Customer Reviews

Architects of Ruin: How big government liberals wrecked the global economy---and how they will do it again if no one stops them

5 star:		(26)
4 star:		(2)
3 star:		(2)
2 star:		(2)
1 star:		(5)

 

 

Unlike a few of the critical readers, I actually read the book before giving this review. This is a very thorough book that carefully documents the major developments that led up to the financial melt-down of late 2007 including the CRA, the governmental pressure to make home loans to lower-income citizens who could only marginally afford them, the resultant buy-back by the federal government of most of those loans so that banks were relieved of risk in making them, the not-surprising greed of the mortgage industry in promoting these loans, the virtual take-over of Fannie Mae and Freddie Mac by community activists, the establishment of an implied federal backing of this risk, and the resultant bubble that has burdened the tax-payers with more debt in less time than ever in our history.

Note that the positive reviews state points made in the book, all of which are carefully footnoted so can be fact-checked. The negative reviews typically say that the book is weak because it is in conflict with some well-known perceived fact. Those "facts" turn out to be the media consensus that is usually not based upon certifiable facts but on some anonymous statement or an editorial opinion.

Both supporters and critics point out that the tone can be overly strident. Whether or not this might have been more persuasive to unbiased readers is questionable but it would make for a better read.

Those readers who have already made up their minds that the melt-down was the responsibility of an unfettered capitalistic system will quickly dismiss the facts presented. Those readers who had generally concluded that the main contributor was the CRA combined with activist's pressure and capitalist's greed will now have facts and dates to flesh out their suspicions. Objective readers will probably be surprised to discover how long it took for all of these factors to build before the bubble burst.

I'm buying four more copies to send to others who need to read this important book. I encourage you to read it and make your own judgment as to how deep our financial and political problems are.

Architects of Ruin
by Peter Schweizer

By 2007 up to 4.2 Trillion dollars of sub prime loans had been made. "By 2005, almost 33 percent of the new mortgages were interest-only and 32 percent of new home buyers put no money down "(Schweizer, 2009 ).

Peter Schweizer's book: Architects of Ruin explains how these dire credit conditions and the resultant economic calamity happened.

Schweizer asks and answers this question: "Why has this story been missed? It isn't all that hard to understand. First of course, the operations of quasi-governmental agencies such as Fannie Mae and Fredddie Mac are shrouded in layers of bureaucratic tedium. Few reporters take the time to actually dig into their inner workings. Besides, they are governed by congressional committees, so people naturally assume that some responsible is paying attention."

Carter
Schweizer details how activist organizations developed tactics to challenge redlining. This was begun by Jesse Jackson's PUSH and Gale Cincotta of NPA and Acorn.

"In 1976 Cincotta began pushing for something she called the Community Reinvestment Act (CRA). Again , the idea sounded simple enough: declair that banks have "an afffirmative obligation: to lend to people in their own neighborhoods, and make their record of doing so part of the approval process for mergers, acquisitions, or expansion. In short , make it the law that banks needed to lend in areas they had traditionally avoided out of fear that they were poor credit risks." Page 16.

Reagan and Bush I
"For more than fifteen years, fair housing activists had been using the Community Reinvestment Act to compel banks to make increasingly risky loans. Using tactics of intimidation, delay, and public embarrassment, they had achieved stunning results. By 1990 some $5 billion had been shaken from banks through these tactics."

Clinton
"By early 1995, the Clinton administration was pushing a revision to the CRA. It wanted a numerical quota system to be used to evaluate whether banks were loaning enough to low-income and minority groups." Page 66

"By the middle of the Clinton administration, Fannie and Freddie were no longer simple lubricants of the American financial system. Instead, they became ground zero of a vast social engineering project that was willing to take exorbitant risks with taxpayer dollars. Once securely in the hands of idealistic baby boomers who constantly confused their corporate mission with their activist vocation, these institutions soon abandoned their traditional conservative approach to mortgage finance and became avenues for relaxed lending standards, helping in turn to inflate the subprime credit bubble." Page 80

"Meanwhile , the Clinton adminstration had created a culture of government-funded risk in the financial markets and in collusion with Wall Street had midwifed a new form of state capitalism. The constant bailouts of failing Wall Street firms meant that the large banks and investment houses were shielded from the consequences of unruly speculation." Page 153

