me to marry him in three weeks, and that was a big thrill,” she said, with a hint of apology. She had invested her savings in the man’s construction business, which turned out to be fraudulent. He is currently in jail in Virginia. He had put two race trucks and the Corvette in her name, leaving her with payments of thirty-three hundred dollars a month. One truck had already been repossessed, and the second had been totalled by a man who borrowed it from her. She was still hoping to sell the Corvette, which carried a balance due of twenty-six thousand dollars. “I don’t have it,” Gaither said, in a tone of quiet defeat.

Gaither’s only consolation was her son from her second marriage. He was an A student at the local high school and hoped to attend law school. “I’m really proud of him, obviously,” Gaither said. “It’s too quiet here. I thought it’d be a great neighborhood for him, but he really has no friends to do things with.” Next door, a couple had moved in and then suddenly moved out again, and another couple was now renting.

Other than her son, there was no one, she said. “It would be nice to have living relatives,” she said. “My family home—everything is gone. And here I sit, wondering if I can get the phone company not to cut me off.” Pinned to the back wall of the garage was a small card with the words “PEACE: it does not mean to be in a place where there is no noise, trouble or hard work. It means to be in the midst of these things and still be calm in your heart.”

I had begun to think that Gaither was alone in Hamilton Park when a bright-red Hummer lumbered into her driveway, and a massive man with a long gray ponytail and a Harley T-shirt got out. He said that his name was Dan, and described himself as a friend who was helping Gaither out. Dan had a bass twang and a bone-crunching handshake. He was a retired state trooper and had been earning money serving subpoenas on foreclosures, until the high cost of gas made the business unprofitable. “It’s not their first rodeo, most of the people who are bailing,” Dan said, waving at the houses up and down the street, which were disappearing in the dusk. “The reason you don’t see ‘For Sale’ signs is they just pack up over the weekend and get out. They know the tricks to keep from getting traced.” He shrugged. “I’m going on credit cards myself. I took some of my retirement money and bought things I liked.” Dan nodded toward the Hummer. On his wrist was a Rolex watch.

Gaither was looking at a family picture, from 1942, of her father putting his Army Air Corps cap on her grandfather’s head. “There’s so much history here, and it’s heartbreaking,” she said. “But I just don’t have the time to sell it on eBay.” The auction would be held in two days. Gaither was trying to sell possessions of no value to anyone but her.

a growth machine that was the envy of the world

This is one of the places where the financial crisis began. Florida has epitomized the boom-and-bust cycle of American business ever since a land rush in the nineteen-twenties ended with the devastating hurricane of 1926. The state’s economy depends almost entirely on growth—that is, on new arrivals and the wealth they generate in construction and real estate. “Until two years ago, this was a growth machine that was the envy of the world,” said Gary Mormino, a professor of history at the University of South Florida, in St. Petersburg, which is across the bay from Tampa. “Florida, in some ways, resembles a modern Ponzi scheme. Everything is fine for me if a thousand newcomers come tomorrow. The problem is, except for a few road bumps—’73, ’90, and they were really minor—no one knew what would happen if they stopped coming.”

Only Nevada has a lower proportion of native residents than Florida. The state’s growth machine did not depend on higher education or high-paying professional jobs; it depended on real estate and sunshine. Tourism and migration allowed Florida to become a low-tax, low-wage state, where living was relatively cheap. “The Florida economy has been based on selling Florida,” David Reed, who runs the Florida operation of an investment fund called CapitalSouth Partners, said. “Our growth is all about population growth. When you take that away, what have you got?”

Florida is one of only nine states without an income tax—the state constitution bans it—and its taxes on corporations and financial transactions have been gutted with exemptions. The state depends for revenue on real-estate deals and sales taxes. In 2005, the LeRoy Collins Institute, at Florida State University, released a report warning that the state budget was overdependent on the housing boom and would soon experience deep shortfalls. Politicians in Tallahassee generally dismissed it. “Florida has a political culture, and one of its little phrases is ‘If it ain’t broke, don’t fix it,’ ” Lance deHaven-Smith, a public-policy professor at Florida State, said. In exurban counties like Pasco, property taxes were kept low to attract homebuyers, and the schools and fire stations that new arrivals expected were often paid for with bond issues floated on the projection of future growth—a system that Ben Eason, who owns Creative Loafing, an alternative weekly in Tampa, also likened to a Ponzi scheme. DeHaven-Smith called Florida’s policies “the most disingenuous system of government.”

By 2005, the housing market in Florida was hotter than it had ever been, and the frenzy spread across all levels of society. Migrant farmworkers took jobs as roofers and drywall hangers in the construction industry. Nearly everyone you met around Tampa had a Realtor’s license or a broker’s license or was a title agent. Alex Sink, the state’s chief financial officer and a Democrat, said, “When the yardman comes and says he’s not going to mow your yard anymore because he’s going to become a mortgage broker, that is a sure sign that something is wrong.” Flipping houses and condominiums turned into an amateur middle-class pursuit. People who drew modest salaries at their jobs not only owned a house but bought other houses as speculators, the way average Americans elsewhere dabble in day trading. Ross Bauer, a manager at a Toyota dealership in Tampa, told me that between 2000 and 2007 he bought and sold half a dozen properties, in a couple of instances doubling his money within two years. “Looking back, it was right in our face,” he said. “That’s a heart attack. It’s not normal.”

