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Monday, June 6, 2011

Reckless Endangerment

Gretchen Morgenson has long been my favorite financial journalist. For a number of years her New York Times columns have shed a lot of light on the weaknesses in our financial system. Also, she, like me, is a bit of a Neanderthal and still believes that 2+2=4. Early on she warned us of the dangers of derivatives and other sophisticated financial products.

Very recently, along with Joshua Rosner, a housing finance expert, she has written a new book called “Reckless Endangerment” (Henry Holt & Company, 2011). It covers some familiar ground focusing on how the 2008 meltdown of America’s financial system enriched a few at the expense of the rest of us. But, what makes this book different is that the two give the crisis some perspective.

Like some of you, I devoured the first wave of books that came out covering the crisis. Most of them, while riveting, covered the personalities and gave you hour by hour accounts of the last days of Bear Stearns and Lehman Brothers. Reckless Endangerment focuses on the housing meltdown and digs deeply to give us the reasons for it. They go all the way back to the Clinton administration in the 1990’s and their desire to expand the U.S homeownership base. Mortgage giant Fannie Mae goes under the microscope and does not fare well. The authors accuse the quasi-government agency of using money and political influence to escape regulation.

They are not afraid to name names. Even casual business observers know of Angelo Mozilo, Chairman of Countrywide Mortgage who was indicted and convicted in extensive legal proceedings. But dozens of others doctored loans to make people appear creditworthy and they have simply walked away with no repercussions. Three members of the United States Senate were named for getting under market interest rates on their loans: Chris Dodd of Connecticut who was Chairman of the Finance Committee and architect of the financial reform bill (sic), liberal icon Barbara Boxer of California, and Kent Conrad of North Dakota. Conrad’s involvement stunned me. For years, he had been my favorite Democrat in congress. Balanced and measured, he fought to put a halt to increases in federal spending.

The book outlines a number of crimes committed across the board in banking and in regulatory agencies that helped contribute to the financial meltdown. Yet, to date, little has been done to punish them.
The authors put it well—“A system where perpetrators of such a crime are allowed to slip quietly from the scene is just plain wrong.”

What struck me personally was the total disregard of ethical values of so many players in government and in business.

Can another crisis happen again and soon? The authors mention that it may not take the same form but as long as the “too big to fail” mantra exists some large institutions will likely get in to more monetary mischief at taxpayer expense.

This may not be light beach reading but it does read like a thriller at times. I highly recommend it for your summer reading list.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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