Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis [Hardcover]

Paul Muolo (Author), Mathew Padilla (Author)

Book Description

Publication Date: July 8, 2008

An updated and revised look at the truth behind America's housing and mortgage bubbles

In the summer of 2007, the subprime empire that Wall Street had built all came crashing down. On average, fifty lenders a month were going bust-and the people responsible for the crisis included not just unregulated loan brokers and con artists, but also investment bankers and home loan institutions traditionally perceived as completely trustworthy.

Chain of Blame chronicles this incredible disaster, with a specific focus on the players who participated in such a fundamentally flawed fiasco. In it, authors Paul Muolo and Mathew Padilla reveal the truth behind how this crisis occurred, including what individuals and institutions were doing during this critical time, and who is ultimately responsible for what happened.

• Discusses the latest revelations in the housing and mortgage crisis, including the SEC's charging of Angelo Mozilo
• Two well-regarded financial journalists familiar with the events that have taken place chronicle the crisis in detail, showing what happened as well as what lies ahead
• Discusses how the world's largest investment banks, homeowners, lenders, credit rating agencies, underwriters, and investors all became entangled in the subprime mess

Intriguing and informative, Chain of Blame is a compelling story of greed and avarice, one in which many are responsible, but few are willing to admit their mistakes.

Editorial Reviews

Review

"Chain of Blame is one of the first books to delve deeply into the central role that big banks played in the mess…for a juicy, name-dropping read, Muolo and Padilla’s book is hard to beat."--BusinessWeek

"Muolo and Padilla examine just who was to blame for the crisis and find that it is not just cowboy operators." (CEO Middle East, September 2008)

“…a level-headed book…the anecdotal style is easy-going...much the best book on the mortgage industry”.  Fund Strategy 1 September 2008

“…a ripping piece of reporting… The authors know their stuff.”Bloomberg News Monday 28 July 2008

From the Inside Flap

Americans are losing their homes at a rate not seen since the Great Depression. Prices continue to fall sharply despite the reassurances of just a few years ago that all was rosy on the housing front. Many factors have been blamed for this crisis, but who is really responsible? And perhaps more importantly, why was everyone so taken by surprise?

In Chain of Blame, acclaimed financial reporters Paul Muolo and Mathew Padilla go behind the headlines to tell the inside story of why Wall Street's established investment banks bear much of the blame for the events that have cost millions of Americans their homes. They show in detail how, from 2000 to 2007, executives from Merrill Lynch, Bear Stearns, Lehman Brothers, and others financed non-bank mortgage lenders that eagerly sold their mortgages to consumers through loan brokers. Wall Street then sold bonds backed by subprime mortgages to overseas investors in Europe and Asia—which led to financial difficulties there as well.

The authors build their compelling story around the key players in this tragedy, first and foremost being Angelo Mozilo, founder and CEO of Countrywide Financial, America's largest home mortgage lender. From Mozilo's July 2007 conference call with a group of top Wall Street equities analysts—which marks the true beginning of this fiasco—to his congressional rebuke in 2008, Chain of Blame chronicles the crisis in detail, showingreaders what happened, who is responsible, and what lies ahead.

As the dust settles around these life-shattering events, the blame game has begun. But as Muolo and Padilla show with stunning clarity, there is really no single entity or individual to point the finger at. It was a mix of factors and participants—the world's largest investment banks, homeowners, lenders, credit rating agencies and underwriters, and investors—that precipitated the current subprime mess.

Chain of Blame ultimately reveals how human behavior and greed drove the demand, supply, and the investor appetite for these types of loans—and how Wall Street was all too willing to satisfy the desires of those who should have known better.

See all Editorial Reviews

Product Details

• Hardcover: 352 pages
• Publisher: Wiley; 1 edition (July 8, 2008)
• Language: English
• ISBN-10: 0470292776
• ISBN-13: 978-0470292778
• Product Dimensions: 6.4 x 1.2 x 9.4 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (39 customer reviews)
• Amazon Best Sellers Rank: #347,111 in Books (See Top 100 in Books)
  • #72 in Books > Business & Investing > Real Estate > Mortgages

Most Helpful Customer Reviews

18 of 19 people found the following review helpful

3.0 out of 5 stars An easy to read explanation of the Mortgage crisis; needs some editing though November 16, 2008

By BK

Format:Hardcover

This book clearly spells out what went wrong to precipitate the mortgage crisis that catapulted the financial markets into a global meltdown. The book uses simple language to describe complex concepts, which is very helpful to the financial novice like myself. In this sense, this book is wonderful.

However, the book is way too long. Some whole paragraphs are repeated almost verbatim in different chapters. Each paragraph chronicles the life and times of another major mortgage company. While this concept is ok for telling stories about the individuals involved in the business, it makes for highly repetitive reading, as the mistakes made by one company are often made by others. The first 150 pages is a tough slog of similar people and similar stories, but the book picks up steam in the final 150.

Finally, while this book does a great job of explaining the mortgage industry and their role in the financial crisis, the authors make a cursory explanation of what truly happened on the Wall Street side of things. (This isn't too unexpected because the authors are mortgage experts.) For example, there is basically no mention of the subsequent credit crunch that was precipitated by the sub-prime mortgage disaster.

