Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon Hardcover – May 24 2011
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From Publishers Weekly
Robards ( Tiger's Eye ) here transposes the tale of Cinderella to a cotton plantation in the antebellum South. Wicked, sexy Celia is cruel to Jessie, the spirited, late-blooming daughter of her deceased husband. The unlikely prince is Clive, a former riverboat gambler who marries Celia to gain control of her property. It is he who sees past Jessie's self-hatred to her inner beauty and who summons her deepest longings. Robards so effectively entangles the trio in plot complications that, ultimately, she must introduce a murder in order to clear a path for her so-called happy ending. Despite Robards's pains to legitimate the ardor between a young woman and her stepmother's husband, the unsavoriness of this theme is aggravated by protracted descriptions of Clive's drunken defloration of Jessie and his subsequent attempts to teach her the art of lovemaking.
Copyright 1989 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.
“Gretchen Morgenson is a national treasure. Year after year, she has dragged Wall Street miscreants out of the shadows, exposing their dirty secrets to the public that they bamboozled with schemes and deceits. Now, working with Joshua Rosner, she has trained her expert eye on the mortgage mess that pushed the American economy to the brink. In stunning detail, Morgenson exposes the truth behind the worst financial calamity of modern times, weaving a tale that is as mesmerizing as it is horrifying. Reckless Endangerment names the names and reveals the secrets of the plutocrats and politicians whose greed and recklessness threatened the foundations of capitalism. It is essential reading for anyone struggling to understand how America entered the new era of financial chaos.” ―Kurt Eichenwald, New York Times bestselling author of Conspiracy of Fools and The Informant
“Even before Reckless Endangerment, Gretchen Morgenson was my nominee for Reporter of the Decade for her forensic and prophetic coverage of Wall Street. Now, she and the equally talented sleuth Joshua Rosner, like Holmes and Dr. Watson, have pieced together the clues to a seminal mystery of the financial debacle: how American taxpayers were suckered by the shenanigans, greed, egos, back scratching, and guile of financial and political elites who swarmed like vultures around Fannie Mae, picking it clean of oversight and accountability while its executives gorged themselves on the spoils. Naming names and taking no prisoners, they drill deep into one of the most disturbing scandals of our time, perpetrated in the name of helping "the little guy." Read it and weep. Read it and vow: Never Again!” ―Bill Moyers, journalist, and President, Schumann Media Center
“Morgenson and Rosner have written the long-awaited volume that gets to the heart of the mortgage crisis. The fearlessness and breadth of reporting make the book as compellingly readable as it is exhaustive. Reckless Endangerment is a remarkable achievement--and should be required reading for all Americans.” ―Bryan Burrough, Vanity Fair special correspondent and bestselling author of Barbarians at the Gate and The Big Rich
“Gretchen Morgenson and Josh Rosner show us how, over the last fifteen years, the mortgage lending industry used money and political influence to escape regulation, enrich itself, and create a catastrophe. Particularly in its dissection of Fannie Mae, Freddie Mac, and their enablers, this book is unmatched in its depth and invaluable to anyone interested in the causes and lessons of the financial crisis.” ―Charles Ferguson, Academy award-winning director of Inside Job
“A chilling account of the reckless disregard for ethical or civilized values at the heart of our financial system. If this compelling history does not completely turn your stomach, that's good - because by bailing out these individuals, their attitudes, and their way of life, we have set ourselves up for another nauseating turn of the Financial Wheel.” ―Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial MeltdownSee all Product Description
Top Customer Reviews
It really needs to be noted that since 2008, 386 banks have failed in the USA. The banking system, unhinged with the end of the Glass-Steagal Banking regulation by President Clinton which kept American depositors and investors safe from greedy bankers for decades, has not been fixed. Those responsible for this chaos which destroyed the lives of hundreds of thousands of people have not been brought to court. The authors and this reader find this incomprehensible but at least they have named names.
