Business Books

The 30-year history of the 2007-09 financial crisis. How Wall Street fed the sleazy subprime-mortgage industry

By Andrea Sachs; Bill Saporito Monday, Nov. 22, 2010
    • Illustration by Kelly Blair for TIME

    All the Devils Are Here: The Hidden History of the Financial Crisis
    Bethany McLean and Joe Nocera
    (Portfolio/Penguin; 380 pages)

    When the financial crisis of this decade is being taught in business schools in the next, All the Devils Are Here could be the textbook. Bethany McLean and Joe Nocera methodically reconstruct the 30 years that culminated in the Great Recession, years in which Wall Street's relentless greed and Washington's delusional regulators jointly built a time bomb — and thwarted any attempt to disarm it.

    We are familiar with the blast's wreckage: WaMu, Bear Stearns, Countrywide, Lehman. But the details in Devils tell us that every culprit of the meltdown — lax risk management, crooked subprime lenders, risky bonds — had a precursor. We didn't learn from history, and we repeated it, catastrophically.

    Devils does its best work in connecting the culpable — from Lewis Ranieri, a creator of mortgage-backed securities in the late '70s, to Fannie Mae boss David Maxwell, who paved the way for the agency to buy mortgage bonds in the '80s, bonds graded AAA in the 2000s by outfits like Moody's, whose CEO, Brian Clarkson, fouled a proud corporate culture by whoring ratings for earnings. Former Fed chairman Alan Greenspan's rep takes one more ding in the slapdown of Brooksley Born, the commodities regulator who had the temerity to suggest that derivatives be regulated. She lost, and we lost, when derivatives blew up the whole system.

    The depth of reporting is enormous. Nocera, a New York Times columnist, can take apart businesses as well as anyone. McLean, a former securities analyst turned journo (both were colleagues of mine at FORTUNE) famously exposed Enron's profits as phantom.

    If anything, the weight of the reporting makes Devils a little slower than some of the other breathless tell-alls about the crisis. But it's a small price to pay for this level of illumination. — by BILL SAPORITO

    The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America — and Spawned a Global Crisis
    Michael W. Hudson
    (Times Books; 365 pages)

    Of all the rapacious and repulsive players in the financial meltdown, none were more rapacious and repulsive than subprime-mortgage lenders. And according to Michael Hudson, clinging to the bottom of that cesspool was Ameriquest Mortgage. "We are all here to make as much f______ money as possible. Bottom line. Nothing else matters," he quotes from an Ameriquest manager's e mail.

    The subprime industry put millions of people in lousy, high-cost mortgages because it had help. Hudson follows the trail of loans to borrowers with insufficient income, collateral or documentation — or all three — through "the mortgage-financing pipeline that began with Ameriquest and extended through Wall Street's most respected investment houses."

    Whereas much of the reporting of the economic meltdown has been focused on Wall Street, Hudson has a talent for describing what was happening on the ground. He takes us on a tour of the financial carnival tent pitched by subprime factories like Ameriquest. The place was characterized by sleazy lending pitches and fraudulent techniques up front, while behind the scenes there was booze, cocaine and strippers, plus a ton of money for motivation. The loan officers hired were young and unseasoned so they would be more ethically malleable.

    We also meet the man behind of much of our subprime madness: the late Roland Arnall. Mysterious, indulgent and ultimately fabulously rich, he not only founded Ameriquest but also trained cronies who would form other subprime ventures.

    The book zeroes in on the relationship Ameriquest had with Lehman Brothers — the biggest subprime enabler. Ameriquest and its related companies packaged more than $170 billion in subprime loans into mortgage-bond deals. Lehman went bust. Ameriquest settled its biggest class action for $295 million. Did some people borrow beyond their means? Certainly. But as Hudson demonstrates, the public was no match for an industry that lived off deceit fueled by Wall Street. — by ANDREA SACHS