Investors beware: Only the steeliest will not gnash their teeth in utter frustration after reading Reckless Endangerment, a stinging retelling of the 2008 financial collapse written by Pulitzer Prize winner Gretchen Morgenson, with Joshua Rosner.
Morgenson, a business reporter, columnist and assistant business and financial editor at The New York Times, says the collapse originated with the corrupt and greedy who created and exploited the subprime housing market. No faction is innocent: Republicans and Democrats, bureaucrats and bankers, public servants and academics -- all stripes and types share culpability in the crash.
She provides character studies of the spectacularly well-paid executives who ran mortgage lenders Fannie Mae, Freddie Mac (together, they accounted for $3.4 trillion in mortgage lending in 2003), Countrywide Financial, NovaStar and others.
Ratings agencies that investors rely on for unbiased information, including Standard & Poors (now under Federal investigation) have much to answer for, too.S&P and other agencies realized record profits by awarding their highest ratings to bundles of troubled mortgage loans, making the mortgages look less risky and be more valuable to investors.
Until the collapse, that is.
"Even the credit-rating agencies, supposedly neutral assayers of risk in mortgage securities, beat back attempts to rein in predatory lending,'' Morgenson writes.
Morgenson weaves in the stories of the skeptics and doubters who fought the destructive subprime lending mania, often to no avail. Even a governor (of Georgia) couldn't save the teeth written into a tough law that provided consumer protection against predatory lending. The lobbyists for the lenders and their hungry offshoots spent multiple millions to defang the law and keep the money rolling in.
Among the chief perpetrators in Morgenson's account are James A. Johnson, CEO of Fannie Mae, 1991-1998, and a director of Goldman Sachs; Barney Frank, Democratic congressman from Massachusetts; Larry Summers and Robert Rubin, deputy secretary and secretary of the U.S. Treasury, respectively, 1995-1999 (Summers held the top spot from 1999 to 2001); Angelo Mozilo, co-founder and former chief executive of Countrywide Financial; Scott Hartman and W. Lance Anderson, chief executives of NovaStar; Timothy F. Geithner, president of the Federal Reserve Bank of New York, 2003-2008 (and now U.S. Treasury secretary); Alan Greenspan, chairman of the Federal Reserve Board, 1987-2006, and Andrew Cuomo, HUD secretary, 1997-2001.
With Johnson, "the politicization of credit began'' in 1992. He led Fannie Mae, a partially private mortgage lender that also enjoyed government perqs and benefits (lower borrowing costs, $2.5 billion credit line at the U.S. Treasury, exemption from paying state and local taxes, and freedom from filing financial statements with the SEC.)
"Under Johnson, Fannie's primary goal changed to protecting -- at all costs -- the company's government ties and the riches that sprang from them.''