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A Scorecard of those Responsible for the Economic Crash
on July 4, 2011
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.