Jim Thorner, a real-estate reporter in the Tampa office of the St. Petersburg Times, said, “There were secretaries with five to ten investment homes—a thirty-five-thousand-dollar salary and a million dollars in investments. There’s no industry here, only houses.” When Thorner went to buy a new house, in 2005, the customer ahead of him in line at the sales center said that he intended to turn his property around in six months and make fifty thousand dollars. It was not an outlandish plan. Home values around Tampa rose twenty-eight per cent that year. “I’m telling you, it was the Wild West,” Alex Sink said. “And Florida has always been susceptible to the Wild West mentality. If it’s too good to be true, we’re going to be involved in it.”

“Money was flowing, easy money. Anybody could qualify—I mean anybody.”

In Fort Myers and the neighboring city of Cape Coral, two hours south of Tampa, things got wilder than anywhere else. A Fort Myers real-estate agent named Marc Joseph, who entered the business right out of college, in 1990, and had the jaundiced eye of a veteran, told me, “Money was flowing, easy money. Anybody could qualify—I mean anybody.” He knew a bank teller with an annual salary of twenty-three thousand dollars who had received a two-hundred-and-sixteen-thousand-dollar mortgage, with no money down and no income verification—not even a phone call from the lender. “I wish I could say the market here was driven by end users and retirees, but it wasn’t. Two-thirds were speculators. You could flip ’em before you had to close on ’em.” Karen Johnson-Crowther, another real-estate agent in Fort Myers, showed me the sales history of a property in an upscale gated community which she had recently bought at a foreclosure auction. Building had begun in 2005. On December 29, 2005, the house sold for $399,600. On December 30, 2005, it sold for $589,900. On June 25, 2008, it was foreclosed on. Johnson-Crowther bought it in December for $325,000. I said that the oneday increase in value must have been some kind of record, and she looked at me pityingly: “No.”

When I told Alex Sink about the house that had appreciated by almost fifty per cent overnight, she said, “That’s a fraudulent transaction.” According to an investigative series in the Miami Herald, oversight by the state’s Office of Financial Regulation and its commissioner, Don Saxon, was so negligent that more than ten thousand convicted criminals got jobs in the mortgage business, including four thousand as licensed brokers, some of whom engaged in fraudulent deals. Until the rules were recently changed, felons in Florida lost the right to vote but could still sell mortgages. (Under pressure from Sink, Saxon resigned this past August.) Kathy Castor, Tampa’s representative in Congress, told me, “Florida was particularly lax when it comes to mortgage regulation.” She connected the mortgage crisis and the lack of oversight with state politics and the political power of developers. “We were hit by two Bushes, George and Jeb”—Florida’s governor from 1998 to 2006—“and there was very loose growth management. Because Jeb was aligned with the development industry, it was a speculator’s paradise.” Before running for Congress, in 2006, Castor was a commissioner in Hillsborough County. She said that developers held sway there, benefitting from “a very costly urban-sprawl model.” The county sold off agricultural land “in places that are miles from the jobs.” The Web site for Country Walk, in Pasco County, promised buyers “a comfortable distance from the higher prices, taxes, and congestion of big city living. Come enjoy the home Tampa residents can only dream about.”

Last fall, Michael Van Sickler, of the St. Petersburg Times, tracked the real-estate deals of a local tattooparlor owner named Sang-Min Kim, also known as Sonny. Starting in 2004, Sonny Kim made ninety sales around Tampa, mostly in poor neighborhoods, on which he cleared four million dollars. Van Sickler found that many of Kim’s buyers, who put little or no money down, were untraceable; some had been convicted of drug dealing and other crimes. Kim, who has not been charged with any crimes and could not be reached for this article, closed a third of his deals with a title agent named Howard Gaines, who now faces up to forty-five years in prison on a fraud conviction elsewhere in Florida. According to law-enforcement experts, drug dealers often become flippers, in order to launder money.

One night in December, Van Sickler took me on a tour of some of the abandoned and foreclosed properties that had once belonged to Sonny Kim’s real-estate empire. We stopped at an ill-lit corner in a mostly black slum of single-family houses called Belmont Heights, which is cut off from downtown Tampa by Interstate 4. Van Sickler—incongruous-looking in a dress shirt and dark slacks—pointed out a decaying two-story stucco house. Its windows were boarded up, and mattresses lay in the overgrown yard, near a “For Sale” sign. Van Sickler learned that Kim acquired the house in 2006 with a deed that was witnessed by a convicted drug dealer, then flipped it for the sum of three hundred thousand dollars, with the help of a no-money-down mortgage from a subsidiary of Washington Mutual Bank, which later foreclosed on the house. (Last year, WaMu went into receivership, after becoming the largest bank failure in American history.) According to mortgage-fraud experts, the straw buyer is typically paid a small slice of the flipper’s take and then disappears without moving in. When Van Sickler recently asked a real-estate agent about the house, he was told, “That’s selling for fifty-two thousand, but it can be yours for thirty-five thousand in cash.”

