Customer Reviews

Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon

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I have long admired Gretchen Morgenson and cheered when she was awarded a Pulitzer. Perhaps this book in conjunction with her hard-hitting NY Times reporting will garner her another one. She deserves it. The authors echo my sentiments precisely in their introduction "...felt compelled to write this book because we are angry that the American economy was almost wrecked by a crowd of self-interested, politically influential and arrogant people who have not been held accountable for their actions." And the people who did it "...continue, even now, to hold sway in the corridors of Wall Street and Washington."

I have nothing against the vastly wealthy and sometimes - OK, frequently - dream wistfully of joining their ranks, but I do care about how this wealth is accumulated. Entrepreneurs who build companies, executives who take these companies to the next level and the one after that, highly talented and gifted persons - in arts and sports - who command premium remuneration all enrich society. Many financial titans, on the other hand, do not create wealth. They are unusually adept in extracting it for personal gain while simultaneously impoverishing society and holding it hostage. They operate on the principle that "My gain is mine and only mine. My loss is actually yours." And they know how to spread enough largesse that enablers like accountants, rating agencies and regulators fall into line and they buy off politicians with consummate skill. They try - increasingly ineffectively - to justify their existence by claiming that they perform crucial service by "allocating capital" and "increasing efficiency." They further claim that they should not be regulated because they can do a better job of regulating themselves. The fish is starting to stink pretty bad.

What makes this book a valuable read is that the authors explain exactly how this process works and they are not shy about naming names. For example, you learn how James Johnson, the erstwhile CEO of Fannie Mae built it into a colossus that gradually jettisoned all prudence in lending and vastly enriched himself and a bunch of cronies. He also suborned powerful legislators like Barney Frank, the powerful Massachusetts Democrat. And, lastly, he looked on and encouraged Wall Street firms to do the same and used that as justification to increase the scale of his own operations. And, Oh! I almost forgot, he also admonished fresh graduates to pursue their careers with "honesty and integrity". When Johnson left Fannie Mae, a senior executive recalled "...we always won, we took no prisoners and we faced little organized political opposition." He continued to be politically influential and was an adviser to the current president until forced to resign because it surfaced that he had received sweetheart loans from a leading purveyor of toxic financial junk.

Did you ever feel that "You scratch my back and I'll scratch yours" is the norm on Wall Street? Consider this: Stephen Friedman, former CEO of Goldman Sachs was a director of Fannie Mae when the directors improperly allowed company executives to set earnings targets that they could meet. Federal investigators concluded that "As a direct result, senior management reaped ongoing and extensive financial rewards through accounting manipulation." Johnson was then inducted to the board of Goldman Sachs - when Hank Paulson became CEO - and promptly made chair of the compensation committee. He dispensed some of the richest paychecks on Wall Street and these became the norm as other firms played catch-up. In fact, Johnson chaired the compensation committees of every board he sat on.

Angelo Mozilo, founder and CEO of Countrywide, was a good friend of Johnson's and used his methods to grow the cancer that was Countrywide. The company made it a policy to give sweetheart loans to persons in power - these VIP loans were informally known as Friends of Angelo loans. Richard Holbrooke got such a loan. So did Senators Chris Dodd, Kent Conrad and Barbara Boxer. So did Donna Shalala, former head of Health and Human Services and Alfonso Jackson, secretary of HUD. And Countrywide hired sons and daughters and relatives of the influential and made sure that they were not fired during mass layoffs. Do you think it is possible, just barely possible, that these policies are what enabled that tumor to grow so large without surgery even being considered?

There were people who tried to stem the disastrous tide such as Mark Kohodes the money manager who shared damaging information about NovaStar - a Countrywide clone - with the SEC to no avail. And Armando Falcon, the regulator who tried to rein in Fannie Mae and was bludgeoned for his pains. And William Brennan of the Atlanta Legal Aid who drafted tough anti-predatory-lending legislation and then had it go nowhere.