For a good explanation of what went wrong on the Wall Street side of things, I recommend 'The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash'. That book is not an easy read, because the author expects the reader to have a solid understanding in Wall Street lingo. But 'Chain of Blame' is a useful primer.

27 of 32 people found the following review helpful

4.0 out of 5 stars Well written story of the mortgage crisis August 25, 2008

By Steven A. Peterson TOP 500 REVIEWERVINE™ VOICE

Format:Hardcover|Amazon Verified Purchase

Do your eyes glaze over when commentators try to describe the financial products that were at the heart of the recent real estate boom? The mortgage boom? This book described the instruments clearly--and gives the reader a great sense of what was fundamentally wrong with the whole process. The title is "Chain of Blame," but there is plenty of blame to go around.

The book is well written and lucid. Nonspecialists can understand it well. I heard talking heads on TV and radio described tranches, REITs, "liar loans," "warehouse line of credit," and so on. The authors describe these terms--and others--clearly and in such a way that the reader can begin to see what had happened--and why the meltdown in the mortgage world should not be seen as so surprising.

It is also the story of clever businessmen and women, who could develop new tools for investment from subprime loans. Subprime loans, simply, are (Page 325): "A loan originated by a lender that is A- to D in quality. Consumers with the best credit ratings. . .are considered 'A' credit quality." In short, loans are being made to purchasers who carry some to a lot of risk. If they can't keep paying their mortgages, the house of cards can fall down. And that is, in short, what happened (although the story is quite a bit more complex than that).

Among the innovators were pioneers such as Roland Arnall (of Ameriquest and Argent) and Bill Dallas (of Ownit Mortgage Solutions). Then, those who adopted practices of the innovators, such as Angelo Mozilo of Countrywide.

The book makes pretty clear that a number of factors contributed to the mortgage problem. Regulators didn't get involved; Wall Street firms ignored the volatile nature of subprime loans in a desire to realize enormous profits; banks bought into the profitable business.

Anyway, if the reader wants a well written, if not overly deep, analysis of the mortgage crisis, this is not a bad place to start.

15 of 18 people found the following review helpful

4.0 out of 5 stars Financial Deregulation and Privatization leads to Speculation and Securitization which leads to Recession July 23, 2008

By Michael Emmett Brady VINE™ VOICE

Format:Hardcover

The authors of this book present a detailed study of the nexus that existed between the unregulated(the Securities and Exchange Commission(SEC)hasn't been doing its regulatory job ever since Bill Casey left) Wall Street investment banks(Bear Stearns,Merrill Lynch,Morgan Stanley,Goldman Sachs,Lehman Brothers,Credit Suisse,Deutsche bank,etc.),commercial banks(Free market believers Alan Greenspan and Ben Bernanke,Milton Friedman's best student,were supposed to be regulating the commercial bankers when they were chairman of the Federal Reserve Board.They were doing nothing of the sort because they believed that the financial markets would regulate themselves)like Wachovia and Bank of America,Savings and Loans like Washington Mutual,mortgage brokers, bond rating agencies, underwriters ,and mortgage lenders like Mozilo's Countrywide, were able to peddle some 6 trillion dollars worth of highly speculative and extremely risky bonds backed by sub prime mortgages all over the globe .It provides another view into this problem that is similar to the very recent books by Morris(The Trillion Dollar Meltdown)and Phillips
(Bad Money).Warren Brussee's 2004 book,though mistitled,is the first full scale treatment of the sub prime loan problem.
I have deducted 1 star because the authors do not provide any historical overview that would enable the reader to see that this problem is a systemic one that repeatedly occurs over and over again throughout history whenever financial ,short run, profit maximizing(sales maximizing)companies are allowed to engage in speculative activity that is financed by the banks themselves.It is the private ,profit maximizing commercial banking system that supplies the loans that enable operators like Mozilo to leverage their debt position in the financial markets and create bubbles.These bubbles are then pumped up and inflated by the banks.This leads to manias(crowd and herd cascading impacts),panics,crashes,and recessions,as well as inflation and/or stagflation.

Adam Smith warned about this in his The Wealth of Nations(1776;see pp.339-340 of The Modern Library(Cannan)edition for Smith's conclusions.His entire discuusion of banking on pp.250-340 is the best ever written).The purpose of an independent central bank is to PREVENT the private commercial bankers from making loans to projectors(the speculators and rentiers of Keynes's General Theory(1936)) ,imprudent risk takers,and prodigals.Loans are to be made only to the sober people who will use the loans to create businesses and jobs,as opposed to speculation and bubbles that must eventually collapse, creating great social costs for society as a whole.

An entire stealth banking system has come into existence over the last 30 years since Jimmy Carter started his ill advised deregulation and privatization policies of the financial system.These policies were speeded up during the Reagan -Bush administration .This book exposes what the inevitable result of such a deregulated financial system ends up requiring-massive tax payer bailouts and/or special loans made available to speculator bankers at very low rates of interest .