The housing collapse revisited

There are  few issues that have been obfuscated as diligently by the media organs of the MSM Left as has been the housing crisis that led to our current economic depression. Why, of course they would do that: the Democrats are guilty as sin! We’ve observed on the pages of this very blog the attempts to divert responsibilities for this disaster to vague, shadow conspiracies orchestrated by conservative capitalist dirigistes.

So, here’s kudos to a Pulitzer-winning journalist for the New York Times writer, a Wall Street financial analyst, and to one of my favorite old-school democrats for cutting through the murk and exposing the ugly truths to this disaster in simple, easy-to-understand terms in book summarized by Walter Russell Mead at the American Interest (h/t to

Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Econonomic Armageddon, By NYT journalist Gretchen Morgenson and financial analyst Joshua Rosner.

Walter Russell Mead is one of my absolutely favorite political writers. Though he is a confirmed Democrat, he hails from a disappearing Democrat tradition that once (long, long ago) allowed me to be proud about being Democrat. It was a time when the intellectual ferment was seasoned by the ideas of Democrat greats like Henry Jackson and  Daniel Patrick Moynihan (I sure do miss Moynihan). Mead reminds us that there remain still-flickering embers from those bygone days, before the Democrat party succumbed to a motley collection of Leftists and other pervs.

Here’s how Mead’s book review opens: “The Republican Party and especially its Tea Party wing have just acquired a new weapon of mass destruction”.

Here’s the book review.

Then buy the book and distribute it to your Democrat friends, reminding them that this is a pronouncement descending from the hallowed heights of the NYT. Because, as we were recently reminded, the NYT is their “god”.




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  • Gringo

    Yesterday I got in the online queue at the local library to take out the book.
    Maybe I will buy my own copy and send the book to Barney Frank to autograph it.

  • abc

    Buried in this book review:

    “That at least is the story of Reckless Endangerment.  No doubt [former Fannie CEO] Johnson’s memoirs will tell the story in a different way.  The housing bubble and the financial market meltdown were very complex phenomena, many cooks were required to spoil this broth and the arguments over what caused the crash may never end.
    Truth is one thing; politics is another.  Politically, this story is a killer app for the GOP.  It demonizes Dems, lends itself to attack ads, divides Democrats between their Wall Street and union bases, and combines GOP hate figures in ways calculated to unify the GOP and heighten the intensity of the faithful.”

    The false narratives will never stop, even in light of facts.

    First, a little lesson in how mortgages are originated and syndicated in this country, for those who at least want to pretend that they want to be educated, rather than ignorant and partisan only.  All of the subprime loans in this country, which are the worst quality loans, were originated by the private sector rather than by the GSEs like Fannie and Freddie.  According to Jessica Yellin, the head of the SF Fed, the default rates on those subprime loans were running at roughly 3x the rate of defaults on Fannie and Freddie’s prime loans during the worst part of the crisis in early 2009 and beyond..  So the claim that the worst of the toxic waste that brought down investment banks and contributed to massive financial instability in the US and beyond came from Freddie and Fannie is simply and demonstrably false.  These are facts. 

    Second, while Freddie and Fannie could syndicate subprime loans, they were not the first to do so.  The investment banks packaged them first, on the false belief that one could make purses out of sows ears since geographically diverse exposure would insulate the holder of securitized mortgages since we’d never seen a nationwide downturn in housing in more than 50 years.  The Sharpe-ratio-enhancing theory behind this was concocted by the Wall Street banks, and they continued to do the most aggressive securitizations, not the GSEs like Freddie.

    Third, the derivative products that amplified the risks of a housing bubble turning into a nationwide housing bust–the very outcome that couldn’t happen, according to the securitizers–were also invented and traded exclusively by about six Wall Street firms.  Warren Buffett warned about this in ’04, calling them weapons of mass distruction, but few listened to him, including folks in the SEC (Cox) or at the Fed (Bernanke) or at the White House.

    Fourth, the 35 to 1 leverage ratio of the Wall Street banks, which gooses the ROEs of those firms and therefore maximizes the equity compensation to the banks’ executives, was permissible because of lax regulatory oversight and massive corporate greed.  it was not the fault of Freddie and Fannie.

    Fifth, the private rating agencies were asleep at the switch.  They illustrate why private market solutions fail without some modicum of government regulation that is minimalist but highly aggressive within the proper perview.  Assuming that rating agencies would bite the hand that feeds them by slapping bad ratings on the banks that write them checks is beyond naive, but that was exactly what the right-wingers and free-market Ayn Rand accolytes like Rubin, Summers, Greenspan, Cox, Cheney, Bernanke, Paulson, Geithner and the rest of them believed.  Freddie and Fannie were not part of this either.

    I could go on, but you get the idea.  There is plenty of blame to go around in what was a very complex series of events leading to the crisis.  However, to blame the whole thing on the Dems or Freddie is just silly.  Only propagandists would claim this, for obvious political gain, while only fools would believe it…

    This is how empires fall.  When people care more about winning an election and bettering their narrow interests, and are willing to sacrifice the truth in order to wage that partisan war.  Setting intelligent policy is impossible in an environment rife with so much ignorance and stupidity.