This book will make you well informed. It will also make you sad because not much has changed in the system and the same players are still active. Can someone please tell me why we "respect" these CEOs instead of crossing the street when we see them coming our way?

Reckless Endangerment chronicles the screwing of America by just about everyone in power: dirty politicians, inept watchdogs and an insatiably avaricious financial community that knew better but didn't care. NY Times reporters Gretchen Morgenson and Joshua Rosner have taken the time to investigate not just players in the financial mess circa 2008 but the 15 years prior when Bill Clinton decided to get behind the dubious notion that everyone should have a stake in the American dream and own their own home.

In theory it all sounded perfect--who could object to people bettering themselves? The only problem was that to make the dream "accessible to all" generations of lending practices and protections would have to be dismantled. Safeguards would be gutted and due diligence would become a nuisance that is brushed aside. There are plenty of culprits here: the usual Wall Street money-mongers and in the 90s and early 00s a Republican Congress in their pocket. But Morgenson and Posner shine a powerfully bright light on the complicity of marquee Democrats such as Bill Clinton, Christopher Dodd and Barney Frank. Toss in Democrat insider Jim Johnson into the cauldron and it is a powerful witches brew.

Jim Johnson, quintessential DC insider used all of these connections in the 90s on behalf of empowering Fannie Mae and eviscerating sound financial practices. Greasing the wheels of powerful polls on banking and finance committees became standard procedure. Finding a sinecure for Barney Frank's boyfriend was a pleasure not a problem (if Frank isn't a criminal it is by a hair's breadth). Libeling the responsible, honest regulators and economists who tried to stop this train-wreck waiting to happen was all in a day's work, and a particular Johnson specialty. Edward DeMarco, Gary Gensler and Marvin Phaups are particularly heroic. When the occasional curious congressman tried to uncover Fannie Mae compensation packages, Johnson squashed them as well, more powerful than our own elected officials.

Sadly, all of the corruption above pales in comparison to Chris Dodd's attachment of an amendment that extended government protection to financial agency's other than bank (Fannie Mae, insurance companies, et al) As a result, we not only get to save Fannie and Freddie--we get to pay the legal bills of everyone who is being sued because of their reckless behavior. What did Chris Dodd get? Maximum campaign contributions and a sweetheart mortgage, naturally.

Today, who is getting the blame? The poor of course. The people who shouldn't EVER have qualified for a loan but could get one are now told they should have known better! Better than bankers who told them they could? Better than Wall Street regulators who told them they should? Better than Secretaries of the Treasury who told them they were fools not to? Today they are buried in bankruptcy or mountains of debt. Middle class Americans are paying the bill and the money class who created the mess are still meeting at Davos or presiding over their conservative and liberal think tanks.

If I have one criticism of the book it is with regards to full disclosure. While trawling the NY Times web site I learned that Gretchen Morgenson was once an employee of Steve Forbes and a campaign manager during his run for the presidency based in large part as a proponent of a flat-tax. Nothing wrong with that except Fannie Mae took the flat tax proposal as a threat and went after Forbes big time in New Hampshire. Their attack ads, which Morgenson presents as detrimental to the campaign were also detrimental to her self-interest at the time. This should have been revealed before chapter 1. Perhaps it means nothing but if we are critical of Fannie Mae for its lack of transparency, what about Morgenson?

Toward the end of the book I was incredibly depressed. It is one thing to be so royally screwed, but surely we have learned lessons from it and will prevent it happening again, right? Wrong. Morgenson and Posner make it crystal clear that pretty much the same financial system that was in place 5 years ago is still in place today. The 2009 revisions to regulations are about as dependable as New Orlean's levees. Massive bank failures in the 80s were followed by financial crisis and collapse in '08. Collective memory seems to be shortest of all and already fading. How sad and frustrating.

P.T. Barnum was wrong. In America today it seems there is a sucker born every second.