Most Helpful Customer Reviews on Amazon.com (beta)
I have nothing against the vastly wealthy and sometimes - OK, frequently - dream wistfully of joining their ranks, but I do care about how this wealth is accumulated. Entrepreneurs who build companies, executives who take these companies to the next level and the one after that, highly talented and gifted persons - in arts and sports - who command premium remuneration all enrich society. Many financial titans, on the other hand, do not create wealth. They are unusually adept in extracting it for personal gain while simultaneously impoverishing society and holding it hostage. They operate on the principle that "My gain is mine and only mine. My loss is actually yours." And they know how to spread enough largesse that enablers like accountants, rating agencies and regulators fall into line and they buy off politicians with consummate skill. They try - increasingly ineffectively - to justify their existence by claiming that they perform crucial service by "allocating capital" and "increasing efficiency." They further claim that they should not be regulated because they can do a better job of regulating themselves. The fish is starting to stink pretty bad.
What makes this book a valuable read is that the authors explain exactly how this process works and they are not shy about naming names. For example, you learn how James Johnson, the erstwhile CEO of Fannie Mae built it into a colossus that gradually jettisoned all prudence in lending and vastly enriched himself and a bunch of cronies. He also suborned powerful legislators like Barney Frank, the powerful Massachusetts Democrat. And, lastly, he looked on and encouraged Wall Street firms to do the same and used that as justification to increase the scale of his own operations. And, Oh! I almost forgot, he also admonished fresh graduates to pursue their careers with "honesty and integrity". When Johnson left Fannie Mae, a senior executive recalled "...we always won, we took no prisoners and we faced little organized political opposition." He continued to be politically influential and was an adviser to the current president until forced to resign because it surfaced that he had received sweetheart loans from a leading purveyor of toxic financial junk.
Did you ever feel that "You scratch my back and I'll scratch yours" is the norm on Wall Street? Consider this: Stephen Friedman, former CEO of Goldman Sachs was a director of Fannie Mae when the directors improperly allowed company executives to set earnings targets that they could meet. Federal investigators concluded that "As a direct result, senior management reaped ongoing and extensive financial rewards through accounting manipulation." Johnson was then inducted to the board of Goldman Sachs - when Hank Paulson became CEO - and promptly made chair of the compensation committee. He dispensed some of the richest paychecks on Wall Street and these became the norm as other firms played catch-up. In fact, Johnson chaired the compensation committees of every board he sat on.
Angelo Mozilo, founder and CEO of Countrywide, was a good friend of Johnson's and used his methods to grow the cancer that was Countrywide. The company made it a policy to give sweetheart loans to persons in power - these VIP loans were informally known as Friends of Angelo loans. Richard Holbrooke got such a loan. So did Senators Chris Dodd, Kent Conrad and Barbara Boxer. So did Donna Shalala, former head of Health and Human Services and Alfonso Jackson, secretary of HUD. And Countrywide hired sons and daughters and relatives of the influential and made sure that they were not fired during mass layoffs. Do you think it is possible, just barely possible, that these policies are what enabled that tumor to grow so large without surgery even being considered?
There were people who tried to stem the disastrous tide such as Mark Kohodes the money manager who shared damaging information about NovaStar - a Countrywide clone - with the SEC to no avail. And Armando Falcon, the regulator who tried to rein in Fannie Mae and was bludgeoned for his pains. And William Brennan of the Atlanta Legal Aid who drafted tough anti-predatory-lending legislation and then had it go nowhere.
This book will make you well informed. It will also make you sad because not much has changed in the system and the same players are still active. Can someone please tell me why we "respect" these CEOs instead of crossing the street when we see them coming our way?
In theory it all sounded perfect--who could object to people bettering themselves? The only problem was that to make the dream "accessible to all" generations of lending practices and protections would have to be dismantled. Safeguards would be gutted and due diligence would become a nuisance that is brushed aside. There are plenty of culprits here: the usual Wall Street money-mongers and in the 90s and early 00s a Republican Congress in their pocket. But Morgenson and Posner shine a powerfully bright light on the complicity of marquee Democrats such as Bill Clinton, Christopher Dodd and Barney Frank. Toss in Democrat insider Jim Johnson into the cauldron and it is a powerful witches brew.
