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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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'[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
"[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
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.
Top Customer Reviews
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.Read more ›
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.Read more ›
Most Recent Customer Reviews
A very good read on key issues in mortgage finance industry with a focus on government sponsored entities like Fannie Mae. Read morePublished 4 months ago by Asad Zaman Khan
Good attempt at explaining the mess created by political manipulation of the housing market.Published 14 months ago by drjs
This book is a mess! It is very difficult to follow the ideas that they try to express.
Obviously the authors have a biased negative opinion about the GSEs and they tried to... Read more
This is very informative on GSEs especially Fannie Mae and Freddy Mac and monetary policy failure. The GSEs have two functions: investment and guarantor. Read morePublished on October 31, 2013 by Gderf
The book points out the structural issues with good metaphors.
However I think the issue is it's not well translated to specific reader groups. Read more
The subprime crisis is a subject which captivated many people and also affected many. This book provides a good coverage of the events leading up to the subprime crisis. Read morePublished on December 28, 2011 by Choong
The authors do a great job of explaining the problems that were inherent in Fannie and Freddi that led to their collapse. Read morePublished on October 18, 2011 by yalman onaran
Not read the book but from the other reviews it is colorless, and has a thesis that the GSE had a role in the housing bubble and meltdown. Read morePublished on October 15, 2011 by A_2007_reader