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I. FIVE O'CLOCK
In the summer of 2007, 197,000 American families mailed their monthly mortgage checks to an office park in Melville, Long Island. A nurse in Poughkeepsie. A machinist in Portland. A schoolteacher in El Paso. A retired cop in Fort Lauderdale. They did what everyone told them to do. They bought the house.
The company holding their loans was called American Home Mortgage. Its CEO, Michael Strauss, spent eighteen years turning it into the tenth-largest lender in the country. Almost none of it was subprime—just regular mortgages for regular people.
American Home didn't actually have the cash it lent them.
Nobody in that business did. You wrote a mortgage, handed it to a Wall Street bank as collateral, took their cash, and wrote the next one. Every morning, the bank put a price tag on the loans it held for you. If that price dropped, the bank could demand the difference in cold, hard cash by the end of the day.
If you couldn't pay, the bank kept the loans.
For years, that call never came.
Then came Monday, July 30, 2007. Just before nine in the morning, a fax machine on the Melville floor printed a demand from an outfit no one there had ever heard of: Liquid Funding, Ltd., out of Hamilton, Bermuda.
Margin deficit: $13,626,390.00. Cash required by 5:00 p.m., New York time.
"Who the hell is Liquid Funding?"
"It's Bear. It's one of theirs."
At 9:40 a.m., a second fax arrived—this time directly under Bear Stearns' name. Another $3,372,508.64. Same deadline.
Seventeen million dollars by close of business. Strauss owed it, and he couldn't raise it. The only way to get cash was to sell mortgages, but that week, Wall Street wouldn't buy a single mortgage at any price.
Five o'clock came and went. Bermuda didn't get a dime.
By Friday, American Home fired 6,500 of its 7,500 employees. On Monday, it filed for bankruptcy.
The Bermuda outfit that pulled the trigger on American Home was built by Jeffrey Epstein. He served as its chairman for five and a half years before quietly stepping down four months earlier—while keeping his financial stake.
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