“Sonny Kim may not be the biggest, he may not be the worst, but he really epitomizes the laxness of the banks during the boom years,” Van Sickler said as we stood outside the house. “It raises the question, Did anyone from the bank do a drive-by to eyeball this place?” Kim’s deals had been financed by Wachovia, Wells Fargo, Bank of America, Lehman Brothers, Fannie Mae, and Freddie Mac. While Van Sickler, who was having trouble selling his own house in Tampa, was investigating the trail of Sonny Kim in September, the country plunged into the worst economic crisis since the Great Depression, and the banks that had greased Kim’s deals were at the center of it. “We’re not all to blame for this,” Van Sickler said. “Decisions were made, and people looked the other way. This did go all the way up the ladder.”

Easy credit and mistrust are two sides of the same economy.

Van Sickler was right: the diagram of moral responsibility looked like an inverted pyramid, with the lion’s share belonging to the banks, mortgage lenders, regulators, and politicians at the top. And yet anyone buying and selling property in Florida in the middle of the decade must have known that the system was essentially a confidence game, that everyone involved was both being taken and taking someone else. Easy credit and mistrust are two sides of the same economy. This explained, at least in part, why Angie Harris avoided her neighbors in Tanglewood Preserve, and why they shunned her: she made them feel that they’d been duped. A Ponzi scheme succeeds only when enough people are willing to put aside common sense, and on some level they know they are doing it. The result is universal credulousness and universal fear.

A Tampa police car pulled up outside the derelict house, and a cop got out. “Someone around here doesn’t like you,” he said. A neighbor had complained about two men snooping around the abandoned property.

Flipping and fraud burst the boil. But in places like Pasco County and Cape Coral it was the ordinary desire of ordinary people to buy their own homes that turned things septic. Southwest Florida isn’t Las Vegas or Palm Beach: this is conservative, churchgoing country, with anti-abortion signs scattered among the highway billboards advertising model homes and liposuction. Unlike the upscale Atlantic Coast of Florida, it was settled by middle- and working-class people who followed the I-75 trail down from Michigan, Ohio, and other places that nurtured Midwestern frugality and caution. The memory of these values haunts conversations about what happened here. Karen Johnson-Crowther, the realestate agent in Fort Myers, who bought five houses at one Sunday auction in December, said, “You open the paper and read the foreclosures in the back of the classified section—you can’t help but feel for all of those people who wanted the American dream.” Johnson-Crowther, the mother of grown children, comes from Illinois. “My parents were always savers,” she said. “My father was an asphalt contractor up there. He retired here because he saved. Today, we’re so different from that generation. After seeing this, is it going to swing back the other way?”

Anita Lux also came from Michigan. She and her husband, Richard, live in a one-story house along a canal in Ponderosa Shores, a quiet older subdivision of St. Petersburg. Her father worked at Ford’s Rouge River plant in Dearborn, Michigan, for forty-seven years, long enough to have known Henry Ford and Walter Reuther. Anita had a job with the city of Dearborn until 1985, when Richard, an architect, accepted an offer to start a new office in Florida. They wanted to get away from the winters.

The Luxes invited me for coffee out on their screened-in porch overlooking the canal. Richard, in his early sixties, was bearded with thinning hair; Anita, who was in her late fifties, had large, heavily mascaraed eyes behind glasses.

“Her father was very frugal,” Richard said. “All of this rubbed off on Anita. Anita has been known as the Coupon Queen.”

“You know how they tell you at the end of the receipt how much you’ve saved?” Anita said. “I love that!” She added, “We’ve always tried to live not beyond our means. We have credit cards, but not maxed out. One or two cards.” They saved for two years in order to take a vacation to Yellowstone. “We don’t have big-screen TVs. We don’t have fancy cars.” They owned a Ford and a Mercury. “Bought used,” she added.

When the recession of the late eighties caused Richard’s office to close, Anita took a job as an administrative assistant at Wachovia. Earlier this decade, she watched the bank get into the subprime-loan business. In 2006, Wachovia bought World Savings, a California mortgage lender operating under the umbrella of Golden West Financial, which that year was named by Fortune as one of the most admired mortgage-services companies in America.

“Who would have thought that all those loans would cause . . .” Anita didn’t finish her sentence. At World Savings, the loans were called “Pick a Pay.” Customers were invited to design their own mortgages, choosing an interest rate and a payment plan. “They were going to have all the lenders for Wachovia follow the same scheme” as World Savings, she recalled. “A lot of our mortgage lenders thought this was pretty nutty. But World Savings was pretty successful, for a while.”

“For its owners,” Richard added.

“He saw all this coming,” Anita said.

“What triggered it for me was all these high-rise condos for a million dollars,” Richard said. “In Tampa, in St. Pete. Who in the world can afford those? This is Podunk. This isn’t Chicago, this isn’t Paris. Who is dumping all this money?” Anita smiled—they knew each other’s conversational turns—as Richard went on: “We changed as a society. Prior to the concept of the government getting into the lottery business, we were a nation built on the value of a dollar. We became a nation based on the volume of the dollar.”

“Part of the problem is they allowed people to have too much credit,” Anita said. “Every day, you get something in the mail that says you’ve been preapproved for a credit card, and people don’t know how to say no. You’ve got people with thirty credit cards.”

“Then people compound it—they get a line of credit to pay their taxes,” Richard said. “The American people don’t have an education in money. They didn’t learn it from their parents.”

