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Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance Hardcover – April 3, 2011


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Product Details

  • Hardcover: 232 pages
  • Publisher: Princeton University Press (April 3, 2011)
  • Language: English
  • ISBN-10: 0691150788
  • ISBN-13: 978-0691150789
  • Product Dimensions: 8.6 x 5.8 x 0.8 inches
  • Shipping Weight: 9.6 ounces (View shipping rates and policies)
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (23 customer reviews)
  • Amazon Best Sellers Rank: #397,320 in Books (See Top 100 in Books)

Editorial Reviews

Amazon.com Review


'[Guaranteed to Fail] is more multi-dimensional and nuanced than most other books on the bloody crossroads where real estate and banking meet. . . . [The] authors show convincingly that the GSEs' subprime lending was not a noble idea that eventually went wrong or drifted into excesses--it was a fool's errand from the beginning.'--Financial Times

'[A] valuable book on how two quasi-public companies became 'the world's largest and most leveraged hedge fund'. . . . A balanced study, [Guaranteed to Fail] rises above a clash between partisans on the right--who call the companies 'ground zero' in the meltdown--and those on the left who blame deregulation and Wall Street excess. . . . Part primer, part policy prescription, the text explains in simple language what these entities are, how they got so big, and why we must fix them.'--James Pressley, Bloomberg News

'In Guaranteed to Fail, a quartet of New York University professors from its Stern School of Business, focus on the 'debacle of mortgage finance' that Fannie and Freddie helped create, and offer a plan for reform. In clear language, and with plenty of data to support their arguments, the authors provide a concise but comprehensive history of the GSEs--which alone makes their book worth reading.'--Barron's

Review

"[Guaranteed to Fail] is more multi-dimensional and nuanced than most other books on the bloody crossroads where real estate and banking meet. . . . [The] authors show convincingly that the GSEs' subprime lending was not a noble idea that eventually went wrong or drifted into excesses--it was a fool's errand from the beginning."--Financial Times

"[A] valuable book on how two quasi-public companies became 'the world's largest and most leveraged hedge fund'. . . . A balanced study, [Guaranteed to Fail] rises above a clash between partisans on the right--who call the companies 'ground zero' in the meltdown--and those on the left who blame deregulation and Wall Street excess. . . . Part primer, part policy prescription, the text explains in simple language what these entities are, how they got so big, and why we must fix them."--James Pressley, Bloomberg News

"In Guaranteed to Fail, a quartet of New York University professors from its Stern School of Business, focus on the 'debacle of mortgage finance' that Fannie and Freddie helped create, and offer a plan for reform. In clear language, and with plenty of data to support their arguments, the authors provide a concise but comprehensive history of the GSEs--which alone makes their book worth reading."--Barron's

"Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance, stands out among all the others. . . . [I]t is one of the very few books to focus squarely on the ultimate cause of the crisis: US government housing policy and the role of the two government-backed mortgage giants Freddie Mac and Fannie Mae in giving effect to that policy."--Stephen Kirchner, The Conversation (Australia)

"[T]hought-provoking . . ."--Gillian Tett, Financial Times

"[T]he authors provide a detailed template for reform."--The Economist

"No one can accuse the authors of failing to offer solutions to the problems they so thoroughly document. . . . One can only hope that some trace of the constructive approach of Guaranteed to Fail will inform the ongoing debate in Washington on the vitally important question of the future structure of the U.S. mortgage market."--Martin S. Fridson, Financial Analyst Journal

"This book should, without question, play an important role in the policy discussion of how to reform the mortgage market. Its accessible explanation of the GSEs' growth and behavior, and its detail and care in suggesting the direction for housing finance to go--and how to get it there--are its strengths. In terms of audience, the book seems more oriented toward policy discussions than academic ones. . . . As a whole, it provides a useful overview of the rise and fall of the GSEs, and is a worthwhile read for those interested in understanding the recent crisis."--Daniel K. Fetter, Journal of Economic Literature

"[T]he scholarly NYU tome focuses on policy mistakes and perverse incentives. . . . The Stern School economists [highlight the] 'race to the bottom' among mortgage lenders . . . [who] responded by 'moving down the credit curve of increasingly shaky mortgage loans.' . . . Bad lending begat worse lending."--Robert J. Samuelson, Claremont Review of Books

"They combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster."--Rico von Wyss, Financial Markets and Portfolio Management

"Guaranteed to Fail is one of the more comprehensive and informative books on the financial crisis. In addition to its relevance to the policy debate on homeownership and government guarantees, the book has numerous pedagogical strengths. Each chapter is well-organized, contains numerous charts and graphs, and has incredible detail regarding legislation, announcements, and media reports that impacted the housing market since the 1930s. The appendix, with a timeline of US housing finance milestones and a 32-page blueprint for reform, highlight the great effort that went into the creation of this work."--Cynthia Bansak and Peter Carpenter, Eastern Economic Journal

"The [authors] combine in an ideal way research and political consulting, resulting in an easy-to-read book that nevertheless has the necessary in-depth analysis. The book is rich with quotes from the past suggesting that everybody should have seen the imminent disaster."--Rico von Wyss, Swiss Society for Financial Market Research

