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20 percent, which had long been the standard to get a mortgage. By 1999, in fact, more than 50 percent of mortgages had down payments of less than 10 percent. Angelo Mozilo, who was becoming an increasingly prominent figure in the mortgage industry, believed passionately that big down payments prevented otherwise capable borrowers from being able to own a home. For much of his career, he had fought to be able to originate mortgages with little or no down payments. And mostly, he had won. Wall Street now regularly securitized loans with down payments of 10 percent or less, and even Fannie and Freddie were allowed to buy low-down-payment mortgages (although they required a private insurer to absorb some of the risk). But Rosner picked up on yet another little-noticed study, this one by Fannie Mae, showing that low-down-payment loans triggered greater losses. “Put simply, a homeowner with little or no equity has little or no reason to maintain his/her obligations,” Rosner wrote. Having equity in one’s home was much more than a barrier keeping people from buying a home, he came to believe. It was the key to homeownership. Down payments, more than any single thing, meant that you were a homeowner.

On June 29, 2001, Rosner published a research piece that summed up his thinking, entitled, “A Home without Equity Is Just a Rental with Debt.” No one seemed to take much notice. He was working from home one day when the phone rang. On the other end was an elderly man. “I just read your paper and want to discuss it with you, but I can’t hear very well on the phone,” he said. “Would you be able to sit down with me in person?”

“Sure,” Rosner responded politely. “Are you in the city?”

“I’m in Lexington, Massachusetts,” the caller explained. Rosner, again being polite, said he’d call when he was next headed to Boston for meetings, and asked for the man’s name.

“My name is Charles Kindleberger,” the caller replied. Kindleberger was the author of Manias, Panics, and Crashes, which documented market crises through the ages and was widely viewed as a classic. Rosner had long admired it. The next morning, Rosner flew to Boston and spent the day with Kindleberger, who was ninety-one. Kindleberger told Rosner that if he published another edition of Manias, Panics, and Crashes, he would use “A Home without Equity” as the final chapter.

There was at least one bank regulator in Washington during this era who tried to do something to curb subprime lending abuses. Her name was Donna Tanoue, and from 1998 to 2001 she was the chair of the Federal Deposit Insurance Corporation. Her concern stemmed from the simple fact that subprime lenders were shutting down. When those lenders were banks, it was the FDIC, which insures deposits for the federal government, that had to pick up the pieces. Tanoue’s solution—an obvious one, really—was for the subprime companies to hold more capital against those loans. “Subprime lenders,” she said during one congressional hearing, “are twenty times more likely than other banks to be on the agency’s problem list and accounted for six of the last eleven failures.” By late 2000, she went even further, arguing that banking regulators needed to “sever the money chain that replenishes the capital of predatory lenders and allows them to stay in business.” She was talking about Wall Street’s purchase and securitization of subprime loans. The FDIC even issued draft guidelines instructing banks on how to avoid purchasing predatory loans for their securitizations.

The industry was apoplectic about the draft guidelines. Patricia Alberto, an executive at J.P. Morgan, wrote a letter in protest. “The regulatory agencies and the public, in their quest to eradicate predatory lending, have issued ‘guidelines’ that have the effect of imposing a large portion of the responsibility for ferreting out and eliminating predatory lending by others to the large banks in the industry, because they are in a position to provide liquidity to the marketplace,” she said. Well, yes: that was exactly what Tanoue was trying to do.

When Tanoue testified