Gretchen Morgenson

Excellent recitation of the evils of KKR et al, especially Apollo, as owned by Jeffrey Epstein's bud Leon Black. NOW: will Biden's administration do anything about shutting down these greedheads? Not if Trump donors (they all are) have anything to say and pay about it!

A very readable account of the lead up to the housing bubble and 2007 mortgage melt down that led to the 2008 collapse of the financial markets. The sad thing is that so many of the individuals involved/responsible for the fiasco are still in positions of power. One of the few books about the crisis that goes back to its origins and names names.

Morgenson and Rosner do a masterful job of tracing the roots of the financial crisis to a series of public policy decisions that consistently gave precedence to political goals over market forces in allocating credit. Curiously, however, they seem to argue that disaster could have been avoided if only the politicians could have played a greater role in thwarting the self-correcting mechanisms of the market. A reader, on the other hand, might well ask if our economy and financial system would show more have been better off without the self-interested ministrations of politicos like Barney Frank and Christopher Dodd. Financial markets contain self-correcting mechanisms; they are not painless, but they work. If these had not been deliberately short-circuited by political intervention, it is likely that the real estate bubble would have been deflated much earlier, with less pain and much less expense.

The culture of corruption that surrounded the housing GSEs (Fannie and Freddie) was no accident: the abuses were deliberately embraced as lenders were coerced into suspending time-honored ways of extending credit in order to achieve politically defined goals. Practices that are now retrospectively condemned (low doc/no doc mortgages, zero down mortgages, and many more) were embraced by people like President Clinton as ways of providing credit to people who had previously been excluded from ownership. The GSEs and their supporters argued that old lending standards that emphasized cash flow, collateral value, credit history, and borrower character had to be replaced by new ways of lending in order to achieve the socially desirable goal of increased home ownership. Indeed, the whole concept of securitizeable sub-prime mortgage product was designed to provide more liquidity to a market that most local bankers had sense enough to avoid. As the process accelerated, lenders and Wall Street were certainly complicit, and they should have resisted. But they were smart enough to recognize the risks of NOT aligning their practices with the goals of those who controlled the levers of power. For example, more than one bank was forced to pay "CRA ransom" (in the form of loans extended to non-qualified borrowers) as a price for Fed approval of its merger application. And, as Morgenson and Rosner make clear, it was very dangerous for anyone in government or the private sector to oppose Fannie or Freddie when they were at the peak of their power. Retribution was swift and brutal, and powerful interests on Capitol Hill were quick to snap to attention when the perceived interests on the GSEs were threatened. Too much power and patronage were at stake, and the GSEs maintained both slush funds and local offices throughout the country to make sure that their friends were rewarded and their enemies punished.

This is an important story. Much of it flies in the face of the 'conventional wisdom' that has developed around the financial crisis. Sadly, it is short on insightful analysis, and many questions are left unanswered. For instance, in assigning blame, the authors totally overlook the role of borrowers who eagerly lied on applications. And, while the authors offer tantalizing hints, they never directly confront the reasons behind the decision not to criminally prosecute men like Jim Johnson and Frank Raines, the two Democratic Party hacks who led Fannie Mae's during the lead-up to the housing crisis, enriching themselves even as they brought financial devastation to millions of families. Also, the account of the role of financial derivatives in contributing to the crisis is badly bungled, merely rehashing common prejudices and misconceptions. Although Morgensen is a respected business reporter, she is apparently unaware of the real benefits that had been created for consumers by financial technologies like securitization and credit scoring. These innovations made it possible to make credit available to previously underserved individuals and communities; their abuse came only when market discipline was deliberately abandoned in order to achieve political goals.

The devastation caused by the financial crisis is ongoing, and our ability to emerge from it depends in large measure on an informed understanding of the choices and policy decisions that led us to the brink of financial disaster. Attributing the crisis simply to 'market failure' or 'Wall Street greed' does little to enhance or understanding. Morgenson and Rosner have provided an account that points in the right direction. But it fails to go far enough. show less

This is a quality account of how the 2008 market collapse occurred and demonstrates, without question, that our government is unable to protect it's people. There are multiple instances laid out in the book where well intentioned politicians tried to enact legislation to protect the population from sub-prime predators, only to be carefully eviscerated by lobbyists and the people who know people in higher places. It's truly amazing to see how economic bubbles continue to rise and be defended show more by our most powerful politicians (who know nothing of economics) with a standard belief that "this time, it's different."

I came to this book from an article in the Wall Street Journal. If you plan to read this, you should also purchase a copy of The Wall Street Money Machine as that presents additional information on this topic. show less