By the end of the Clinton administration, Treasury Secretary Robert Rubin could proudly announced that "the number of home mortagage loans extended to African-Americans has increased by amost 60 percent, to Hispanics by a little over 60 percent, to low and moderate income borrowers by a touch under 40 percent, figures that are well above overall market increases." page 72

Bush II
"Owen Ullmann, a former BusinessWeek writer who covered economic policy for USA Today, wrote of Fannie Mae, 'It will hire key government critics to buy their silence, and it will intimidate lawyers, consultants and financiers who go up against it by pressuring clients of opponents to withdraw their business.' he goes on to quote a congressional source: 'Fannie has this grandmotherly image. But they'll castrate you, decapitate you, tie you up and throw you in the Potomac. They're absolutely ruthless.' Not what you expect to hear about a government-sponsored agency." (Page 108)

"To cope with the rising tide of concern in the Bush administration and on Capitol Hill, Fannie and Freddie embarked on a an ambitious political plan." (Page 111)
"Fannie and Freddie sponsored more than eighty fund-raisers for congressional candidates, even though federal law bans corporations from engaging in direct political activity. This blatant violation of the law would lead to a record fine of $3.8 million from the Federal Election Commission." (Page 111)

"Both Snow and Greenspan were blunt: 'The mortagage portfolios of Fannie Mae and Freddie Mac present a risk to the nation's financial system and federal geovernment.'
"In early 2003, the Senate Banking Committee approved bill to tighten the regulation of these lenders, thanks to the support of every Republican on the committee. All committee Democrates voted against it. The bill was killed on the Senate floor." (Page 113)

"As she wrote, "Since 1996, sub-prime lending has grown 489% -- from $90 billion to $530 billion -- largely through the extension of credit to first-time borrowers." (From Meredith Whitney page 160)

"Mortgage-backed securities are very complex investment tools. Basically, they involve pooling large batches of mortgages, splitting them up into small pieces, and selling the resulting products to investors as securities." (Page 161)



Conclusions
"Vernon Smith, a Nobel laureate in economics, says the federal government 'set the stage for housing bubbles by creating those implicitly taxpayer-backed agencies, Fannie Mae and Freddie Mac, a lenders of last resort.' In other words, far from being the results of runaaway capitalism, the housing bubble and the financial crisis that followed are the results of runaway government." (Page 119)

"The great irony is that those who unleashed this economic calamity appear to be the main beneficiaries of the crisis they helped to create. What's more, they are back in power today and are basicaly planning the next one." (page 166)

Schweizer has done what few other analysts of the late 2008 financial meltdown have been able, or even willing to do, and that's write a comprehensive and comprehensible narrative of the origins of the crisis. Many analysts of a free market bent will throw off broadsides at Fannie Mae, Freddie Mac, and the Community Reinvestment Act and leave it at that, assuming that, having taken shots at these obvious governmental meddlers, the total picture simply paints itself. Well, it doesn't, and that's where Schweizer excels. Schweizer starts at the beginning and, chapter by chapter, walks you forward into the teeth of the meltdown. A true tour de force.

Three points of interest:

1) Schweizer opened my eyes to the neat trick pulled by President Clinton - while declaring the Era of Big Government to be Over, he was concurrently manipulating financial institutions to pick up the wealth redistribution slack, almost wholly under the public radar. Brilliant. Devious. Destructive.

2) I believe Schweizer goes too easy on the Bush administration. While they made efforts to address the worst of the Clinton abuses, they did encourage the same sort of "universal home ownership" mentality as the Clinton cabal. Chalk up their efforts to promote ownership as misguided and their efforts to reign in the worst of the abuses as lacking in sufficient urgency (rather than neglect) - they still failed to head off the financial collapse.

3) Schweizer altered my perspective on the wage controls that were imposed on the executives of the financial institutions that received bailouts. Those wailing about the assault on the free market are, for the time being, off-base. Free market my rear end - a firm like Goldman Sachs has been gambling for decades with the implicit backing of the Treasury; much of their past compensation has derived from that government backstop. Remove the backstop, and I don't care how much they make. Otherwise, as long as they're playing with the House's money, I don't see why they shouldn't be paid government scale wages. (Heh - a monkey could do what the execs of GS are doing now, borrowing at 0% and lending it back to the Fed at 3%. Hardly work worthy of millions in bonuses.)

