Guest Submission By Susan D. Salisbury
If, like me, you aren’t a venture capitalist or a financial whiz you will find this book a challenge. It is full of acronyms like CDO (collateralized debt obligation) which send you running to Wikipedia and Google. And even after you look them up you may not fully comprehend their meaning. But you need to read it anyway. Gretchen Morgensen, a financial reporter for the New York Times and Joshua Rossner, a consultant for housing and finance issues have written a painstakingly detailed history and analysis of the actions and policies that caused a near global collapse of the financial markets in 2008 in Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon.
They start with Jim Johnson at Fannie Mae in the 80s and 90s and bring it up to the present day. They name names in government and Wall Street who were most responsible for the meltdown, including Timothy Geithner, Ben Bernanke, Countrywide Mortgage, and Goldman Sachs. They also name the congressional defenders of Fannie Mae like Barney Frank and Chris Dodd and they name Republican names as well. They explain how Jim Johnson pioneered a new and lethal kind of corporate crony capitalism when he learned to pressure congress by donating to community groups who then pressured congress to relieve Fannie Mae and Freddy Mac of sensible regulatory safeguards in the name of housing for the poor. They explain how each of the entities who engineered the new investment policies and vehicles made sure that they were paid large fees for doing so and were protected by, ultimately, the taxpayers from any substantial adverse consequences from their ill advised investments. This is a case study in how people of modest means go to Washington D. C. and become millionaires. Johnson alone received executive bonuses and pay of more than a hundred million dollars over his tenure.
They also note that the policies did not really benefit the supposed beneficiaries of the lax investment policies at all. The huge influx of investment money available for questionable loans resulted in a huge increase in housing prices that forced most poor and many middle class taxpayers out of the housing market. Further, many of the loans that were made toward the end were predatory with horrible terms for the recipient. Predatory lending laws proposed in many states and passed in Georgia were eviscerated because they would have cut down the number of inflationary and unsound mortgages that companies like Countrywide and Novastar could write. And the motive wasn’t to provide housing for the poor but to put fat fees in the pockets of the lenders while leaving the U. S. taxpayer on the hook when the loans defaulted.
Morgensen and Rossner note that “The cast of characters that helped create the mess continues to hold high positions or are holding higher jobs of even greater power”. (at p. 304) Johnson left Fannie Mae to eventually implode, but he is doing fine and facing no risk of criminal prosecution. We all know where Tim Geithner and Ben Bernanke are.
Most important, in this book Morgensen and Rossner explain that Dodd Frank did NOT fix the problems but widened tax payer liability for them.
They make the following prediction: (at p. 304)
“Will a debacle like the credit crisis of 2008 ever happen again? Most certainly, because Congress decided against fixing the problem of too-big-to-fail institutions when it had its chance.
“The law that Congress devised in response to the crisis was called the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It spanned more than fifteen hundred pages. Glass-Steagall, a law that protected consumers ably for sixty-six years, consisted of only thirty-four.
“The irony of having two of the nation’s most strident defenders of Fannie Mae sponsoring the new reform act was lost on few of those who knew the entire sordid Fannie story. And yet the law failed the most basic test– it did not insist that large and unmanageable institutions be cut down to size to alleviate their threats to taxpayers in the future. Nor did it increase accountability of those running institutions that will need government assistance in the future. (emphasis added).”
Our current president and his cronies in Congress and out have made it clear that they have no intention of fixing the problems. Instead, when bailout time came, corporate cronies making millions and billions of dollars saw taxpayers come to their rescue to protect their lavish lives while smaller banks and victims of predatory lending were allowed to lose their investments and fail. It was very much socialism for the rich and free enterprise for the middle class. When you realize how much money is at stake for these cronies of both political parties, you understand why we need someone like Governor Palin in the driver’s seat. We need someone who will force the big companies to compete fairly with the small companies and legislation that insures that no company is too big to fail. And you will also understand that we need to get a grasp of these complex financial issues so we can know how to fix them.