More About the Author

VIRAL V. ACHARYA is Professor of Finance at New York University Stern School of Business (NYU-Stern), Research Associate of the National Bureau of Economic Research (NBER) in Corporate Finance, Research Affiliate of the Center for Economic Policy Research (CEPR) in Financial Economics, Research Associate of the European Corporate Governance Institute (ECGI), and an Academic Advisor to the Federal Reserve Banks of Cleveland, New York and Philadelphia, and the Board of Governors. He was the Academic Director of the Coller Institute of Private Equity at London Business School during 2008-09 and a Senior Houblon-Normal Research Fellow at the Bank of England for Summer 2008. He completed his Ph.D. in Finance from NYU-Stern and Bachelor of Technology in Computer Science and Engineering from Indian Institute of Technology, Mumbai.

His research interests are in the regulation of banks and financial institutions, corporate finance, credit risk and valuation of corporate debt, and asset pricing with a focus on the effects of liquidity risk. He has published articles in the American Economic Review, Journal of Finance, Journal of Financial Economics, Review of Financial Studies, Journal of Business, Rand Journal of Economics, Journal of Financial Intermediation, Journal of Money, Credit and Banking, and Financial Analysts Journal. He is editor of the Journal of Financial Intermediation.

He is the recipient of Best Paper Award in Corporate Finance - Journal of Financial Economics, 2000, Best Paper Award in Equity Trading - Western Finance Association Meetings, 2003, Outstanding Referee Award for the Review of Financial Studies, 2003, the inaugural Lawrence G. Goldberg Prize for the Best Ph.D. in Financial Intermediation, Best Paper Award in Capital Markets and Asset Pricing - Journal of Financial Economics, 2005 (First Prize) and 2007 (Second Prize), the inaugural Rising Star in Finance (one of four) Award, 2008, European Corporate Governance Institute's Best Paper on Corporate Governance, 2008, Distinguished Referee Award for the Review of Financial Studies, 2009, III Jaime Fernandez de Araoz Award in Corporate Finance, 2009, Viz Risk Management Prize for the Best Paper on Energy Markets, Securities, and Prices at the European Finance Association Meetings, 2009 and Excellence in Refereeing Award for the American Economic Review, 2009, Review of Finance Best Paper Award, 2009 and Best Conference Paper Award at the European Finance Association Meetings, 2010.

He has co-edited the book Restoring Financial Stability: How to Repair a Failed System, NYU-Stern and John Wiley & Sons, March 2009, co-edited the forthcoming book Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance, Wiley, October 2010, and co-authored the forthcoming book Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance, Princeton University Press, March 2011.

THOMAS F. COOLEY is the Paganelli-Bull Professor of Economics at the New York University Stern School of Business, as well as a Professor of Economics in the NYU Faculty of Arts and Science. The former President of the Society for Economic Dynamics and a Fellow of the Econometric Society, Professor Cooley is a widely published scholar in the areas of macroeconomic theory, monetary theory and policy and the financial behavior of firms, and is recognized as a national leader in both macroeconomic theory and business education. Professor Cooley was Dean of NYU Stern from 2002-2010.

Responding to the financial crisis of fall 2008, Professor Cooley spearheaded a research and policy initiative that yielded 18 white papers by 33 NYU Stern professors, later published as "Restoring Financial Stability: How to Repair a Failed System," (Wiley, March 2009). He also writes a weekly opinion column for FORBES.com.

Professor Cooley is a member of the Council of Foreign Relations.

Before joining NYU Stern, Professor Cooley was a Professor of Economics at the University of Rochester, University of Pennsylvania, and UC Santa Barbara. Prior to his academic career, Professor Cooley was a systems engineer for IBM Corporation. Professor Cooley received his BS from Rensselaer Polytechnic Institute, and his MA and PhD from the University of Pennsylvania. He also holds a doctorem honoris causa from the Stockholm School of Economics.

MATTHEW RICHARDSON is a Professor of Finance at the Leonard N. Stern School of Business at New York University, and a Research Associate of the National Bureau of Economic Research. He has also held the title of Assistant Professor of Finance at The Wharton School of Business at the University of Pennsylvania. Professor Richardson received his Ph.D in Finance from Stanford University and his MA and BA in Economics concurrently from University of California at Los Angeles.

Professor Richardson teaches classes at the MBA, executive and PhD level. His MBA classes cover Debt Instruments and Markets and International Fixed Income. He is serving or has served as associate editor for the Review of Financial Studies, Journal of Finance and Journal of Financial and Quantitative Analysis. He has been a referee for over 20 academic journals, including Econometrica, Journal of Finance, Journal of Financial Economics, Review of Financial Studies and American Economic Review. In 1997 Professor Richardson was awarded the Rosenthal Award for Financial Innovation.

Professor Richardson has published papers in a variety of top academic journals, including, among others, Journal of Finance, Journal of Financial Economics, Review of Financial Studies, and the American Economic Review. His work has also appeared in practitioner journals and books such as Advanced Tools for the Fixed Income Professional, Emerging Market Capital Flows, and VAR: Understanding and Applying Value-at-Risk.