Jim Johnson, quintessential DC insider used all of these connections in the 90s on behalf of empowering Fannie Mae and eviscerating sound financial practices. Greasing the wheels of powerful polls on banking and finance committees became standard procedure. Finding a sinecure for Barney Frank's boyfriend was a pleasure not a problem (if Frank isn't a criminal it is by a hair's breadth). Libeling the responsible, honest regulators and economists who tried to stop this train-wreck waiting to happen was all in a day's work, and a particular Johnson specialty. Edward DeMarco, Gary Gensler and Marvin Phaups are particularly heroic. When the occasional curious congressman tried to uncover Fannie Mae compensation packages, Johnson squashed them as well, more powerful than our own elected officials.
Sadly, all of the corruption above pales in comparison to Chris Dodd's attachment of an amendment that extended government protection to financial agency's other than bank (Fannie Mae, insurance companies, et al) As a result, we not only get to save Fannie and Freddie--we get to pay the legal bills of everyone who is being sued because of their reckless behavior. What did Chris Dodd get? Maximum campaign contributions and a sweetheart mortgage, naturally.
Today, who is getting the blame? The poor of course. The people who shouldn't EVER have qualified for a loan but could get one are now told they should have known better! Better than bankers who told them they could? Better than Wall Street regulators who told them they should? Better than Secretaries of the Treasury who told them they were fools not to? Today they are buried in bankruptcy or mountains of debt. Middle class Americans are paying the bill and the money class who created the mess are still meeting at Davos or presiding over their conservative and liberal think tanks.
If I have one criticism of the book it is with regards to full disclosure. While trawling the NY Times web site I learned that Gretchen Morgenson was once an employee of Steve Forbes and a campaign manager during his run for the presidency based in large part as a proponent of a flat-tax. Nothing wrong with that except Fannie Mae took the flat tax proposal as a threat and went after Forbes big time in New Hampshire. Their attack ads, which Morgenson presents as detrimental to the campaign were also detrimental to her self-interest at the time. This should have been revealed before chapter 1. Perhaps it means nothing but if we are critical of Fannie Mae for its lack of transparency, what about Morgenson?
Toward the end of the book I was incredibly depressed. It is one thing to be so royally screwed, but surely we have learned lessons from it and will prevent it happening again, right? Wrong. Morgenson and Posner make it crystal clear that pretty much the same financial system that was in place 5 years ago is still in place today. The 2009 revisions to regulations are about as dependable as New Orlean's levees. Massive bank failures in the 80s were followed by financial crisis and collapse in '08. Collective memory seems to be shortest of all and already fading. How sad and frustrating.
P.T. Barnum was wrong. In America today it seems there is a sucker born every second.
There are some excellent reviews posted here, especially those by S. Rao, Raven 26, L. Bachmann, and many, many others, so I will make no effort to repeat their excellent work. I, however, am on my second reading of my hardcover copy of "Reckless." Taking notes this time inasmuch as I state in my title, above, from "Death of a Salesman," ATTENTION MUST BE PAID.
We must no longer be victimized by the powerful and their feckless, reckless, blind-eyed enablers: The true, accurate contents of this book -- despite the few errors that escaped the publisher's fact checkers -- may give you the impetus you need to get you moving.
The perps who brought about this mess while enriching themselves and impoverishing the public should no longer escape public scrutiny. ATTENTION MUST BE PAID!!
P.S. I have no hidden agenda. I do not work for the authors or publisher, or whatever.
The 1992 Federal Housing Enterprises Financial Safety and Soundness Act encouraged unsafe and unsound mortgage activities by assigning Fannie and Freddie a new affordable housing mission. The law specified that 30% of housing they financed must go to low/moderate income families, with another 30% to housing in inner cities. (Unclear whether mortgages to low/moderate inner city families count doubly.) Safety and soundness took a backseat to political goals and ideology. Down-payment requirements went first - the 1992 act encouraged buying mortgages with 5% or less down; the percent of Fannie-held loans with a loan-to-value ratio over 90% rose from 6% in 1992 to 19% in 1996. Fannie and Freddy's 'special mission' also provided political cover for growing/maintaining federal support (implicit Federal guarantee --> lower interest rates charged by lenders), and exemption from or weakening of some requirements - supposedly without these it could not meet the new housing goals and remain solvent.