Alex Sink, the state treasurer, was president of Bank of America in Florida until she retired in 2000, just before her colleagues started to lose their bearings. “What were the banks thinking?” she asked. “My alma-mater bank, one of their early write-offs—they came up with this idea that they were going to make lines of credit up to a hundred thousand dollars available to small businesses without any history. You know, the Kevin Cate Tattoo Parlor.” (Kevin Cate is Sink’s press secretary, and though he has a real-estate license, like everyone else in Florida, he doesn’t own a tattoo parlor.) On a recent visit to Bank of America headquarters, in Charlotte, North Carolina, Sink confronted one of the bank’s most senior executives. “I said, ‘What were you thinking?’ He just looked at me. He thought they’d outsmarted themselves.”

In 2003, Jennifer Formosa and her husband, Ron, bought a house in Cape Coral, across the Caloosahatchee River from Fort Myers. Until the late fifties, Cape Coral didn’t exist, except as an uninhabited spit of land called Redfish Point. In 1957, two salesmen from Baltimore, Leonard and Julius Rosen, bought it for six hundred and seventy-eight thousand dollars, gave it a more alluring name, and began pitching their new development on television. In “Land of Sunshine, State of Dreams: A Social History of Modern Florida,” Gary Mormino, the historian, writes, “The first national ads for Cape Coral offered shivering Northerners the opportunity to buy into the Florida dream on the installment plan.” Today, a hundred and sixty-seven thousand people live there.

Jennifer Formosa, who is twenty-five, with brown hair and a practical manner, came from Michigan, like Anita Lux, but she was raised by a single mother and moved to Florida when she was nine. A month after graduating from high school, she went to work as a teller with BankAtlantic. (In the state’s employment hierarchy, the lower-middle-class job for those without a college education was bank teller. For men who didn’t finish high school, it was construction. The middle class worked as real-estate agents and brokers. The upper class were developers.) At nineteen, Jennifer had her first child with Ron, whom she met in high school. They’ve since married and had a second child. Ron, who has the short haircut and earnest look of a fifties jock, was abandoned by his parents and raised by a grandmother. He didn’t finish high school, and went to work pouring cement in the construction industry around Cape Coral and Fort Myers. At the height of the building boom, he was making thirty dollars an hour. (“I was thinking, I don’t need no diploma.”) Using Jennifer’s income of about twenty thousand a year and Ron’s sweat equity as a down payment, they took out a hundred-and-ten-thousand-dollar mortgage and began construction on a three-bedroom house in Cape Coral. To pay their bills, they refinanced with Washington Mutual, then took out an equity line.

“Our hundred-thousand-dollar house got up to two hundred eighty thousand,” Ron said.

“With the final equity line, we put the patio in, paid off the cars, and bought the boat,” Jennifer said.

“Blew some of it,” Ron admitted.

“Vacations, cruises,” Jennifer said matter-of-factly. “Going to Orlando, taking the kids to Disney.”

By 2006, even though the Formosas had almost no savings, and kept borrowing against the value of their house—with its apparently endless path upward—their position seemed pretty solid. At least they didn’t have an adjustable-rate mortgage, with no money down and a low teaser rate that would soar in two years.

I met the Formosas through Marc Joseph, the Fort Myers real-estate agent. He was a cheerful booster of his home town and his trade, but he also wanted me to know the local roots of the financial crisis and the human faces behind it. “A lot of it originated right here, with greed and easy money, greed and easy money. That was the germ. It wasn’t location, location, location—it was greed and easy money.”

And then it all came to an end.

Some people in Florida can identify the precise moment when the economy turned. “It was almost like somebody had turned the light switch off,” Karen Johnson-Crowther said. Marc Joseph remembered a week in December, 2005, when the median price per unit in Fort Myers and Cape Coral was at its high of three hundred and twenty-two thousand dollars, and suddenly the phone wasn’t ringing as much. “It was as if the car came to a stop and all the air went out of the tires,” he recalled. For real-estate agents like Johnson-Crowther and Joseph, who stood on the precipice of Florida’s economy, the plunge to today’s depth started earliest and was steepest. For other Floridians, the past few years have been a slow agony of contraction.

When, at the Florida market’s dizzying mid-decade height, speculators lost confidence, the faith that kept the state aloft gave way and the economy plummeted like a Looney Tunes character who, suspended in midair, suddenly looks down. Property values did what the lenders and borrowers somehow never imagined was possible: they started to decline. Today, the average unit in Fort Myers and Cape Coral is selling for just a hundred and fifty-eight thousand dollars, less than half of what it sold for at its height. When housing prices dropped, owners like the Formosas could no longer use their homes as cash machines. Even luxury properties, usually insulated from downturns, took big hits: in St. Petersburg, a real-estate agent named Alona Dishy showed me a waterfront house that had originally been advertised for $4.4 million but sold for $2.4 million. With fewer interested buyers, the volume of new building decreased, and the construction industry began to dry up.