At the time of the collapse of Freddie and Fannie, I had imagined that there was a big secret gala attended by a good many of our congressmen. This book identifies who might have attended that party and why they were celebrating the start of the global financial disaster. Worst thing? The book explains that they are not done. Definitely not reading material for anyone who thinks businesses are innately bigoted or that Progressives actually help poor people.

Architects of Ruin: How Big Government Liberals Wrecked The Global Economy--And How They Will Do It Again If No One Stops Them, is exactly what the title implies it is: an incredibly anti-liberal book. And honestly, that couldn't be any more refreshing. In today's world, the media is often times to liberal, the best-selling political books out there are either full-on Democratic books, or Republican garbage a la Going Rogue. And the problem is, they don't go and outright say they're democratic. The authors write these books in manners that make them seem like they're exploring both the Democratic and Republican view points, and yet, they turn out to be staunchly Democratic. Architects, on the other hand, comes out and says it right off the bat. Not only is this the right move to make, but it also helps us appreciate the book.
Truly, for what it is (a very conservative book), Architects is fantastic. If ever you wanted to make the argument that liberals led us down the path to the 2008 economic crisis, then this would be how you'd do it, of course, sans addressing and debunking any sort of counterarguments, but, that's besides the point.
The book takes a chronological look at the effect big-government liberals have had on the economy, starting off with a look at the life of Saul Alinsky, and moving on from there, discussing the influence of Alinsky on modern-day liberals. The book's main thesis, although it obviously has multiple, is that the 2008 economic crisis is the fault of the liberals because it was the liberals who pushed for banks to have more lenient lending policies. Actually, if anything, author Peter Schweizer argues that these liberals practically put banks under duress, threatening that they would call them racists and wage a public war against them if they should not comply with their wishes and make it significantly easier for poor people to take out loans and mortgages. Of course, the problem that then ensued was that these people were poor because they were very bad with money, amongst other negative traits obviously, and thus made the repeated mistake of borrowing hefty sum after hefty sum, taking out mortgages they knew they couldn't possible repay the way things stood, and putting themselves further and further into bottomless vortexes of debt.
Schweizer goes on to name names, from top government officials to multiple big corporate CEOs. One particular name he focuses on for a whole two chapters: William Clinton. He accuses the Clinton Administration of perpetuating this wrong liberal attitude about how banks most loosen up and lend more and more to the people stricken by poverty. He wrongly believed the only reason banks weren't already doing so was because the people of poverty-stricken worlds were often of color, and therefore, the banks were being racist. This obviously could not be further from the truth, as Schweizer repeatedly points out. And his argument really does make a lot of sense.
But, Schweizer doesn't just stop there. He then actually extrapolates, taking what he's seen from the lead-up to the 2008 economic crisis and applies it to the current administration, the Obama administration. He earnestly believes that Obama has not learned a thing from the mistakes Clinton made that led us to a poor economy. Schweizer believes that Clinton is setting up the auto-industry as the next market that a liberal will help crash. In seeking new and more efficient forms of energy, Obama is wasting far too much money, time, and effort, with very little to no payoff in return.
In the end, yes, Architects of Ruin is essential a multi-pronged attacked against liberals with no room for them to defend their case. But with the myriad books out there that attack conservatives, this is refreshing, not to mention, a well-made argument.

This is a partisan book, but it tells a true story. I have read the very well placed blame on the conservative side elsewhere and there is plenty of that.

I had clients in the mortgage business during the last expansion of the real estate bubble and it was clear practically anyone could get a loan. Why? Because the loans could be bundled and sold, thereby removing their risk.

There is more to this book than just that, but anytime you fiddle with risk, you are in big trouble. And that doesn't even begin to describe the troubles documented in this book of the foibles by our elected representatives.

How anyone can defend these people, I have no idea. The other side is no better, just different. Most of them are spending their time paving the way to hell for their constituents while blaming the other side.

This book will be a revelation to those who have let history be warped by political expediance.