  • Ymarsakar

    They know the evil they do and they revel in it.

  • Danny Lemieux

    ABC...”This is how empires fall.  When people care more about winning an election and bettering their narrow interests, and are willing to sacrifice the truth in order to wage that partisan war.”
    Except, ABC, that the people who wrote and reviewed this book were not partisan Republican hacks.
    Ah, poor ABC… an island of enlightened sanity surrounded by a sea of mundane ignorance and stupidity. If only “they” would consult with ABC and get the Truth.
    I did learn something new though: Ben Bernanke, Larry Summers and Robert Rubin are “Ayn Rand acolytes”. Well, knock me over!

  • abc

    Danny, I haven’t read the book, so I cannot comment on the authors’ take on the issues–although I’ll be sure to check it out.  But the reviewer to which you linked clearly understands what you do not:  the causes of the crisis go well beyond the anti-Democrat narrative that the GOP campaign machine is putting together.  And rather than taking ad hominem shots at me, perhaps you would care to rebut my claims substantively.  Or are facts too hard for you to offer?  Fake narrative over substance.  it’s the GOP way, apparently.

  • Don Quixote

    I must say I do like that, unlike Zach, abc does argue his points with detailed analysis, not just citations to sometimes questionable “authority.”  Makes the discussion much more interesting.

  • Danny Lemieux

    I don’t have to rebut your claims, ABC. The article does that.

  • Ymarsakar

    It makes it into a wall of words, that’s what it does.

  • Don Quixote

    On the other hand, geez, abc, “Fake narrative over substance.  it’s the GOP way, apparently.”  Really?  It’s the way of political hacks everywhere, on both sides of the aisle.  But the Dems are far more guilty of it, on average, than the Reps are.  And this blog is certainly more substantive than most, and Danny is least guilty of all of fake narrative.

  • abc

    Based on this quote from Morgenson, it doesn’t seem likely that she is laying the blame largely on Fannie Mae.  Perhaps you are playing the Breitbart game of selectively quoting and editing to make something seem like it says the opposite of what it really does.  Here is what Morgenson said:

    ““I think that there is a genuine sense out there that there are two sets of rules, one for big and powerful institutions that are deemed to be too politically interconnected or powerful to fail, and the rest of us, Main Street,” says our guest Gretchen Morgenson, the Pulitzer Prize-winning business reporter who has written extensively on how the U.S. government has failed to prosecute any of the top figures who played a role in the economic crash. Morgenson and Joshua Rosner are co-authors of the new book Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon.”  (

    Until very recently, it was the GOP, not the Dems, that were resisting any major reforms of Wall Street.  And while Wall Street firms actually have given more to Dems in recent years, it has been the GOP that has largely been more supportive of very lax regulations.  As I’ve already written, I think both parties are making a mockery of justice for not prosecuting anyone for what happened, nor attempting to structurally reform the system (e.g., the Volker proposals).  And this has to do with the problem of regulatory capture and special interest money flowing ever more freely (thank you, SCOTUS, for Citizens United!!).  So the reality will be hard to sell as a GOP-good-and-Dems-bad kind of narrative.  Only idiots will buy that, and there are a lot of those, unfortunately.  But contrary to what Danny seems to imply, Morgenson is not that dumb.

  • abc

    More from Morgenson:  “Familiar as we are with the ways of Wall Street, neither Josh nor I was surprised that the large investment firms played such a prominent role in the debacle. But we are disturbed that so many who contributed to the mess are still in positions of power or have risen to even higher ranks. And while some architects of the crisis may no longer command center stage, they remain respected members of the business or regulatory community. The failure to hold central figures accountable for their actions sets a dangerous precedent. A system where perpetrators of such a crime are allowed to slip quietly from the scene is just plain wrong.”

  • BrianE

    Here we go again.

    From the NYT, September 1999

    In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

    The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring….

    ”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”…
    In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.


    There is plenty of blame to go around, but Fannie Mae sent a signal to the market.

  • abc

    BrianE claims that Fannie Mae’s  move to syndicate subprime loans “sent a signal to the market.”  Gosh.  I feel so sorry for the CEO of Countrywide or Lehman Brothers.  I mean, if the government hadn’t sent that market signal, then they never would have levered up their balance sheets and become so active in the subprime markets…

    The fact is that Fannie’s move incrementally opened up syndication of subprime loans, but the vast explosion would have occurred either way, since private firms were doing the same thing anyway.  And it was greed and the false belief that we could never see a general, nationwide fall in home prices that fueled the bubble and the reckless behavior.  To point to this event in ’99 or the implementation of CRA back in ’79 (another favorite myth of the right-wing know-nothings), is just silly.  No one put a gun to Mozillo or Fuld’s head, and there were tons of market signals and warning signs long before the whole thing blew up in ’07-’08.  Those cherry picking data have partisan motives and little expertise in the area to even realize how foolish they sound.