In Naples, the wealthy retirement community south of Fort Myers, Ron Labbe owned a lumberyard that sold materials to the town’s high-end builders. Labbe, who came from a working-class family in Akron, Ohio, had started out driving a forklift in the yard thirty years ago, and in 2005 he bought out the company’s owners with the help of CapitalSouth Partners, David Reed’s investment fund. In the summer of 2006, Labbe noticed a sudden drop in building permits around Naples—a warning sign in the construction trade. He cut his workforce, then closed his truss-fabrication plant, sold off the plant’s equipment and land, and waited for the downward spiral to stop. But it kept going. Labbe’s water coolers were replaced with drinking fountains. The company shrank from two hundred employees to forty, and revenue dropped from fifty million dollars in 2006 to sixteen million in 2008. This past summer, Labbe—a self-deprecating, meticulous sixty-year-old—stopped paying himself and put his own cash back into the business. When I visited the lumberyard, on January 7th, he told me that it was the worst single day of sales he had ever had. And there was no end in sight. I asked whom he blamed for the wasting away of his company. Labbe shook his head and smiled. “There are big forces out there that are much larger than we are,” he said. “It would just eat away at you if you think about what’s happening now.” He added, “There’s not one thing you have to blame. You’d have to blame everyday people. What’s the saying? I met the enemy, and it’s us.”

By early 2008, the cement company where Ron Formosa worked in Cape Coral started laying guys off. Ron first saw his hours cut in half, and then he lost his job. At the same time, interest rates crept upward, which meant that borrowers who were already watching their income and property values melt away had an even harder time making monthly payments.

Thus the foreclosure epidemic began.

Thus the foreclosure epidemic began. By last year, the highest rate in the country could be found in Fort Myers and Cape Coral, where twelve per cent of the area’s residences were in foreclosure, including the Formosas’. In Tampa, a third of the properties sold by Sonny Kim passed into the hands of some of the country’s leading banks, which had lent millions of dollars to his straw buyers without asking questions. In Pasco County, the foreclosure rate jumped fivefold between 2005 and 2008. And in New York and Washington the term “mortgage-backed securities” came to inspire dread, like the name of a new virus. Having incubated along the Gulf Coast of Florida, it was spreading around the world.

But this was only the beginning of Florida’s calamity. In early 2007, Alex Sink attended a meeting of the Chamber of Commerce in Tallahassee, where an official from Allied Van Lines reported that the company was moving more people out of Florida than in. “That really got people’s attention,” she said. “It’s even worse now.” In the 2003-04 fiscal year, Florida’s population grew by nearly four hundred thousand. The projection for 2009 is five thousand, making it the first year since the early seventies, when statistics began to be recorded, in which the net flow of migration is negligible. Residential electrical hookups show the same trend: preliminary numbers suggest a decline in 2008, the first decrease in the four decades since the Bureau of Economic and Business Research at the University of Florida has been keeping the data. The engine of Florida’s growth has quit. In Gary Mormino’s metaphor, the Ponzi scheme has collapsed.

Because real estate stands at the center of the state’s economy, very little in Florida survived the bust intact. A harbor pilot named Jorge Viso told me that at the port of Tampa, where the bulk of the traffic is in construction materials, the volume of shipping had imploded over the past two years—steel was down by sixty-seven per cent, cement by seventy-three, wood products by eighty-nine. It was the worst decrease in his two decades there. Ross Bauer, the Toyota manager who sold properties on the side, said that the car dealership had enjoyed double-digit increases throughout the decade. “Business was insane,” he said. In 2007, sales levelled off. In 2008, they dropped precipitately. Twenty per cent of auto sales were paid off through home equity, Bauer said, and now a fifth of the vehicles financed by Toyota’s southeastern distributorship were in repossession. In the final months of 2008, half a dozen auto dealerships in Tampa closed or declared bankruptcy.

The construction workers who had scaled the economic ladder from the strawberry fields and orange groves began sliding back down. Latino farmworkers without houses or families in Florida boarded buses bound for Mexico. The Hillsborough County sheriff reported tent villages full of the homeless sprouting behind strip malls, along with an outbreak of strange new crimes. Carl Grooms, a strawberry grower in Plant City, explained, “The economic situation is so bad that you’ve got a low-rent element coming in that will steal anything. They steal our copper from our churches, they strip the wiring out of the trailers.” Jim Joyce, a supervisor with Hillsborough County’s health and social-services department, said that his caseworkers were seeing “a new face” coming in for help: “People who were in their homes, were living the American dream, and then lost it. And they don’t have the knowledge to navigate social services, how to get food stamps. People who were employed in the real-estate market—we see people who were making quite a nice living, and they end up in our office.” Unemployment in Hillsborough County was close to eight per cent, and retailers in the strip malls were closing down. Tampa was awash in out-of-work brokers and busted developers. On the streets outside his condo, Ross Bauer began to see something new: homeless people who looked like him.

In Room 416 of the George E. Edgecomb Courthouse, in downtown Tampa, Laura Donaldson, twice divorced, was having another face-off with her first husband, Dennis Johnson. They were both in their forties, both blond, both good-looking, though a little drawn around the eyes and mouth—she in a navy-blue blazer, he in a yellow button-down shirt. It was easy to imagine the couple, in better times, out on the emerald bay together, in the boat whose valuation became a subject of argument at their divorce hearing, in 2001. Johnson was a property developer—his niche was subdividing and flipping empty lots in the wealthy areas of South Tampa—and in 2005 he earned eight hundred and thirty thousand dollars, by far his career high, after which his ex-wife demanded a second increase in support payments for their son.