I bought his book because I am interested in the Housing Crisis and wanted to learn more about how various innovative mortgage products came to be.

Let me start with a summary of the book (paraphrasing).

[Intro] Housing Bubble: how did we get here? Liberal crusaders for minority housing! Facts: 1) Banking sector is heavily regulated; 2) regulations have grown significantly from 2000 - 2008; and 3) government distorted the housing market to achieve social ends.

[Chpt 1] Robin Hood Agenda. History: Redlining; Fair Housing Act; Saul Alinsky; Gale Cincotta; Jesse Jackson; birth of CRA. Large grass-roots effort now with hundres of organizations nationwide to shakedown the banks. CRA empowers community organizations to 1) obtain loans for their members and neighbors; and 2) obtain funds for their own organizations.

The CRA premise is that the poor are never at fault when turned down for a loan; it's either racism or a faulty credit scoring system.

[Chpt 2] $4 Trillion Shakedown. Lots of examples of community organizations strong-arming banks into giving them donations and making loans to minorities. Banks learned that 1) they could get good press from these deals; and 2) regulators liked the deals! Deals got very creative and established the trend of lowering underwriting standards that swept through the industry.

[Chpt 3] The Clinton Crusade. Clinton loves CRA. Robert Rubin; Henry Cisneros; Roberta Achtenberg: "fair housing has been the last civil right to be recognized and the most difficult to secure." Racism is seen everywhere, even by black-owned banks.

Reno ramps up Civil Rights Division of DoJ and starts suing lenders -- they all capitulate rather than spend millions in court fighting the feds. DoJ targets *everyone* not just banks; takes leads from NCRC. Regulations are updated to eliminate objective criteria and to favor low-income borrowers.

Clinton creates Fair Housing Council to promulgate new lending laws. First "voluntary" agreement is with Countrywide. HUD forces newspapers to adopt racial quotas for models in housing ads! Cisneros: "We were trying to be creative." Cisneros joins board of Countrywide; replaced by Andrew Cuomo who announces "affirmative action" loans.

Federal Housing Administration supports no-money-down, no-closing-cost mortgages and legalizes fees to mortgage brokers. CRA activists demand and get 100% LTV products with nothing down, no mortgage insurance, no points, $500 cash at closing, and debt/income of 38%. NCRC strongly supports MBS market so money can be recycled into new loans. Subprime lending increases twentyfold between 1993 and 2000.

[Chpt 4] Fannie & Freddie. GSEs can borrow money cheaply and leverage up much higher than private companies; they're exempt from state & local taxes and exempt from SEC filings. Activists took over Fannie and Freddie and implemented a "vast social engineering project with taxpayer money." GSEs donate considerably to numerous activist organizations and encourage lenders to adopt relaxed guidelines.

1995: Cisneros says 42% of Fannie's portfolio must be low & moderate-income mortgages. 1997: Fannie buys mortgages with only 3% down, pushes banks for more; Cisneros OKs buying of subprime by Fannie. Cuomo significantly raises FHA loan limits and pushes loans to "very-low-income applicants." By 2001, Fannie is buying no-money-down mortgages. By 2004, Fannie & Freddie are buying 44% of all subprime mortgages. 2007: 30% of mortgages purchased by Freddie have credit scores under 620. 2005 - 2007: 57.5% of Fannie mortgages have credit scores under 620.

Fannie CEO James A. Johnson eliminates buyback requirement for misrepresented subprime mortgages. Fannie supports mortgages to "non-permanents" with "more than one social-security number." Johnson retires from Fannie with annual pension of $852k; joins Goldman; becomes chairman of Kennedy Center. New Fannie CEO Franklin Raines: "Let's look for every possible reason to approve applicants, not to reject them."

Industry joke: Countrywide is just a subsidiary of Fannie. Countrywide CEO Angelo Mozilo sends private email on subprime: "In all my years of business I have never seen a more toxic product." Mozilo has Speaker Nancy Pelosi's son and Governor Jerry Brown's sister on his payroll. Countrywide gives two "special mortgages" to Senator Christopher Dodd; another two to Senator Kent Conrad. Lots of other slush money from various subprime players make the rounds in DC.