INGO WALTER is the Seymour Milstein Professor of Finance, Corporate Governance and Ethics and Vice Dean of Faculty at the Stern School of Business, New York University. He has taught at New York University since 1970. He has served as a consultant to various corporations, banks, government agencies and international institutions and has authored or co-authored numerous books and articles in the fields of international trade policy, international banking, environmental economics, and economics of multinational corporate operations.

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Customer Reviews

This is very informative on GSEs especially Fannie Mae and Freddy Mac and monetary policy failure.
Gderf
This is the best account of how that was a not exclusive, but certainly principal, cause of the financial crises of 2007-09.
MT57
The decisions made will have much broader impact on the sustainability of current economic recovery.
RS

Most Helpful Customer Reviews

20 of 21 people found the following review helpful By Sridhar Manyem on April 11, 2011
Format: Hardcover
A key point to note as you read this excellent book is that it is written by not one, but four professors - so, if you are expecting a thriller that explores the nefarious nexus between Washington and Wall Street, you will be deeply disappointed. I, personally, was disappointed there was no end of chapter questions and that the solutions to the non-existent odd numbered problems were missing in the back pages.

Kidding aside, I strongly believe in comparative advantage and we should not expect professors to become Carl Bernstein and Bob Woodward or vice versa. The book is very well-served by the academic approach as the authors navigate the reader through economics, finance, history, and public policy issues with ease and eloquence. Fannie and Freddie are presented as two neglected children of abusive self-serving parents (the government and the equity holder) and the entire family has developed some very bad habits. There is a striking metaphor in the book that compares the creation of the agencies and Frankenstein. I was very impressed with the aptness of several metaphors that are interspersed throughout the book. Likening the entry of Fannie and Freddie into the high risk mortgage market to Caesar's crossing the Rubicon is another one worth mentioning.

The authors demonstrate with a lot of patience, that capital, that is supposed to flow to its most efficient use in capital markets unfortunately went to its more levered use. Because of the implicit government support, the typical risk/reward considerations are marginalized and as long as the housing markets boomed, the government took advantage of the agencies to promote public policy without recognizing the cost, and the equity markets enjoyed the benefits of leverage.
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14 of 14 people found the following review helpful By MT57 on August 3, 2011
Format: Hardcover
To my knowledge, this is the best work done so far on the financial crises of 2007-09, which peaked in September 2008 when, days after Fannie Mae and Freddie Mac were placed in conservatorship by the Treasury Secretary, several of the nation's largest financial institutions became insolvent and either were sold at fire sale prices to healthier banks or went bankrupt.

I have read numerous books on the subject, and reviewed several of them on Amazon, including reviews of the Financial Crisis Inquiry Commission's report, A Colossal Failure of Common Sense, The Big Short, and Too Big to Fail. I have done my own research in primary materials published by the Fed, the GSE's, and dozens of papers published by regional Fed employees and academics around the world and hundreds of blog posts from bloggers of all political perspectives.

This is the best work I have seen. It is concise - in fact, probably too concise - and accurate. It focuses on the heart of the problem, namely the way in which several bipartisanly enacted Federal policies of promoting home ownership turned Fannie and Freddie into "Federal Frankensteins" -- giant, severely undercapitalized, voracious consumers of credit risk that were, by dint of their size and also of biases built into the capital regulations for banks and other financial institutions, so deeply embedded into global financial system that they accounted by themselves for one-sixth of all "systemic risk" in not just the nation but the world.

While focused on Fannie and Freddie, this is not the simple "Community Reinvestment Act" screed that a few have pounded the drum for, and it even goes beyond the intensive credit risk analysis of Ed Pinto and Peter Wallison that has been well publicized.
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12 of 12 people found the following review helpful By Michael Henry on September 3, 2011
Format: Hardcover Verified Purchase
Guaranteed to Fail falls in that difficult genre of book at once trying to appeal to a broader non-specialist audience and as well to a more informed reader seeking expert examination. This is a difficult middle ground and unfortunately I think the authors do not deliver. There is certainly no doubting the breadth of material. The reader is presented with a dizzying array of facts and figures - something that could have been well presented in better tables. Furthermore, there is no shortage of historical and policy analysis. Nevertheless I think the book comes up short. The real weakness I think is structure which is something an informed editor could have helped iron out. The introduction should have presented what exactly would be covered and the aim of the book. In missing this essential step the authors really failed to see that the text becomes a potpourri of information about the GSEs and anecdotes - issues on which they certainly have a wide breadth of expertise - but the book also fails to really set the issues in proper context. Chapter 5, for example, is just a mish mash covering the period leading up to the financial crisis and as far as I can tell provides no real insight. This could have easily been summarized in a table and appended to the first chapter which to be fair was a good introduction to the history of Freddie and Fannie. But the chapter also wanders into a non-essential description of the effects of housing on the economy, household spending and household balance sheets. It also delves into the literature surrounding the FHLB system. Again, this is testament to the depth of the authors' understanding of the issues but veers quite a bit off course.Read more ›
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