By the time the case came before Judge Bernard C. Silver, of the Hillsborough County Circuit Court, Johnson’s fortunes had taken a disastrous turn—two straight years of deficits, totalling more than three hundred thousand dollars. He had fired his secretary, sold his million-dollar house at a loss, moved his new family into a rental, and was paying bills and debts with credit cards, stock sales, a loan from his in-laws, and proceeds from his business properties, which were losing value every month and which he was liquidating as quickly as possible. He had plotted a graph to show the judge, labelled “Declining Net Worth.” The line began in May, 2006, at $3,759,000, and descended, first gradually, then steeply, to last August: $220,500.

And yet, on the witness stand, Johnson parried his ex-wife’s lawyer with the almost jaunty equanimity of a ruined man in a screwball comedy. Once or twice, without knowing who I was, he caught my eye and shook his head with a grin. “It appears right now there’s a multitude of people with my expertise out there,” Johnson said when questioned whether he was looking for work. “Everybody’s been laid off. I’m a cheap commodity right now.” His ex-wife’s lawyer, Adrian Castro, kept suggesting that Johnson had money hidden away, and Johnson kept answering with the verbal equivalent of turning out his pockets and shrugging. It seemed as if he’d finally found a way to keep his ex-wife’s hands off his money.

“Your net worth drops three million dollars in one year, and that’s not your big problem,” Johnson said later, over lunch at Pipo’s Cuban Café. “I’d take three more years of real-estate hell if my lawyer could get me out of court.”

I thought of Lee Gaither, sitting amid the detritus of her life in a garage up in Pasco County. Gaither had said that her ex-husband was “an incredible actor,” and now the only thing of value she owned was a red Corvette. Johnson had a white Lexus. He also owned an interest in a piece of property in Pasco County—twenty acres of orange groves and a pretty lake, north of the developments along State Road 54. When the economy recovered, the orange groves could be subdivided and developed. He was going to hold on to them—he was still in the game.

At a table outside a Tampa Starbucks, Ross Bauer, the Toyota dealer, was sipping a latte and smoking in the December afternoon sun, wearing an Abercrombie & Fitch T-shirt, sunglasses, and a few days’ stubble. “I personally laid off thirty guys in the last ninety days,” he said. “It was brutal. I had to let a guy go who worked there for many years. His wife was sick. ‘Did I do something wrong?’ ‘No.’ ‘Does someone not like me?’ ‘No.’ The bottom line was he was a highly compensated person we could do without.”

Then it was Bauer’s turn. “I was a victim of my own cost-cutting,” he said.

When we met, Bauer had been unemployed for three weeks. He admitted that he enjoyed sleeping in and was delaying the moment when he would go looking for a new job. He had stopped shopping at Nordstrom’s, and no longer dined out at Ruth’s Chris Steak House. In his condo, there was an expensive Viking gas stove that he’d turned on only two or three times, because he hardly ever cooked. “I never thought about it—it was just how I lived,” he said. “And it just stopped. Now you go to Hooters for a burger and a beer.”

Bauer’s condo, which he’d bought for half a million dollars at the peak, was currently worth maybe three hundred thousand, and he was negotiating a short sale with the bank to avoid foreclosure. Nearby, the streets were deserted around the Towers at Channelside—twin twenty-nine-story luxury high-rises, built in the past two years in a warehouse district near the port. At the end of last year, the project nearly went bankrupt. At night, the Towers themselves looked nearly empty, almost all the windows dark, except for a string of Christmas lights halfway up one tower and the blue light of a television flickering in the other.

When Anita Lux worked in the complaints office of Dearborn’s public-utilities department, a framed quotation hung on the wall, next to the time clock. She could still recite it word for word a quarter century later, as we drank coffee on her screened-in porch by the canal:

If you work for a man, for heaven’s sake work for him: speak well of him and stand by the institution he represents. Remember, an ounce of loyalty is worth a pound of cleverness. If you must growl, condemn, and eternally find fault, why not resign your position? And when you are on the outside damn to your heart’s content, but as long as you are part of the institution, do not condemn it. If you do, the first high wind that comes along will blow you away and you will never know why.

It came from an essay by Elbert Hubbard, a popularizer of the Arts and Crafts movement and a philosopher of homespun wisdom, who celebrated the American virtues of know-how and can-do a hundred years ago.

Last July, Wachovia told Anita Lux that her eighteen years at the bank were over. They were very nice about it: the vice-president who spoke to her was also being fired, and the two women cried together and talked about severance packages and health insurance. Anita had seen it coming, but she couldn’t get over the feeling of rejection.

“I had always been active in the bank,” she said. “I volunteered for Big Brothers Big Sisters, the American Cancer Society. I liked doing it, but I also felt it was doing good for the bank.” Now Elbert Hubbard’s exhortation kept coming back to her. “You see my point?” Anita asked, her eyes welling up. “I thought as long as I worked for a company and stood by a company and spoke well of a company, the company would stand by me. And it didn’t. The sign was wrong, in my case.”

Anita was fifty-eight when she got fired. A lot of the downsizing at Wachovia hit women her age, and she was afraid that no one would want to hire her. She’d had no luck yet, despite attending job fairs and having had two or three phone interviews. It was a shock to be on unemployment, and there were so many out-of-work professionals like her that the unemployment office had begun holding special classes for them. Richard’s work as a self-employed architect had dried up in early 2008, and Anita’s health insurance will run out in July. The one saving grace was that the Luxes had always been more frugal than Wachovia, which was bought by Wells Fargo on the last day of 2008 and will soon cease to exist.