[Chpt 5] The Golden Trough. Fannie & Freddie have obligations totaling $5 trillion ($1.45T is held overseas). Lots of details about how GSE money got spread around DC. Franklin Raines cooks Fannie's books to trigger bonuses. Barney Frank on Fannie: "I see nothing here that suggest that safety and soundness are an issue." Raines: "These assets [home mortgages] are riskless."

[Chpt 6] Do-Good Capitalists. Investment bankers buy into social engineering because it means short-term profits and bonuses. After years of getting bailed out (S&L Fiasco, Mexico, Asian Collapse, Russia and LTCM, Argentina), bankers understand that profits are privatized while losses are socialized. Everyone knows Washington will bail Wall Street out. It's "Government Sachs."

[Chpt 7] Minority Meltdown. In areas where default rates are at least 2x national avg, 85% of the neighborhoods are black and Latino. Blacks have foreclosure rates 3x those of whites and Hispanics 2x those of whites even when loan types are the same. Majority of folks with adjustable mortgages lost home before rates adjusted! Problem isn't with subprime, it's with flexible underwriting: 51% of foreclosed homes have prime mortgages. Most important foreclosure factor: did borrower put money down or have any equity?

U.S. home ownership levels have been constant at 64% for decades. Policy changes took that to 69%, but this 5% would never have gotten loans without the relaxed standards.

90% of derivative trades concentrated in 17 banks; the same banks that have repeatedly been bailed out in the past.

History of the meltdown: Countrywide; Bear Stearns; IndyMac; Fannie & Freddie; Lehman Brothers; AIG; Washington Mutual; Citigroup; TARP.

[Chpt 8] Robin Hood Comes to White House. Obama administration staffed with Clinton veterans who orchestrated subprime and derivative bubbles: Rahm Emanuel, Larry Summers, Timothy Geithner, John Trasvina. Alternative energy is the next bubble.


Here's what I didn't like about this book.

There's virtually no mention of the role played by financial deregulation in contributing to the crisis. How was the global economy impacted by the Gramm-Leach-Bliley Act, which repealed Glass-Steagall? Or how about the Commodity Futures Modernization Act, which prevented regulation of derivatives? What about bank regulations on leverage (i.e. the 28-Apr-2004 SEC deal) or the OTS advertising their "no red-tape" policies?

What role in the crisis did the ratings agencies play? Did they correctly rate the various mortgage-related investment vehicles or did they drop the ball? Where were the regulators here? And who blessed their business model?

What impact did ultra-low interest rates play and was the Federal Reserve warranted in keeping rates this low for so long? What about the 2-year turnover tax break Clinton sponsored -- how did that effect the bubble? There's also virtually no discussion of appraisal fraud or industry hype (prices never go down; best investment you'll ever make; Flip That House!).

Seeing as how this book was written by a conservative author, it would have great if it addressed some of the key assertions that the progressives have made, namely:

- What about the International markets? Many other countries suffered a collapse; do they also exhibit relaxed underwriting standards?

- What about the commercial sector? Did the "Home Ownership Entitlement" ideology effect this market or was the commercial real estate collapse unrelated?

I would also have liked to see an explanation of the relationship between state and federal regulatory agencies, and how this relationship has changed over the years.

There's barely any blame pinned on George W. Bush, even though Bush was a huge cheerleader for the "Home Ownership Entitlement" ideology. I found just one sentence (p. 89) that mentioned Bush's significant contribution here. And while accounting control fraud is alluded to, it's done primarily in the context of the GSEs; the investment banks are virtually ignored.

Technically, the book seemed to me to be hastily written. After the first two chapters I found the organization to be lacking. Another impediment was that the content presented in the remaining chapters was not chronological; I found myself writing dates in the margins to try to understand the various timelines discussed. This wasn't helped by the fact that several footnotes don't include publication dates.

Finally, I would have appreciated more of an evidenciary approach. (After all, if the goal is to skewer Big Government Liberals, then let's get on with it.) What I would have found more compelling, for example, would have been a systematic examination of all the various innovative mortgage products involved in the crisis; when they first began to be used; under what circumstances they were deployed; and how much money was involved.

