This review will be one of the few times I spend a significant amount of time writing about what is wrong with a book. Perhaps I should have posted this on the blog link, since my opinions consume a significant portion of the posting. However, I picked up the book at the library because I wanted to review a book on this subject. I prepared a combination blog/review posting because I found what was not included in this book to be more interesting than the content.

The book discusses some of the causes of the mortgage crisis, but I can’t explain the omission of the government’s role. Politicians have long looked for policies that would open the American Dream of home ownership to more people. (The idea is admirable as long as the people who are given access to a home have some chance to actually afford the costs.) Loan agencies began to be forced to make loans to people who couldn’t previously qualify. The Community Reinvestment Act (CRA) was passed during the Carter era to monitor and punish banks that weren’t making enough loans to people in inner cities, and the CRA is not even listed in the table of contents. CRA was just the beginning of government meddling. The Clinton administration added more penalties for loan agencies that turned down loans to people who weren’t previously approvable. The Government Sponsored Entities (GSEs)  Freddie Mae and Fannie Mac were directed to make a significant percentage of their lending support to “affordable housing.”  (There is a short discussion of the two GSEs on page 187 of this 209 page book.)

There were politicians and organizations who warned that the “lenient” loan policies required by the government were creating a housing bubble. They were denounced as racists.

There is some peripheral discussion of unwise loans, although the book doesn’t explain why they were made. As an example, “Ninja” loans are mentioned, and that acronym was invented to explain “…unqualified borrowers (who) had ‘no income, no job or assets’.”

Bankers tend to be conservative by nature, and they were skittish that the government was forcing them to make what they considered to be bad loans to people who had insufficient income to make the monthly payments. “Skittish” is probably understated to describe bankers forced to make loans to people with “no income, no job or assets.” They came up with the idea of packaging the risky loans into bundles and selling them. They might have been surprised that the rating agencies gave the bundles high credit scores. I’m guessing they were thrilled that the bundles were easily sold. They were probably astonished that they began making large profits by clearing their books of loans they hadn’t wanted to make. That’s the true story as I understand it of how “Big Banks” became the villains. The government officials who started the whole mess rushed to the rescue after the bubble burst by passing the immensely complicated and economy-killing Dodd-Frank law (which did nothing to address problems with Freddie Mae and Fannie Mac, darlings of Dodd and Frank).

I cannot recommend this book because, when it is coherent, it falls in line with proclamations by politicians who blamed the loan agencies for doing what the politicians required. I suggest that you look at a blog posting that summarizes a North Carolina School of Law article discussing the many actions of government designed to make the American Dream of home ownership available to nearly everyone. I recall a Californian who made a bit more than $12,000 a year and was approved for a home loan of more than $800,000. Surprisingly (he typed sarcastically) the borrower couldn’t scrape up the several thousand dollars due each and every month for the loan principal, interest, taxes, and insurance.

There are points of interest in the book, so I won’t end my review here. The author seemed to be at least as interested in selling his previous books as he was in providing new information. (Perhaps one of those books explains the role of government in the mortgage crisis, but I don’t intend to find out.)   People who don’t like George W. Bush will enjoy the many references to his lack of intellect and the mistakes made by invasion of Iraq and the mismanagement of that war. There are discussions of the huge and unsustainable growth of private indebtedness (which I agree is a huge problem.) There are also discussions of “dynasty politics,” the “religious right and fear of Islam,” economic theory and history, hedge funds, the Fed lowering interest rates to encourage more borrowing after which many homeowners refinanced to get cash to buy more fun things, the need to watch the agricultural harvest calendar when contemplating mobilizing an army that would need farmers, the lack of a U.S. energy policy, global warming, and the degradation of the value of the dollar. Some of those subjects might be of interest to specialized readers, but you would have to search.

The book does discuss how consumers were lured into “interest only mortgages,” which freed them to spend more for discretionary items. “In short, borrowing against homes enabled stressed consumers to keep consuming.” Borrowers who decided to take advantage of adjustable-rate mortgages (ARMs) were understandably discouraged when they had to refinance and the value of their homes had dropped below the original loan value.

I give the author credit for some clever humor mixed into a dry subject. My favorite is that “Economists, political scientists, and energy experts, usually eager to make forecasts, have arguable predicted nine of the last five recessions…”

The book is clearly more friendly to those who prefer Democrat policies, but there are instances where a more “fair and balanced” approach is displayed. The control of political contributions moved from Republican to Democrat during the Clinton administration. I enjoyed reading that President Clinton was advised by former Goldman Sachs chairman Robin Rubin to defer to the debt market in making policy decisions. Clinton responded, “You mean to tell me that the success of my (economic) program hinges on the Federal Reserve and a bunch of f—–ing bond traders?” The book describes how “…northeastern finance was realigning toward the Democrats “….in contrast to the ‘Arrogant Capital’ dominating the Republican Party (to) the Democratic financial element representing ‘Humble Capital’.”  Over seventy percent of hedge fund contributions in 2004 went to Democrat candidates.

I have to give the author credit for how much I enjoyed preparing this review/blog posting. I often find the preparation of a review of books difficult. This review was enjoyable, because the book gave me so many opportunities to express disagreement. However, I maintain my recommendation that readers can find better uses of their time than reading this book. I wish I hadn’t carried the book to the checkout counter at the library. I’m proud that I didn’t buy it.