Morgenson and Rosner have done their homework and written an in depth and hard-hitting book that reveals with perfect clarity how this mess began. It's refreshing to read a book that doesn't rehash the Wall Street stories we've all heard over and over. I'm much more interested at this point in the characters in Washington who were championing home ownership and enriching themselves as they set the stage for disaster, and who really have remained blameless up to now. The sense of outrage the authors feel comes through on every page and the book is actually a page-turner in addition to being a real narrative, unlike some of the other books on the crisis, with a beginning and an end. Great storytelling and great reporting as well. Read it!!!

In many ways this is a well-written, informative and thought-provoking book. Despite the few errors of date and fact that some careful reviewers have noted here, IMO it should be read by every voter, homeowner, renter, investor -- every citizen -- who is determined no longer to be shafted by the powerful -- nor by the lawmakers' staffers who "earn" their money by burying loopholes in our laws such that even the most honest attorney general cannot prosecute perps who enrich themselves while they impoverish gullible voters, tax payers and their families.

There are some excellent reviews posted here, especially those by S. Rao, Raven 26, L. Bachmann, and many, many others, so I will make no effort to repeat their excellent work. I, however, am on my second reading of my hardcover copy of "Reckless." Taking notes this time inasmuch as I state in my title, above, from "Death of a Salesman," ATTENTION MUST BE PAID.

We must no longer be victimized by the powerful and their feckless, reckless, blind-eyed enablers: The true, accurate contents of this book -- despite the few errors that escaped the publisher's fact checkers -- may give you the impetus you need to get you moving.

The perps who brought about this mess while enriching themselves and impoverishing the public should no longer escape public scrutiny. ATTENTION MUST BE PAID!!

P.S. I have no hidden agenda. I do not work for the authors or publisher, or whatever.

Americans clearly were robbed of hundreds of billions of dollars as part of the 2008 Great Recession. Several good books have already been published that cover its causes; recently released "Reckless Endangerment" concentrates more on the role of the government, and especially James Johnson, Fannie Mae CEO from 1991-1998.

The 1992 Federal Housing Enterprises Financial Safety and Soundness Act encouraged unsafe and unsound mortgage activities by assigning Fannie and Freddie a new affordable housing mission. The law specified that 30% of housing they financed must go to low/moderate income families, with another 30% to housing in inner cities. (Unclear whether mortgages to low/moderate inner city families count doubly.) Safety and soundness took a backseat to political goals and ideology. Down-payment requirements went first - the 1992 act encouraged buying mortgages with 5% or less down; the percent of Fannie-held loans with a loan-to-value ratio over 90% rose from 6% in 1992 to 19% in 1996. Fannie and Freddy's 'special mission' also provided political cover for growing/maintaining federal support (implicit Federal guarantee --> lower interest rates charged by lenders), and exemption from or weakening of some requirements - supposedly without these it could not meet the new housing goals and remain solvent.

Ratings agencies stopped demanding information on a borrower's debt/income ratio - getting the data delayed decision-making, and not requiring it anymore purportedly made the process 'more objective.' Moody's, S&P, etc. were no longer the cops on the beat they were thought to be.

Lobbying allowed Fannie and Freddie to help determine its new regulator - HUD, then led by Andrew Cuomo, was picked; it was seen as a weak and ineffectual regulator. Capital requirements were set at 2.5%, much lower than the 10% demanded of banks. HUD also 'streamlined' Fannie/Freddie regulations by allowing lenders to hire their own appraisers.

Johnson claimed Fannie saved American homebuyers between $7 - $14 billion in 1996, citing studies it helped fund. Intense lobbying and arm-twisting (eg. by Larry Summers, Robert Rubin) helped defeat Treasury's initial recommendation to sever ties with Freddie/Fannie; however, Johnson et al were not able to bury/change CBO analyses that concluded they had taken advantage of their federal connections to also fund political donations, lobbying, 'sweetheart' loans, and personally enrich management via much higher than warranted salaries - about $2 billion 'down the drain' in this supposedly holy cause.