So what did I like about this book? First, I really appreciate the historical record that Schweizer puts together. By explaining how the community organizations got started -- their leaders, their approaches -- it's easy to see how they were able to extert influence on both the banks as well as politicians. (Frankly, I can't understand why there aren't more of these organizations around. What a racket! You get to shakedown banks for donations to your organization as well as loans to your friends, relatives, and neighbors! Why not start one today?)

Schweizer includes a thorough history of the significant policy changes that took place during the Clinton years. It's impossible to understand the sea change that occurred in underwriting standards without knowing about this.

The book is also very detailed, and contains great (and surprising) quotes throughout. Despite the non-chronological approach, it reads very well. And there are abundant footnotes.

Indeed, thanks to the footnotes I have found several references, including this report where the National Community Reinvestment Coalition (NCRC) claims credit for foisting $4.5 Trillion in CRA loans on the banks from 1992 to 2007:

[Links not allowed, Google: "National Community Reinvestment Coalition commitments 2007"]

Most importantly, Schweizer covers the disgusting reality that is American special interest politics and how it contributed to a major crisis. It's disturbing to realize that the techniques employed to corrupt our system for minority home ownership purposes are the same techniques used to solicit market distortions that aid large corporations, unions, and other special interests. America has some serious problems; this book highlights some of those problems and their effects.

Peter Schweizer provides a tremendously-researched summary of the origins of the economic meltdown experienced late in the George W. Bush presidency. While Bush took most of the heat for this mess from Democrats and the mainstream media, his administration played a very limited role in the fiasco. Schweizer includes so many detailed facts in this work that his case is very well-supported. One example lies in the government bailouts of Wall Street. The American public was led to believe that the most recent bailouts were unprecedented; however, Schweizer conveys the fact that Washington, D.C. (under Clinton) bailed out Wall Street banks on many occasions. These bailouts contributed to an environment in which financial institutions could enter increasingly risky transactions without downside risk. If the maneuvers worked, they profited immensely; if the gambles went south, the government was there to bail them out. In addition, Schweizer details aspects of The Community Reinvestment Act, which was signed by Jimmy Carter and expanded under Bill Clinton. This law and its aftermath resulted in banks being required to make riskier and riskier loans to individuals to help fulfill a liberal social engineering goal. As a result, literally trillions of dollars were loaned in the subprime market, and the federal government forced the issue and encouraged the reselling of these loans in the investment market.

"Architects of Ruin" is one of the best laid out books of this genre that I have read and anyone who wants to better understand the circumstances which led to the collapse should read it. Former president Bush and his party took the brunt of the blame for the mess; however, they held a much more limited role in what transpired. Ironically, many of the people who had more responsibility for the collapse are embedded in the Obama Administration and charged with correcting the problem. What is disconcerting, and somewhat depressing, is that there are few members of the mainstream media who took much of an interest in disseminating more details of the causes of the economic nightmare. Perhaps we have become too busy as a nation to care about such details or perhaps it is not profitable to media to cover such mundane topics or perhaps it is purely political and the media was happy having the situation laid at the feet of a Republican president. Regardless what the reasons, we have all suffered as a result of the oversight. Do yourself and the rest of us a favor. Get this book, read it, and pass it along to as many people as possible.

DO NOT READ THIS if you aren't prepared to get really upset. The truth hurts and I wish to hell it would set me free, but instead it provokes further angst about the damage that the 60's have done to our country. I was a purebred liberal,hippie, 60's utopian idiot and will forever regret and renounce that foolishness. However, my peers have stumbled on in their narcissistic delusion to become "leaders" in government and academia (pretty much the same thing anymore). I used to believe we survived the idiocy of Boy Clinton, save for 9/11, which wasn't all his fault, but now I know better. He planted seeds of "economic justice" that truly brought a bitter harvest 10 years later. The crash of Fall '08 brought to you in full by the true believers of Marx and "paradise on earth" Rhodes scholars and other morons. A quick and nimble read, this book could help prevent Obama from carrying out the agenda of Clinton and like minded children of the 60's (from Robert Rubin, Franklin Raines, on down). How disgusting that so many of these "idealists" (actually, greedy, self centered opportunists) simply profited spectacularly from the perfidy of the economic implosion. They not only have robbed us and our children, but our grand children, too. Lightweights like Bernie Madoff and Stalin will welcome them to Hell.