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The New York Times’s Pulitzer Prize-winning columnist reveals how the financial meltdown emerged from the toxic interplay of Washington, Wall Street, and corrupt mortgage lenders

In Reckless Endangerment, Gretchen Morgenson, the star business columnist of The New York Times,exposes how the watchdogs who were supposed to protect the country from financial harm were actually complicit in the actions that finally blew up the American economy.

Drawing on previously untapped sources and building on original research from coauthor Joshua Rosner—who himself raised early warnings with the public and investors, and kept detailed records—Morgenson connects the dots that led to this fiasco.

Morgenson and Rosner draw back the curtain on Fannie Mae, the mortgage-finance giant that grew, with the support of the Clinton administration, through the 1990s, becoming a major opponent of government oversight even as it was benefiting from public subsidies. They expose the role played not only by Fannie Mae executives but also by enablers at Countrywide Financial, Goldman Sachs, the Federal Reserve, HUD, Congress, the FDIC, and the biggest players on Wall Street, to show how greed, aggression, and fear led countless officials to ignore warning signs of an imminent disaster.

Character-rich and definitive in its analysis, this is the one account of the financial crisis you must read. …”

http://www.barnesandnoble.com/w/reckless-endangerment-gretchen-morgenson/1101105111

Fanniegate: Gamechanger For The GOP?

Home Truths

To keep itself politically bullet-proof, Fannie Mae paid competing lobbyists to sit on the sidelines.

By JAMES FREEMAN

“…’The American people realize they’ve been robbed. They’re just not sure by whom,” write Gretchen Morgenson and Joshua Rosner in “Reckless Endangerment.” But Americans who read this outstanding history of the financial crisis will know, by the end, exactly who created the meltdown of 2008 and how they did it. This is a story, the authors say, “of what happens when Washington decides, in its infinite wisdom, that every living, breathing citizen should own a home.”

At the center of the drama is Fannie Mae, a private company that used its special government backing to dominate the mortgage market and become the nation’s second-largest debt issuer, after the U.S. Treasury itself. Encouraged by politicians to expand home lending—not least to minorities and to households with few assets—the company ignored reasonable standards of underwriting and piled up fugitive profits almost as fast as it increased risk to taxpayers.

The disaster is now measured in the hundreds of billions of dollars. As for the borrowers who were supposedly to benefit from Fannie’s mortgage-industrial complex, Ms. Morgenson and Mr. Rosner write that home ownership “put them squarely on the road to personal and financial ruin.”

The disaster would not have been possible, the authors make clear, without the early efforts of James Johnson, Fannie Mae’s chief executive in the 1990s and one of the Beltway’s most connected figures—at one time or other the chairman of the Brookings Institution and the Kennedy Center for the Performing Arts as well as a member of Goldman Sachs’s board of directors.

As an assistant to Vice President Walter Mondale, Mr. Johnson had little background in financial markets. When he was chosen to head up Fannie Mae, in 1991, he quickly grasped that the key to Fannie’s success, and to his own astronomical bonuses, was persuading Congress to maintain Fannie’s implicit government backing while preventing any bank-style regulation to interfere with the company’s operation.

That Fannie and its cousin, Freddie Mac, had been created by the government to provide a secondary market for mortgages allowed them to borrow more cheaply than potential competitors. Investors around the world assumed—correctly, as it turned out—that the U.S. government would bail them out in a crisis and therefore viewed investing in Fannie and Freddie’s debt as almost as safe as buying Treasurys. …”

http://online.wsj.com/article/SB10001424052702303745304576361531730887312.html

Book Review: Reckless Endangerment by Gretchen Morgenson and Joshua Rosner

“…The authors would of course have us believe that an unholy alliance of government and Wall Street was the driver of the boom, but the problem with this facile assertion is that skyrocketing home prices in the decade just passed were hardly unique to the United States. Housing boomed in Australia, Spain, and Ireland to name but three non-U.S. countries, plus it roared upward in Canada and England despite the fact that England abolished its mortgage deduction in the ‘80s (on page 3 the authors explained our deduction as a major driver of the boom), and in Canada it’s incredibly difficult to secure a loan to purchase a home.

What’s interesting is that while the authors at the book’s beginning laid out the ”cast of characters” that allegedly brought us to the brink, they oddly left out the man and his Treasury Department that played a bigger role than any of the admittedly worthless people that comprised their cast. Specifically, the authors left out President George W. Bush, and his Treasury Department that reversed the Reagan/Clinton strong-dollar policies in favor of extreme dollar weakness.

As history has regularly shown, from post-WWI Germany, to England and the U.S. in the ‘70s (despite skyrocketing rates of interest), to the decade just completed, when money loses value commodity-like assets including housing tend to rise, particularly in nominal terms. Housing is not gold-like in the sense that gold priced in all currencies tends to rise when currencies decline in value, but the historical correlation between commodity spikes and nominal housing health is very real, and was there during the Bush years for all to see.

Much as housing exploded during the devaluationist presidencies of Nixon and Carter, so did it boom during the Bush years when the dollar declined in value. And the reason the housing boom was global in nature has to do with the sad reality that when we devalue in the United States, it’s always and everywhere a worldwide event. Though the Euro, Aussie and Canadian dollars and the British Pound all rose against the greenback during Bush’s presidency, those increases masked the fact that the aforementioned currencies were in rapid decline against the most credible measure of value we have in the world: gold.

Morgenson and Rosner would have a point if the housing mania had been endemic to the United States, but with housing in nominal terms having skyrocketed around the world, we must look to currency policy for the answer. The dollar’s decline began not long after Bush reached office, and the dollar’s fall led to a fall in the value of nearly every other foreign currency, thus exporting our housing mania to the world. History merely repeated itself, though Reckless completely glossed over a global run on paper currencies that has always led to recessionary housing booms.

The strange thing is that not only was President Bush left out of the authors’ cast, but the book was mostly laudatory of a Bush administration that began casting a skeptical light on Fannie and Freddie early on. That the Bush administration did in fact look more askance at the GSEs that animate Reckless doesn’t erase the greater truth that absent a falling dollar that helped boost nominal home prices for a time (and which still props up their nominal value today), there’s no rush to housing during the Bush years, no subsequent market moderation for Washington to turn into a crisis, and there’s arguably no President Obama.

So while Reckless has some good facts, and some very damning quotes uttered by some extraordinarily objectionable people, it ultimately misses the mark and will only succeed insofar as it inflames the partisan extremes even more. In short, readers must continue to wait for the book that offers the true explanation of how we got here; an explanation that isn’t credibly found in Morgenson and Rosner’s Reckless.  …”

http://blogs.forbes.com/johntamny/2011/07/09/book-review-reckless-endangerment-by-gretchen-morgenson-and-joshua-rosner/