Ratings agencies stopped demanding information on a borrower's debt/income ratio - getting the data delayed decision-making, and not requiring it anymore purportedly made the process 'more objective.' Moody's, S&P, etc. were no longer the cops on the beat they were thought to be.
Lobbying allowed Fannie and Freddie to help determine its new regulator - HUD, then led by Andrew Cuomo, was picked; it was seen as a weak and ineffectual regulator. Capital requirements were set at 2.5%, much lower than the 10% demanded of banks. HUD also 'streamlined' Fannie/Freddie regulations by allowing lenders to hire their own appraisers.
Johnson claimed Fannie saved American homebuyers between $7 - $14 billion in 1996, citing studies it helped fund. Intense lobbying and arm-twisting (eg. by Larry Summers, Robert Rubin) helped defeat Treasury's initial recommendation to sever ties with Freddie/Fannie; however, Johnson et al were not able to bury/change CBO analyses that concluded they had taken advantage of their federal connections to also fund political donations, lobbying, 'sweetheart' loans, and personally enrich management via much higher than warranted salaries - about $2 billion 'down the drain' in this supposedly holy cause.
James Johnson, however, was not the only player working to reduce regulation - ostensibly to better pursue social goals. Glass-Steagall was eviscerated, thanks to Sandy Weill at Citibank, bank capital requirements were reduced overall, asset-stripping (aka 'predatory' lending) was recognized for what it was - yet, allowed to continue, ratings agencies got away with dodging responsibility via claiming their conclusions were only 'opinions,' etc. Most galling, perhaps, was how threats to strip Fannie and Freddie of their special status was defeated by rating agencies' counter-threat to roil markets by downgrading F&F's debt (then $4 trillion, vs. $4.7 in Treasuries).
Meanwhile, Countrywide (a 2-man shop in 1969 L.A.) supplied 26% of Fannie's loans in 2004, espoused similar social benefit spiel, stepped up its own lobbying along the Fannie's lines, and not only eased requirements but also helped create deliberate falsifications. Johnson then brought KBHomes into the action -between KB, Countrywide, and Fannie, the destructive and illusionary pursuit of social-goals had become fully vertically-integrated. Alan Greenspan, reputed economic 'maestro,' continued his 'hear no evil, see no evil' pronouncements - based more on his Ayn Rand derived ideology than careful economic analysis.
'Repo' requirements for defective (eg. 'liar') loans were standard contract requirements that protected buyers in the event of early defaults. However, soon the volume of loans that could be forced back upon sellers overwhelmed the sellers' financial capabilities. Instead, buyers' willingness to acquire new mortgages sagged, and the entire process came to a halt - refinancings and new mortgages alike.
'Reckless Endangerment' ends with the author's vision for the future - a 'rerun,' due to Congress having failed to deal with the 'too big to fail' issue (one idea - increase the reserve requirements demanded of very large banks), followed by short current status summaries of the book's major protagonists. With the partial exception of Mozillo at Countrywide, none had been forced to return their ill-gotten gains and/or overly generous payments, none had even been charged with a crime, one had become governor of a major state (Cuomo - New York), and most were considerably better off for having contributed to the creation of America's 'Great Recession.'
So much for 'Honesty being its own best reward,' and 'Honesty is the best policy.' Meanwhile, back in Washington, proposed regulatory changes (banks issuing mortgages for sale to the securities market must either require a 20% down-payment or retain 5% of each loans value on their books) intended to reduce the threat of another mortgage meltdown ran into opposition from various 'poverty-pimp' groups - despite exempting loans backed by Fannie, Freddie, or the FHA (about 90% of the total).
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