In this issue, we take another look at the housing mess in one of the hardest-hit states, Florida. Steve Preston, 50, headed the Small Business Administration and then the Department of Housing and Urban Development (HUD) during President George W. Bush's second term, when the housing bubble grew largest and popped. Preston came to HUD having grown up in poverty and achieved business success. Now he is CEO of Oakleaf Waste Management. Here are excerpts from an interview before an audience of college business students.
What was your dad's background? He grew up very poor, the ninth of 11 kids, in a coal mining camp, basically a couple of little huts. He worked three jobs to put some bread on our table. His sense of family and faith pulled him through difficult times.
How did you become a Christian at age 13? My father had rejected the Appalachian fire-and-brimstone preaching, but I was spending summers with relatives including his sister, a very strong woman of faith. My father was very opposed to religion, but I think my aunt twisted his arm. He said, "This is just a feeling that will go away-but if you want to go to church I'll take you."
But why did you want to go? Because I had come to faith. I believed it was the truth.
Why did you believe that? I think I had a sense of wondering. When I went to visit family that summer and saw how they made sense of things and were rooted-the strength to living it provided-it all made sense to me.
You went to Northwestern, an affluent college with lots of rich kids, and you were a poor kid there . . . Back then, in the '70s, a friend of mine had some Adidas tennis shoes. I had some rip-off brand with too many stripes. I'll never forget: My second week at college, he was making a joke about my cheap shoes. I remember going home with him. His mother served breakfast in real china bowls. They had real tea served. Most of us would probably just consider them to be a nice upper-middle-class family, but I thought I had walked into Buckingham Palace.
I was in a similar situation and headed to the political left with thoughts of "class struggle." What kept you moving onwards and upwards? Knowing where I came from, I knew I never wanted to go back there. I wanted to move on to bigger and better things. I was terrified of failure. I was a straight-A student, worked like crazy, and had this fear that no one would hire me and I wouldn't get into any graduate schools. I understand now that I should have had a much deeper sense of faith in God's providence in my life than I did, but that's the reality of where I came from.
But the University of Chicago did admit you, and after receiving an MBA there you went to work at Lehman Brothers in its sky-rocketing 1980s era. It was both incredibly fun and incredibly terrible. We were understaffed. My 26th and 27th birthdays were all-nighters back-to-back. I remember thinking, "My life is not changing-my last birthday was horrible, too."
But you succeeded there and moved on to First Data Corporation as a senior VP. That was my first step as a genuine leader. I didn't have three MBAs working for me doing complex modeling. I had somebody who maybe balanced the books and had an associate degree. When I was at Lehman, I would never have told people that my father was from Appalachia. So for me it was a journey back to becoming a different kind of leader.
Then, seven years as executive VP at ServiceMaster . . . A couple of times I had to stick out my chin on a matter of principle. Once I told the CEO that if he made a certain decision I was going to have to resign. Thankfully, he made a different decision. ServiceMaster was a large public company founded by believers, and it had grown up in a Christian culture. Then over time we purchased other companies. Eventually we kept our Christian statement as an effort to create an ethos to knit the company together, but it ended up not being overtly Christian.
When you took over HUD, did your personal and business background help you to sort out responsibility for the housing collapse? Many different parties were responsible. Some people taking the loans couldn't afford them, but they thought they'd be able to flip their properties, so they weren't concerned. On the other side of the table, the folks giving the loans weren't really concerned, because they were going to sell the loans to another lender to take to market.
Did some people from poor backgrounds not understand the danger of taking on adjustable rate mortgages? When someone who doesn't come from a financial background sits down at the table to take a loan, and is told that the payment will be one amount, they're probably not going to go through the fine print and find that the payment might go up two or three times.
And some lenders knew that many of the loans wouldn't be paid back? They knew that people couldn't pay, but the loan officers were getting commissions by production, so care was lifted. Then, concerning the marketing packages, rating agencies didn't do a credible job. Following that, the investing groups didn't do sufficient diligence in understanding what was in the bundle of loans they were buying with their investors' money. All the way up and down the line, irresponsibility.
Did Democrats tend to blame guys at the top, and Republicans those at the bottom? Plenty of Republicans were critical of banking institutions. President Bush had been working for years to reform Fannie Mae and Freddie Mac. So much money was tied up in those institutions that people try to blame them primarily, which isn't really fair. There's a danger in ascribing responsibility to one person: We all have to take responsibility for this.
Was the housing bubble evidence of original sin, with greed all over? A lot of greed. People all around this daisy chain were making money. When this collapsed, the damage was incredible. And part of our problem of responsibility is that people have just been walking away from their mortgages.
Does government have a role in providing housing? For the most part, the government is not competent to deliver housing. It is important for us as a society to get people off of the street. A step up from homelessness is public housing, but it perpetuates itself. We should be driving people ahead to give children better opportunities.
HUD secretaries often come from politics and go back into politics. Did it make a difference that you came from the private sector and went back into it? I wasn't concerned about tiptoeing, because I wasn't trying to get elected.
Listen to Marvin Olasky's complete interview with Steve Preston.