Across the bay from the Luxes, in Tampa, Dan and Ronale Hartzell live in a cramped, featureless two-bedroom apartment on a strip of apartment complexes and motels near MacDill Air Force Base. Until last March, Dan had a ten-dollar-an-hour job laminating plastic snack-food bags, at a small plant in Tampa. He was laid off without explanation. Dan said that his supervisor, who had gone to high school with him, made someone else give him the news. He was still angry about that.

Dan had been looking for work ever since—Home Depot, Sam’s Club, Publix, at least sixty applications—with no luck. “It’s just been so hard out there, it’s so saturated,” he said. “When you apply, they tell you you’re the twenty-fifth person to apply.” He was a short, potbellied man in his thirties, with a wispy goatee and a shaved head under his Steelers cap. (He came from Pittsburgh.) He was missing some teeth and spoke in a loud voice, owing to deafness in one ear, and it was easy to imagine the wariness of prospective employers in the low-wage service sector, the only area where jobs seemed to be available. “I would classify myself as a blue-collar type guy,” he said. “I’m not the behind-the-counter-take-your-money-can-I-help-you-find-your-dress-size type. That’s not my kind of thing.” But no one was advertising blue-collar jobs.

“He was an excellent worker,” Ronale said. Like her husband, she had extensive tooth decay, and was beset with numerous other medical problems, for which there was no money. “He’s always been that way. And he’s a fast learner.”

“All I’ve got is my work habits—what can I do?” Dan said. “I’ve got two children.”

“He doesn’t drink. He doesn’t do drugs.”

We were sitting in their living room around a cheap flat-screen TV showing the local news—they had bought it with last year’s Earned Income Tax Credit. Brent, in fifth grade (and unusually small for his age), sat on the dingy carpet, holding the hand of Danielle, in second (with hearing loss). Their father was a high-school dropout, which he regretted intensely and blamed for his inability to find a job. But Dan also felt that the world was holding something against him: “You almost get to the point where, what’s the point? You apply and apply, and nothing happens. I start to wonder, What’s wrong with me? Why do all these people out there view me as such a bad person? They don’t know me, they don’t know my work history, they won’t give me a chance. I’m blue-collar. You work for what you have, that’s all anyone can do, and then all of a sudden the economy gets so bad and instead of thirty people looking for work there’s three thousand,” he said. “To be honest, I’m just actually starting to lose heart now.”

Dan and Ronale were estranged from their families, and since most of the people they knew were heavy drinkers, they had few friends. Dan said, “As far as the support system, you’re looking at it.”

The Hartzells didn’t take out a subprime mortgage. They hadn’t lived beyond their means. After Dan lost his job, they stopped renting DVDs and buying toys. They hadn’t even turned against each other. “I thank God every day that I have her,” Dan said, and Ronale said, “One thing we don’t argue about is money, because we don’t have none.” They felt lucky to have avoided eviction, but now they were facing the real possibility of homelessness. It would be hard to find more unambiguous victims of the housing bust and its thousand cascading effects.

Dan knew that his plight was the result of rising unemployment in a bad economy that was shedding the few remaining manufacturing jobs. In Hillsborough County, forty-eight thousand people had no work. And yet, in pondering the causes of his trouble, Dan couldn’t avoid the feeling that the world had singled him out for some terrible payback, that it must have been his fault, that the failure was his alone and he had no right to anyone else’s help. It occurred to me that this was an attitude that no senior figure on Wall Street had adopted.

After going a full year without making a mortgage payment, Jennifer and Ron Formosa realized that they were about to lose their house in Cape Coral. “When they were going to put that ugly yellow auction sticker on it, I didn’t want to live there,” Jennifer said. They found a place to rent nearby that was larger and less expensive, and in January they vacated their house and moved. Even in the new place, Jennifer dreaded the ringing telephone, with various creditors threatening to have her wages garnished. The Formosas wanted to file for bankruptcy, but they couldn’t quite afford the fourteen-hundred-dollar fee, even though Ron had found a job working for a locksmith, at nine dollars an hour, plus commission. Most of the work involved changing the locks on foreclosures.

One evening in January, the Formosas sat at the kitchen table in their new house while the children did their homework. On a large-screen TV, Barack Obama was explaining the terms of the bailout. “I’m not saying what we did was perfect,” Jennifer said. “We spent our money and didn’t save it. But we had it, and we didn’t see that this was going to happen.” She thought for a moment. “This whole situation—I won’t do things the way I did before.”

“Lessons learned,” Ron said.

“I’ll save my money instead of spend it,” Jennifer said. “I don’t think I’ll ever want to buy a house again.”

Richard and Anita Lux were using their new free time to read more and take long morning walks together. As they walked, they discussed books they were both reading—Herman Wouk’s “War and Remembrance” was a recent one—which helped fortify the mind, Richard said, against all the depressing news. He said, “The good thing about this is people are talking to people, families are talking to families, and eventually people are going to get it that there’s more to life than the greed-is-good arrogance of recent years, and back to the pleasures of life.”

“Back to the value of the dollar, not the volume,” Anita added. She had not yet found a new job.