James Johnson, however, was not the only player working to reduce regulation - ostensibly to better pursue social goals. Glass-Steagall was eviscerated, thanks to Sandy Weill at Citibank, bank capital requirements were reduced overall, asset-stripping (aka 'predatory' lending) was recognized for what it was - yet, allowed to continue, ratings agencies got away with dodging responsibility via claiming their conclusions were only 'opinions,' etc. Most galling, perhaps, was how threats to strip Fannie and Freddie of their special status was defeated by rating agencies' counter-threat to roil markets by downgrading F&F's debt (then $4 trillion, vs. $4.7 in Treasuries).

Meanwhile, Countrywide (a 2-man shop in 1969 L.A.) supplied 26% of Fannie's loans in 2004, espoused similar social benefit spiel, stepped up its own lobbying along the Fannie's lines, and not only eased requirements but also helped create deliberate falsifications. Johnson then brought KBHomes into the action -between KB, Countrywide, and Fannie, the destructive and illusionary pursuit of social-goals had become fully vertically-integrated. Alan Greenspan, reputed economic 'maestro,' continued his 'hear no evil, see no evil' pronouncements - based more on his Ayn Rand derived ideology than careful economic analysis.

'Repo' requirements for defective (eg. 'liar') loans were standard contract requirements that protected buyers in the event of early defaults. However, soon the volume of loans that could be forced back upon sellers overwhelmed the sellers' financial capabilities. Instead, buyers' willingness to acquire new mortgages sagged, and the entire process came to a halt - refinancings and new mortgages alike.

'Reckless Endangerment' ends with the author's vision for the future - a 'rerun,' due to Congress having failed to deal with the 'too big to fail' issue (one idea - increase the reserve requirements demanded of very large banks), followed by short current status summaries of the book's major protagonists. With the partial exception of Mozillo at Countrywide, none had been forced to return their ill-gotten gains and/or overly generous payments, none had even been charged with a crime, one had become governor of a major state (Cuomo - New York), and most were considerably better off for having contributed to the creation of America's 'Great Recession.'

So much for 'Honesty being its own best reward,' and 'Honesty is the best policy.' Meanwhile, back in Washington, proposed regulatory changes (banks issuing mortgages for sale to the securities market must either require a 20% down-payment or retain 5% of each loans value on their books) intended to reduce the threat of another mortgage meltdown ran into opposition from various 'poverty-pimp' groups - despite exempting loans backed by Fannie, Freddie, or the FHA (about 90% of the total).

Gretchen Morgenson and Joshua Rosen have dug through all the mounds of conflicting information, "All's well" press releases, investigative reports that hit the problems of the time head on, and were subsequently buried, and research reports that were little more than home-grown "Atta boy" analysis, which were widely distributed, to find the dirt behind the economic mess we are in today. In going back to the beginnings, all the way to the '80's in some cases, they bring us the true foundation of the homeowner crisis. Important contributors are clearly identified in "Reckless Endangerment" including names, dates, times, and places.

Congressman Barney Frank's initial support for homeownership for all, following Clinton's push on this front, was enough of an excuse for the markets to loosen up their funds and buy mortgages. As the volume of mortgages picked up, Jim Johnson and his Fannie Mae realized that in order to keep their spot on this merry-go-round, they would have to loosen their purse strings. Not to be outdone, the "Too big to fail" banks piled in, each creating its own brand of mortgage investments, each more toxic than its predecessor.

As I was reading this wonderful book, I had a sense of dread for the future, just from the chain of events as provided by these two great authors. I know the outcome from my perspective of today, I believe I could have concluded the outcome had this work and information been available 5-10 years ago.

I would have liked just a bit more about the media in the chain of events, particularly the role played by CNBC. The network that advertises itself as "First in Business" was a cheerleader for the toxic loans, investment banks who sold the CDO's to unsuspecting customers, and Cramer's wildly supportive interview with Mozilo seemingly only a few months before the crash. Or Rick Santelli's famous rant of how it was all the homeowners fault.

