Chain of Blame How Wall Street Caused the Mortgage and Credit Crisis
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Chain of Blame How Wall Street Caused the Mortgage and Credit Crisis
In the summer of 2007, the subprime empire that Wall Street had built all came crashing down. On average, fifty lenders a month were going bust-and the people responsible for the crisis included not just unregulated loan brokers andcon artists, but also investment bankers and home loan institutions traditionally perceived as completely trustworthy.
Chain of Blame chronicles this incredible disaster, with a specific focus on the players who participated in such a fundamentally flawed fiasco. Authors Paul Muolo and Mathew Padilla, well-regarded journalists for National Mortgage News and the Orange County Register respectively, reveal the truth behind how this crisis occurred, what individuals and institutions-from lenders and brokers to some of the biggest investment banks in the world-were doing during this critical time, and who is ultimately responsible for what happened.
User Ratings and Reviews
3 Stars Good stories, weak analysis
This is a book by two veteran journalists about the origins of the current mortgage crisis. It is based upon a large number of interviews.
The strong part of the book is that it tells a large number of in depth stories about the players in this industry. You get the full history of Countrywide and its founders. Ditto for Ameriquest, New Century Mortgage and most of the other players in the subprime fiasco. It is a gossipy book, with many personal details about the people involved. If you are looking for stories about the players in the mortgage lending world of the 1990s and the early 2000s, this is a very good book.
The weak part of the book is the analysis. There is not much serious analysis. The authors do not know much about economics, and they never discuss economic theory. When grappling with the larger questions of why this whole episode occurred, the authors do not have the intellectual tools needed to approach the question intelligently. They basically just tell a lot of stories, and they do not have an intelligent analytic framework into which to fit their stories.
If you want a real analysis of the crisis, look somewhere else. If you want many colorful stories and background details of the crisis, this is your book.
2 Stars Interesting, but long winded
Very detailed exploration of the motivations, dynamics, individuals, and companies that escalated into the subprime morgage crisis. It was a bit of a dry read and too exhaustive for my tastes.
5 Stars What goes up…..
This book is of particular interest as I am a Mortgage Trader at a regional investment banking firm. My business was terrible from 20004-2007 as virtually every loan that was made was securitized. There were no portfolio lenders for me to manage their portfolios. You would think with this insight and the fact that I gave speeches from 2004 about the coming housing crash I would be insulated from this debacle.
Unfortunately, while my business has returned to record levels as banks need help with their bad assets, I also underestimated the risk level and some of my leveraged investments were the hardest hit. Not “Madoff” level hits but not far from it. So, have a good laugh at my expense. I deserve it.
This book does an excellent job explaining the series of events and working arrangements that led to this environment. Yes, mortgage brokers had every incentive to originate the loan and some false information sure wouldn’t hurt their income. The Mortgage Companies became addicted to growth and stock levels. And Wall Street, the smartest guys in the world (just ask them), was the biggest crack addict to subprime mortgages.
This book specifically closes with a damning section of Wall Street, their involvement, and the specific people that made decisions to grow the business in some cases causing them their jobs and reputation.
A substantial amount of the book is about Mozilo, Chairman/Founder of Countrywide, the largest mortgage banking firm who was late into subprime as he was concerned about the credit. The book reports both good and bad and while I’m sure he wouldn’t like how he is portrayed, it’s a very fair picture. A “from the street guy” who grew nothing into a real giant and revolutionized mortgage banking. In the end, he has money but a tattered reputation having to attend a congressional hearing where he was told what a bad guy he was.
The only person not really faulted is the consumer. Consumers have overspent for over 10 years and as long as credit in the form of mortgages, home equity lines, and credit cards were available, they would use it. I recently talked to a relative over 70 with a minor retirement from 20 years of military service who was laid off his job. He disclosed he had $50,000 of credit card debt, all current as he is a solid American who would never knowingly make bad debts. But it really doesn’t matter. He can’t afford this debt and this is about to be a loss. NO WAY AROUND IT! That is the mentality in America now.
As I do lots of business with FNMA and Freddie Mac I am compelled to say that the recent political climate has made them the target of blame. Their A Credit mortgage machine has done more for housing in America than any other factor and I hope they are left to continue this process although I believe they should be government owned as their advantage is the cheap borrow costs of the implied government guarantee they enjoy. They have admitted to me during this period that they were challenging whether they were obsolete and the old rules didn’t apply. So they stuck their toe in the A- credit market. FNMA currently has 11% of their portfolio in Alt A paper. 50% of their losses is from this lower grade of paper. The math does not work. Lower credit people will default and a higher interest rate will not compensate. It’s been seen time and time again dealing with subprime auto paper since the 80s.
Bubbles happen and people become blinded by greed and the belief that there is money to be made. I certainly found myself caught in this “asset devaluation vortex”. AND IT WILL HAPPEN AGAIN! For now we need to save, stop borrowing and return to values more simplisitic. At least that’s what I’m attempting to do.
Read this book for an excellent BUT technical analysis of the subprime debacle. Very well written.
4 Stars Chain of Blame
Very good review of the mortgage crisis from a mortgage industry insiders viewpoint. Almost too much material to plow through.
4 Stars A Who’s Who of Blame
Interested in who to blame for the mortgage and real estate meltdown? Sure you are, in a “drive slow past the traffic accident that’s kept you in stop and go traffic for the last hour” sort of way. Veteran journalists Muolo and Padilla take you behind the scenes of the sub-prime mortgage business and introduce you to the many players in the business, all of whom carry some blame for the crisis. Most of the action is around former Countrywide CEO Angelo Mozilo and how he pioneered the use of loan brokers whose only interest was in funding loans for quick commissions and not in servicing the products and had no financial decentives for loan failure. Many of the other players in the mortgage end of the business were financial Icaruses, rising high and falling so very quickly. Wall Street’s willingness to take risky loans, package them into asset-backed securities (ABS) for quick turn-around and fast profit also added to the house of cards. If you’re already upset over the crisis, and the lack of accountability over the players, /Chain of Blame/ will only kick your blood pressure up ten points. If you aren’t familiar with just how loose people were playing, and the lack of regulatory oversight that allowed an “anything goes” business system, then this book will bring you up to speed.
