Book Review: The Financial Crisis
[Greg Ip] THE latest book on the financial crisis has an odd title. You begin reading “All the Devils Are Here”, a line from Shakespeare’s “The Tempest”, expecting to encounter satanic bankers and corrupt government cronies preying on a defenceless public. In fact the people who emerge are infinitely more interesting: arrogant, desperate, even clueless—but, with a few exceptions, not devils.
Take Angelo Mozilo. From the time he started Countrywide Financial in the late 1960s the Bronx-born outsider was convinced he could put millions of deserving families in homes, maintain impeccable underwriting standards—and get rich. That became impossible as the subprime mania grew. By 2006 Mr Mozilo had a “Dr Jekyll and Mr Hyde” quality, the authors note, giving warning that disaster loomed while at the same time insisting his company would still thrive. In fact, Countrywide had become a leading purveyor of toxic mortgage products that would take the company to the brink of bankruptcy.
Similar tensions prevailed across Wall Street. Inside Merrill Lynch and AIG, senior executives worried as far back as 2005 and 2006 about their firms’ exposure to the mortgage market. The Cassandras in these companies were ignored, sidelined or fired, not because their bosses were corrupt, but because they didn’t believe the warnings. Joe Cassano, the short-tempered head of AIG’s infamous financial-products division, worried about credit losses but apparently not about the possibility of multiple, massive collateral calls, which proved the firm’s undoing. Stan O’Neal, Merrill’s head, had no idea that his firm had accumulated fatal levels of subprime exposure because he had pushed aside the people who might have warned him. Goldman Sachs was spared the fate of those companies largely because its managers listened to its naysayers.
Much of the history that Bethany McLean and Joe Nocera recount has already appeared in news accounts, books, government investigations and court proceedings. Still, they have synthesised an impressive amount of that material and supplemented it with their own reporting to produce a comprehensive and authoritative account. Lesser-known events and individuals take on new prominence, such as the 1986 tax law that made it possible to slice up mortgage-backed securities, and the important role played by Ameriquest and its politically deft founder, Roland Arnall, in leading the race to the bottom in subprime standards.
Inevitably, some important chapters of the crisis get short shrift. The collapse of Bear Stearns and Lehman Brothers get only a few pages each, which may not matter so much because they have been so thoroughly covered elsewhere. The macroeconomic forces behind the bubble, such as low interest rates at home and abroad, are all but ignored. Indeed, the authors never wander beyond America’s shores. Ms McLean and Mr Nocera, who write for Vanity Fair and the New York Times, have reporters’ penchant for detail. The litany of names, numbers and financial jargon is at times exhausting, even with the help of an eight-page cast of characters and two-page glossary of acronyms. And there are too many pointless, anonymous quotes.
Ultimately, though, their journalistic approach is the central contribution of their book. Its balanced and complex portrayal of the roots of the crisis won’t satisfy those who really do see devils at work; but it is closer to the truth.
from the print edition | Books and Arts
The original article is linked here.