Reckless Endangerment

Another fascinating yet disturbing and at times tedious summer read was Reckless Endangerment by Grethchen Morgenson and Joshua Rosner. Morgenson is a reporter and writer for the Business section of the New York Times. Rosner an advisor and analyst on all things housing and mortgage-finance issues. This book was fascinating and simultaneously disturbing because it showed how greed and ambition by so many almost pushed the global financial system over the cliff. It was tedious because, really, how long can one read about credit default swaps, derivatives and subprime lending? Enough already.

I had read other tell-all books on the catastrophic buildup to September 2008 and beyond. But Reckless Endangerment seemed to me to be different. For the pedestrian, this book posits a friendlier explanation of what happened in the fall of 2008. That's exactly what I needed and so I leapt into yet another book on the financial Armageddon of 2008 to help fill in the blanks. I was not disappointed in what I discovered in this book.

Morgenson and Rosner got right to the nexus within the first few pages. Fannie Mae and Freddie Mac, two government sponsored enterprises (GSEs), were largely responsible for fueling this financial meltdown. Fannie and Freddie were two "private companies who used special government backing to dominate the mortgage market and become the nation's second largest debt issuer and guarantor, after the US Treasury." By 2008, Fannie and Freddie had close to $2 Trillion of mortgages that were purchased and/or guaranteed by Fannie and Freddie. It was later proven after years of malfeasance by Fannie and Freddie top management that most of those mortgages were "toxic mortgages". In other words, they had on their books poisonous mortgages held by mortgagees who were not qualified to buy a home.

Over the years, Fannie and Freddie bolstered by the unwavering support of the liberal Congress's bully pulpit, promoted and pushed ostensibly that home ownership should be the unquestioned right of all Americans not just the qualified, as so stated by then President William Jefferson Clinton in November of 1994, "More Americans should own their own homes, for reasons that are economic and tangible, and reasons that are emotional and intangible, but go to the heart of what it means to harbor, to nourish, to expand the American Dream." What idealistic rubbish! Liberal speak for: banks will loan the money to whomever can "fog a mirror" without scrutiny, the government will secure the loan, everybody along the food chain will get rich and the poor man will get his American dream, a house. Everybody wins! But what if home prices stall or lose value? What if adjustable interest rates go up? Then what? In the immortal words of Congressman and Fannie's #1 "Shill on the Hill", Barney Frank (D. Mass) pictured above, when he was asked in March 2005, "Are you afraid that Fannie's easy lending programs could wind up luring many of your constituents into homes they could not ultimately afford?" Frank barked, "We'll deal with that problem if it happens. Next question." Three years later the sky fell.

Well, we all know what happened. Billions of taxpayer dollars went down the drain to pay for all these bad loans perpetrated by carpetbagging looters dressed up as mortgage brokers backed by our government. Sadly, as is often the case, those who created this financial voodoo house of cards got off and got wealthier. The short sellers. Goldman Sachs. Warren Buffett. The deposed CEO's who were complicit in the feeding profit frenzy. They all had a soft landing. In fact, the megalomaniacal head of Fannie for years, James A. Johnson, in his personal hellbent pursuit of power, influence and financial gain ultimately destroyed billions of dollars of assets while earning millions of dollars for himself, now sits comfortably on the Board of Goldman. After what these guys did to our country, were these sleazy scumbags prosecuted to the fullest extent of the law and sent to jail to clean toilets? Au contraire, mon ami. One such sleaze-ball of 2008, Dick Fuld, disgraced head of Lehman Brothers, who was responsible for the largest bankruptcy of a company in the history of the United States at $600BILLION in lost assets, per my spies never misses his tee time at The Valley Club in Sun Valley, Idaho. He should be wearing an orange jumpsuit while dodging Bubba in the yard instead of wearing a Peter Millar golf shirt, Ecco golf shoes while complaining about how slow the greens are.

The real pain was felt at the bottom of the food chain. The retiree. The working man and woman. The small time investor. Mom and Pop shareholders. And last but least, the poor chump with no credit and no employment history (because the Countrywides of the world didn't require validation then) who lost his American dream when the debt owed on his home was greater than the value of the home. Dream dashed, nightmare started. Defaults by the millions.

So what have we learned if anything from the grossest display of human behaviour in recent memory that almost caused a total economic collapse of our system? What's the message here? Coming up on three years of spasmodic recoil, I'm not so sure we learned anything. The same cast of characters who put us in this position are still in positions of power in government and in business. For chrissakes, Barney Frank, yeah that guy again, was entrusted by President Obama along with Senator Chris Dodd of the exclusive club "Friends of Angelo Mozillo of Countrywide infamy" (D.Conn) to craft the 1,500 page incomprehensible tome Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Frank, the same guy who championed Fannie and Freddie as solid and legitimate entities for years, is now in charge of reforming Wall Street? You kidding me? Talk about the fox guarding the hen house. With Barney at the controls, there is not one reference to Fannie and Freddie, the main villains in the financial collapse of 2008, in the Dodd-Frank bill. They remain bruised but intact while losing billions of taxpayer dollars yearly. CBO projection into next year has their losses at $200Billion and growing. I can't make this stuff up!

As the book shockingly points out, "it proves once again that in Washington, failing at a job only serves one to prepare for an even bigger post in the years to come." When asked about why Fannie and Freddie were omitted in his bill, frumpy Frank said, "I think blaming Fannie and Freddie as the primary cause of the crisis is a mistake. Fannie and Freddie helped it get going, but there would have been people doing it without them." Yeah, and your fat greasy digits would have been all over that deal too.