(’76 Contributor) Authors Gretchen Morgenson and Joshua Rosner have done the country great service with their book, Reckless Endangerment, recently noted at # 1 on the New York Times hardcover business reading list. If you anguish and puzzle as I do about our country’s future, here’s what you need to know about the mortgage meltdown and the unpunished scoundrels behind it.
In 1992 unremarkable bureaucrats led by Alicia Munnell, authored a lending report under the aegis of the Boston Federal Reserve. It was humdrum reading, except a predisposed reader could have concluded that lending discrimination was rampant in the home mortgage sector. And many did. The grievance industry oxygenated the convenient conclusion into a new affordable lending battle cry and Munnell’s document became the fuse that ignited the home mortgage meltdown. Never mind that more objective thinkers would conclude that banks don’t lavish loans on applicants with erratic and low incomes, negligible cash reserves and poor credit histories.
Voices of reason were quickly drowned out as the press and fairness denizens insisted that social justice be done. Thus was born a new constitutional right: home ownership for all. And the opportunists were legion, just waiting in the wings. Enter Jim Johnson with Fannie Mae and her brother, Freddie Mac.
Some of the misdeeds unearthed by the authors about the high flyers in these “public–private partnerships” and their chum–in–the–water enablers would have landed most of us in jail. The lineup is entertaining not just for the sheer brazenness of their underhandedness, but also for the high profiles these same actors still have today. Should you have opinions about Barney Frank, Angelo Mozillo, Allen Greenspan, Timothy Geithner, Robert Rubin, Jim Johnson, Franklin Raines, Peter Orszag and others, shelve them until you finish the book. “A Team” players all in the credit meltdown, you’ll be shocked to learn the most crooked among them never served a day in jail. The Peter Principle of screw–up and move up seems to work exceptionally well in positions of public trust.
Let’s not overlook Wall Street. For those of you who believe in fat cats, the evidence behind your gut instinct is here too. What fair and not so fair–minded people mucked up and was steamrolled over government regulators and greased by well–moneyed lobbyists, was finally metastasized by the Gordon Geckos of New York City. On this subject Morgenson and Rosner deliver great clarity. They detail how investment banking wonders piled trashy loans into gift boxes, called CDO’s (collateralized debt obligations), and laughed their way to million dollar bonuses while leaving taxpayers on the hook.
Should you genuinely wonder how we have reached our current national economic malaise, you owe it to yourself to read this thoroughly researched and documented autopsy. History may yet judge this calamity the American Waterloo.