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

4.1 out of 5 stars 26 customer reviews

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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
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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: 5.8 x 0.8 x 8.6 inches
  • Shipping Weight: 9.6 ounces (View shipping rates and policies)
  • Average Customer Review: 4.1 out of 5 stars  See all reviews (26 customer reviews)
  • Amazon Best Sellers Rank: #952,782 in Books (See Top 100 in Books)

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Customer Reviews

Top Customer Reviews

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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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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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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