praise was premature. Lovelace might have stopped the worst excesses of the subprime mortgage business but his ordinance only applied to Dayton proper, not the suburbs. The poverty industry may have first taken root on the city’s west side but they had crossed the river and were spreading into the first-ring suburbs and even to the more rural communities along Interstate 75 on the fringes of the metro area. As its industrial lifeblood continued to drain, Dayton, it seemed, was becoming a subprime city.
Then the American Financial Services Association, a trade association representing the consumer finance companies and other lenders, challenged the bill’s legality in court. Instead of taking effect thirty days after its passage, as written, it would remain on hold pending a trial. That would give the industry time to turn its attention to the Ohio state legislature, which had the power to preempt Dayton’s ruling.
An Appetite for Subprime
Martin Eakes confesses he didn’t really know Sandy Weill’s name when a congressional staffer called his office asking if he could be in Washington the next day. Weill was a man editors put on the covers of their magazines, but apparently those weren’t magazines that Eakes read. Now Citigroup, the company Weill bought and transformed into the world’s largest financial titan, had announced it wanted to buy Associates— officially Associates First Capital—for $31 billion. They were holding a press conference the next day. Eakes was livid that a financial giant would lend its brand and its reputation to a company like Associates. Of course he would come.
His hosts the next day were Congressman John LaFalce of Buffalo, then the ranking Democrat on the House Banking Committee, and Senator Paul Sarbanes of Maryland, then the ranking Democrat on the corresponding Senate committee. LaFalce and Sarbanes spoke and then, at least the way Eakes likes to tell the story, the two exchanged alarmed glances as he took his turn at the podium. Eakes casts himself in high dudgeon that day, telling the story of Freddie Rogers, declaring Associates a moral cancer eating away at the body of American communities. “I was up there saying, ‘We can’t allow this to continue any longer, we must stop it and we must stop it now,’” Eakes remembers. “I went up there with my normal, all-guns-blazing style.”
A few weeks later, LaFalce, a fourteen-term member of Congress, sent a letter to Weill and also to Robert Rubin, the chairman of Citigroup’s executive committee and Bill Clinton’s former Treasury secretary, expressing his dismay that Citigroup intended to purchase a lender “that community advocates have for some time placed among the worst predatory lenders in the country.” Congress didn’t have the power to prevent the acquisition but a couple of committee chairs could make life miserable for a company; toward that end LaFalce named Eakes as his and Sarbanes’s emissary. To drive home the point, LaFalce and others sent a separate letter urging banking regulators to “closely scrutinize” the deal because of some “disturbing allegations.” Sanford I. Weill, tireless and driven, a man of relentless ambitions who had transformed Citigroup into what the
“Sarbanes and LaFalce basically deputized me,” Eakes said. “They told Weill and Rubin that they had no choice but to deal with this young punk. They couldn’t ignore me even if they wanted to.” With characteristic bravado, Eakes announced at his first meeting with Citigroup’s representatives, “You will change these practices. Or we will bring you to your knees.”
Sandy Weill had attained great heights, but that only made his fall in the spring of 1985 seem that much more spectacular. He had arrived on Wall Street fresh out of Cornell, his finance degree in hand and ready to conquer the world, but instead he felt snubbed. A Jew from Brooklyn, born to Polish immigrants, he felt like an outsider in a world that favored the blue-bloods and WASPs. He started as a runner on Wall Street and was quickly promoted to broker, but after a few years he quit his job to help start a brokerage firm that eventually Weill and his partners sold to American Express for nearly $1 billion in stock. “The Jews are going to take over American Express and they’ll never know what hit them,” Weill boasted to a friend, according to one of his biographers. But American Express was run by men of lineage. Weill, by contrast, was brilliant and cunning but also plump and ill- mannered. He chewed his nails and wore rumpled suits and propped his scuffed shoes up on the furniture while smoking fat, pungent cigars. He ultimately attained the president’s post at American Express, but finding himself on non-native soil, he was out within four years of his arrival. At fifty-two and with a net worth north of $50 million, Weill leased a pricey set of offices in the Seagram Building on Park Avenue, hired a personal assistant, and waited for the phone to ring.
All the well-wishers offering their sympathies kept Weill busy during those first weeks. His wife thought the two of them would travel the world together, but Weill was impatient and hyperactive; he was not a man to ease into the comfortable life of the rich gentleman farmer. The most she got from him was a fortnight in Europe. “The prospects of being away for more than a few weeks from whatever action might arise,” wrote Monica Langley, author of the Weill biography
Who knows what Weill might have said to the two junior executives traveling to New York to pitch him on a business called the Commercial Credit Corporation, had they visited him shortly after he resigned from American Express rather than one year into his exile. Commercial Credit was a consumer finance company whose owner, Control Data, the computer maker, had been trying to sell it for at least a couple of years. Weill, in fact, Langley reports, was among those who had passed on a deal while he was still at American Express. But back then he was serving as president of a credit card giant with dreams of one day taking over as chief executive. Now he was a man trying to keep sane in search of a platform that would let him rebuild his empire. And if his vehicle had to be this ailing, grubby competitor to Household Finance, so be it.
The woman Weill had hired as his personal assistant tried to talk him out of Commercial Credit. It’s the loan-sharking business, she chided him—and he barked back that she was being a snob. Regular people have the same right to capital as Wall Street rich guys, he told her. He would be like a Walmart or a McDonald’s, selling to ordinary Americans. A friend from his American Express days was equally incredulous. Weill had reached the pinnacle of the corporate world and Commercial Credit was a third-rate company with a mangy reputation. It’s beneath you, he counseled. But Weill had looked at Commercial Credit’s numbers and if nothing else he was a pragmatic businessman. The publicly traded giants like Household and Beneficial were reporting double-digit profits but Commercial Credit’s profit margin was 4 percent. Commercial Credit had 600,000 customers and he wondered why it couldn’t have 5 million. There seemed a huge upside in operating a business that made small loans at high rates to blue-collar customers, and especially this one, which by Weill’s standards had not come close to reaching its potential.
On Wall Street they call it “the spread.” In short, it’s the difference between what money costs a company to borrow and the rate at which they can loan it out to others. The loan sizes inside Commercial Credit were minuscule by Weill’s standards—a thousand dollars plus fees to buy a new dining room set—but they were loaning money at a spectacular interest rate of 18, 20, or as much as 23 percent. If Weill could whip the company’s finances into shape and improve Commercial Credit’s lousy credit rating, he could further widen that spread. Everywhere Weill looked he seemed to see only upside and so he decided to move to Baltimore to take over a company so sleepy that he had nicknamed it “Rip Van Winkle.” By dangling generous stock option packages in front of old friends from Wall Street, he was able to lure more than a few of them to Baltimore to join him.
For years, Commercial Credit had been run by a CEO who had started in the business as a repo man thirty- five years earlier. The company hadn’t opened a new branch in years but perhaps more offensive to Weill and the A-team he had assembled was Commercial Credit’s compensation system. Bonuses weren’t based on performance, as they are on Wall Street, but instead every branch manager throughout the company was given an automatic