In the office of Pam Iorio, who, at forty-nine, is Tampa’s mayor, a map was spread across the table. It was titled “2035 M.P.O. Long Range Transportation Plan DRAFT”—a blueprint for Tampa’s first light-rail system. Greater Tampa, with nearly three million people, is, after Detroit, the largest metropolitan area in the country without one. For nearly two decades, while planners carried out fourteen million dollars’ worth of studies, local politicians refused to push the project, which would require voters in Hillsborough County to pass a referendum raising the sales tax by one cent.

Iorio is determined to have mass transit approved before her term ends, in 2011. “We are twenty years behind the rest of the country, in terms of light rail,” she said. “It will put us at a huge economic disadvantage without it.” In Iorio’s view, the industries of the future won’t come to an area without mass transit. The project interested me, because it cut directly against the way people around Tampa Bay lived. It would get them out of their cars, lure them back to the city, and develop the metropolitan area with taxes and services, rather than depend on endless growth.

“The reason we don’t have it now is people have thought for years we don’t need it,” Iorio said. “Florida’s already growing fine—why should we make those long-term investments? We need them precisely because of the crisis we’re in. We’d have our own long-term economic-stimulus package right here, right now, if we had this in place.” Instead, with the federal government poised to spend hundreds of billions of dollars on infrastructure, Tampa has no big “shovel-ready” transportation projects lined up, except for a widening of the connector between Interstates 4 and 275.

Iorio had been described to me as a competent, unimaginative public servant, but in our conversation she sounded almost visionary. “If there can be any good from this economic calamity that is occurring, it is causing us to reassess ourselves as a country, as a state, as a city,” she said. “We have to reassess the institutions that we trusted and can’t trust anymore. We have to reassess the role of government in the private sector. And, locally and as a state, we have to reassess the basis of our economy. A state that is so dependent on the ebb and flow of construction does not have a strong foundation for its economic future.” Putting a light-rail system to the voters would be part of the reassessment. “It goes beyond the S.U.V. It goes to how we’re going to live in this community. We can’t continue to build four-thousand-square-foot houses miles outside cities.”

A number of people in Florida told me that the state needs a fundamental change in its political culture. Ben Eason, the owner of Creative Loafing, said, “In the next ten years, growth will return to the cities from the suburbs,” but he added that Tampa’s leadership lacks a “forward-thinking core to propel the dynamic of the city.” The Florida state government estimates that it will have an $8.5-billion shortfall in revenues by 2012, which Governor Charlie Crist and the legislature are trying to remedy by dipping into short-term reserve funds and by deeply cutting spending. (The Governor’s office did not respond to requests for comment.) Libraries are closing, university budgets are being slashed, and social services are cutting back, even as demand soars. In Hillsborough County, civil circuit-court judges are carrying some three thousand cases at a time. “You can’t say this too loud, because you get shot around here,” David Reed, the investment-fund manager in Tampa, said. “But we need an income tax.”

During the era of George and Jeb Bush, places like Pasco County and Cape Coral voted heavily Republican, and became the political center of gravity in Florida. But in 2008 a right-wing former professional wrestler lost his seat on the Hillsborough County Commission to a gay ex-cop who supports mass transit. And, to many people’s surprise, Barack Obama won the county, helping him carry Florida. With his election, political power has begun shifting away from the sprawling suburbs and back to the cities. When, in his Inaugural Address, Obama called for “a new era of responsibility,” he was speaking about Wall Street and Washington, but he was surely also speaking about Florida, which holds up to the rest of the country a funhouse mirror of distorting accuracy.

Driving around Florida’s ghost subdivisions, you feel not just that their influence is waning but that they are physically hollowing out. In a place like Lehigh Acres, near Fort Myers, where half the driveways are sprouting weeds, and where garbage piles up in the bushes along the outer streets, it’s already possible to see the slums of the future. More and more of the residents in Hamilton Park will be renters like Lee Gaither. The vacant houses in Country Walk will be boarded up. The St. Augustine grass in the front yards of Tanglewood Preserve will grow three feet high. The open fields with street lights but no houses will become dumps.

“It’s Florida,” Doug Bennett, the chief of the Riverview bureau of the St. Petersburg Times, in eastern Hillsborough County, said. “Most of the governors never saw a developer they didn’t like.” He was looking through the window of his second-floor office: outside, a vast open field was littered with construction equipment and trailers. Another development had stalled—the shopping mall and offices were built, but the “faux village” never materialized. “Stucco ghettos,” Bennett said. “I live in one, so I can say that. Too many houses, not enough water, the economy’s terrible, no tourists. This is the capital of the low-wage jobs, and when things go bad people just have no safety net. It’s very unfortunate.” He turned back to his desk. “This is the epicenter of everything that’s bad in America.”

This is just a hiccup, and we’ll get through it.

The sense of urgency among a few people was less striking than the strange calm among everyone else. It was either grace under pressure or blind folly, but I encountered it everywhere: the serene conviction that visitors would start coming again, and everything would be the way it was before. “The sun’s still shining—go down to the beach and it’s packed,” Marc Joseph, the real-estate agent in Fort Myers, said. “This is just a hiccup, and we’ll get through it. It just happens to be a little longer than most hiccups, because it’s not just here—it’s globalized.”

Joseph was already adapting his business to the new reality. He had started Fort Myers’s first foreclosure bus tour—an efficient way for speculators to mop up cheap properties. And he was about to launch a foreclosure boat tour, on the canals of Cape Coral. It was, he told me more than once, a great time to buy.

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