A new book detailing the mortgage bubble that led to the financial crisis is out. It's called "Reckless Endangerment" and you can get it here.
Here's an excerpt from NYT book review that's sure to get your blood boiling:
The authors, Gretchen Morgenson, a Pulitzer Prize-winning business reporter and columnist at The New York Times, and Joshua Rosner, an expert on housing finance, deftly trace the beginnings of the collapse to the mid-1990s, when the Clinton administration called for a partnership between the private sector and Fannie and Freddie to encourage home buying. The mortgage agencies’ government backing was, in effect, a valuable subsidy, which was used by Fannie’s C.E.O., James A. Johnson, to increase home ownership while enriching himself and other executives. A 1996 study by the Congressional Budget Office found that Fannie pocketed about a third of the subsidy rather than passing it on to homeowners. Over his nine years heading Fannie, Johnson personally took home roughly $100 million. His successor, Franklin D. Raines, was treated no less lavishly.
Fannie paid academics to do research showing the benefits of its activities and playing down the risks, and shrewdly organized bankers, real estate brokers and housing advocacy groups to lobby on its behalf. Essentially, taxpayers were unknowingly handing Fannie billions of dollars a year to finance a campaign of self-promotion and self- protection. Morgenson and Rosner offer telling details, as when they describe how Lawrence Summers, then a deputy Treasury secretary, buried a department report recommending that Fannie and Freddie be privatized.
All this gave Fannie’s executives free rein to underwrite far more loans, further enriching themselves and their shareholders, but at increasing risk to taxpayers as lending standards declined. A company called Countrywide Financial became Fannie’s single largest provider of home loans and the nation’s largest mortgage lender. Countrywide abandoned standards altogether, even doctoring loans to make applicants look creditworthy, while generating a fortune for its co-founder, Angelo R. Mozilo. Meanwhile, Wall Street banks received fat fees underwriting securities issued by Fannie and Freddie, and even more money providing lenders like Countrywide with lines of credit to expand their risky lending and then bundling the mortgages into securities they peddled to their clients. The Street, Morgenson and Rosner say, knew lending standards were declining but maintained the charade because it was so profitable. Goldman Sachs even used its own money to bet against the bundles — making huge profits off the losses of its clients on the very securities it had marketed to them. Eventually, of course, everything came crashing down.
As Treasury secretary, Robert Rubin, formerly the head of Goldman Sachs, pushed for repeal of the Depression-era Glass-Steagall Act that had separated commercial from investment banking — a move that Sanford Weill, the chief executive of Travelers Group had long sought so that Travelers could merge with Citibank. After leaving the Treasury, Rubin became Citigroup’s vice chairman, and “over the following decade pocketed more than $100,000,000 as the bank sank deeper and deeper into a risky morass of its own design.” With Rubin’s protégé Timothy F. Geithner as its head, the New York Federal Reserve Bank reduced its oversight of Wall Street.
A tight web of personal relationships connected Fannie, Goldman Sachs, Citigroup, the New York Fed, the Federal Reserve and the Treasury. In 1996, Fannie added Stephen Friedman, the former chairman of Goldman Sachs, to its board. In 1999, Johnson joined Goldman’s board. That same year Henry M. Paulson Jr. became the head of Goldman and was in charge when the firm created many of its most disastrous securities — while Geithner’s New York Fed looked the other way. As the Treasury secretary under George W. Bush, Paulson would oversee the taxpayer bailout of Fannie Mae, Freddie Mac, Goldman, Citigroup, other banks and the giant insurer American International Group (A.I.G), on which Goldman had relied. As head of the New York Fed, and then as the Treasury secretary, Geithner would also oversee the bailout.And, once again, no one has gone to jail over any of this.