Sadly, there was so much ill-gotten money that ended up in the lobbyist hands and congressional pockets, that little has changed. Jim Johnson and Frank Reines of Fannie should be in jail for fraud. Chris Dodd read the handwriting on the wall, and wisely left congress for a private sector job. Barney Frank is still in Congress, none the less for wear. Mozillo of Countrywide, one of the largest players in the fraudulent loan market, instead of being in a cell, got off with a $67 million fine, most of which Bank America paid. The leaders of the companies forced out of business or to the brink, like Fuld of Lehman or Thain of Merrill, received huge golden parachutes. Blankenship (We're doing God's work) of Sachs, and Dimon of Morgan continue at the helm, earning record salaries and bonuses.

And no amount of disdain is too much for Hank Paulson, GW Bush's secretary of the treasury and former Goldman Sachs CEO. He looked away far too long, and allowed this disease to grow uncontrolled for several years. At the last minute, when forced into an economic corner, he created the infamous TARP bailout for his "Too big to fail" friends on Wall Street. Only slightly less clueless were Bernake and Geitner of the fed, and their leader, Greenspan.These three held an absolute faith that the "Banks would always do the right thing." We now know how that worked out.

"Reckless Endangerment" is a hard book to put down for those interested in the roots of our current economic crisis. There are many good books out there about the crash, foreclosure crisis, and the resulting economic crash. I have read many of them. What this book does that no one else has clearly written about is the why's and wherefor's of how it all began. I found this to be a compelling read, and would recommend it to any serious reader of the times.

In this new look at the financial crisis of 2008, Morgenson and Rosner take and even-handed look at the corrupt corporatist system that led to such a devastating situation. The duo lashes out at Wall Street and provides an in depth look at the careless greed that went on. Most alarming was the material on Goldman Sachs concerning the fact that they made promoted mortgage securities to their clients while at the same time, invested heavily in the downfall of those securities.


Thankfully though, in contrast to Sorkin's book and the HBO special about the same subject, Reckless Endangerment doesn't just put the blame of the mortgage meltdown on Wall Street. The authors rightly finds cause in the good-intentioned busy bodies of the federal government who promoted sub-prime loans with regulation and backed with taxpayer money. Neither political party was exempt from the wrongdoing, either. The authors make that clear.


I highly recommend this book, but of course, the story is bigger than the 2000s. If you want to understand what led to the economic climate that allowed the meltdown, get the excellent Juggernaut: Why the System Crushes the Only People Who Can Save It.

I couldn't decide if I should give this 3 or 4 stars. It is very well done and exhaustively researched and documented. I found it a bit too well researched at times and a bit tedious - and I have a financial services background. I think for the "average" person this could be a tough slog in parts.

Still - what actually happened and the audacity or stupidity of many of the players is almost hard to believe. The authors make it believable though with the strength of their research.

One thing I found odd was the ending of the book - was that just me? I was reading along and all of a sudden I was in the "where are they now"/epilogue section.....seemed like someone yelled out "pencils down" and they just stopped the book where it was.

Overall - a very solid book.

Brilliant! This Book frames up the "mess" unlike anything that has been printed. Gretchen Morgenson would be a great Representative for the people however I believe she is too smart and has too much integrity for the job....look at what this country has come to. I believe much of the integrity left is a very small minority. Yet here is a journalist who is not seduced by the power and fame she reports upon. This book is proof of that.

It seems that any diagnosis of the causal factors of the 2008 Financial Crisis and ensuing recession ultimately becomes political. There is enough blame to go around to craft whatever narrative fits your ideology. However, most reasonable people understand that great global events are often years and decades in the making. The authors of this book do what few others seem to have been willing to do, which is to take an historical and apolitical view at the roots of the housing bubble, the bursting of it, the ensuing financial instability and ultimately the Great Recession.

