Pam Luecke
Although the financial crisis of 2008 has left a long trail of casualties, one group has benefited from the cataclysm: financial journalists. Several have already published books shedding light on the unprecedented events that caused investment banks to fail, global stock markets to plummet and borrowers to lose their homes. Reckless Endangerment, by Gretchen Morgenson, assistant business and financial editor and a columnist at The New York Times, and the financial analyst Joshua Rosner, is a worthy addition to the genre.
The authors are forthright in their intentions. They are angry about the ?outsized ambition, greed, and corruption? that led to ?economic Armageddon,? as the book?s subtitle puts it. They view the actions that prompted the meltdown as reprehensible and regret that few of the perpetrators have been held accountable.
The authors piece together the rapid rise in high-risk mortgages and the swift collapse of the complex financial scaffolding that supported them. Drawing on their deep expertise, the authors ably trace the legal and regulatory changes that stoked the unsustainable housing boom. The book focuses more on policy and power than on personalities, and it illuminates several small decisions that later had huge, unintended consequences.
The book begins in 1994 with President Bill Clinton?s kicking off a public-private partnership to extend homeownership to more Americans. An idea that sounded so appealing would soon be exploited by institutions and individuals who detected the potential for astounding profits.
Morgenson and Rosner finger the usual suspects: subprime mortgage lenders, credit-rating agencies, investment banks, politicians, the Federal Reserve.
But the institution to which the authors devote the most ink is Fannie Mae, the government-supported enterprise created in 1938 to make home loans more accessible. And the person they hold most accountable is someone whose role in the ?mortgage maelstrom? has until now ?escaped scrutiny?: James A Johnson, Fannie Mae?s chief executive from 1991 to 1998. Johnson was the ?anonymous architect of the public-private homeownership drive that almost destroyed the economy in 2008,? the authors say.
A particular strength of this book is the number of doubters the authors unearthed: the unsung government analysts, public lawyers and private researchers who dared to question policy decisions and stand up to the formidable ?housers,? as the true believers in government subsidies for home ownership are called.
Unlike some whodunits, Reckless Endangerment has no tidy ending. Millions of homes remain in foreclosure, high unemployment persists, and, the authors say, Congress failed to pass truly corrective legislation when it had the chance. Although Morgenson and Rosner hope that shining a light into the dark corners of this ?economic Armageddon? might prevent another one, they sadly conclude that something similar ?most certainly? will happen again.
RECKLESS ENDANGERMENT: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon
Gretchen Morgenson and Joshua Rosner
Times Books
$30
Pp 331