This is not a book written by pundits for zealots. We know those books. This is not those. This is straight-shooting investigative journalism from reporters at the New York Times, which is anything but a right-wing think tank. It is not a whitewash or a scapegoating. It is what happened, pure and simple, warts and all. If you want to get the facts from an unassailable source, this is probably it.

What they find is not "new news" to those (like myself) who have studied this issue, but it is perhaps the most compelling and well-researched version of events that gains in credibility by not being the manufacture of a left or right wing think tank. Instead, this version is based on accounts and testimony of insiders and industry stalwarts who span all corners of the political spectrum. To many conservatives this will confirm suspicions long-held by many that key Democrats and left-wing influence groups played instrumental roles in creating the conditions for the crisis. However, the authors are quick to note that this crisis did not occur because of the ineptitude of incompetence of a single political party, it came about as a result of a new political machinery that both parties paid homage to, even if slightly more Democrats than Republicans. Although Democrats are more central to the causes of the boom, Republicans had political reasons to simply pay lip-service to reform and look the other way as their own interests seemed to be aligned with the housing boom as well.

Today the conventional wisdom is that the recession was caused by unregulated Wall Street greed and some unspoken economic policy that Bush must have enacted, like the Bush Tax cuts. It is clear that this view will not stand the test of historical investigation. Wall Street was greedy, but that was always true and always will be true. That was never causal. Regulation was certainly a factor, but not the lack of it. Regulators pushed financial institutions to make large bets on housing and actively encouraged it--it was their mandate to do so. Flawed studies overstated the level of discrimination in the housing market. It is true that some regulations went ignored, but not regulations that could have or would have prevented any of this. Subprime mortgages were no secret. Relaxed lending standards were not regulatory oversights, they were policy. This policy regime did not start with Bush, and once in motion it's inertia was simply irresistable to any politician. Too many influential interests groups from across the ideological spectrum had too much staked on the inertia of the status quo.

This work will prove instrumental into reshaping this flawed conventional wisdom over time. Demagogues on both sides of the aisle will distort reality, but this book will be there for history. History will point to a cadre of ambitious and somewhat nefarious executives within the environs of the GSE's (Fannie Mae principally) who used the trappings of Government favor and political influence to create the conditions for crisis. The politicians alluded to (Barney Frank, Chris Dodd, and various members of the Clinton Administration) were important brokers who generally meant well, and undoubtedly had no clue of the Leviathan they were unleashing. Clinton-era officials certainly own the creation of the Housing Industrial Complex and the infrastructure that fuelled it, but it is the members of Congress who protected the insanity of it all to the last that deserve the treatment they get.

For their part, Bush-era officials saw dangers and did halfheartedly propose reforms but politically were unlikely to do anything to derail the economy in 2003-2004 when it might have mattered. Housing was leading the recovery and they knew it, and so let inertia continue apace. They also created an array of mostly tiny programs that did nothing tangible other than allow Bush to take credit for rising home ownership. They can be blamed for lacking courage, but really contributed nothing causal.

To summarize, an understanding of the economic crisis is incomplete without reading this book. It is not the whole story, but it is the part that matters most, because it focuses on what changed in housing. The Housing Bubble began in 1997, and most people do not know that. Other factors like low-interests rates driven by the Fed, excess savings from abroad had their role, but they were catalysts, not causes. Low interest rates did not cause housing bubbles in the past. Wall Street greed did not cause housing bubbles in the past. International currency flows did not cause housing bubbles in the past. Something changed in housing to help cause this.

To know this crisis, you have to know what changed in housing. This book tells that important tale. It is a must read.

***Note: To those commenters who are whining about "fact-checking" they are whining about a few obvious typos. Those reviews are useless. It is pretty clear that these authors are aware of when Kerry ran for President. Some commenters have an agenda, and a typo is not a reason to give one star.