The Subprime Mortgage Mess: How the American Dream Turned into a Nightmare


Best-selling “Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led To Economic Armegeddon,” by Gretchen Morgenson and Joshua Rosner, “calls out greedy guys behind mortgage mess,” according to a USA Today book review by Kathryn Caravan. See also “Home Truths,” by James Freeman of the Wall Street Journal. Both reviews provide examples of how the book peels back layer after layer of a bad onion to reveal how a nice-sounding idea (home ownership for all) turned into a house of cards that was doomed to collapse, after being propped up by private greed and public corruption.

The authors say they are furious that the American economy was “almost wrecked by a crowd of self-interested, politically influential and arrogant people who have not been held accountable for their actions. … We are disturbed that so many who contributed to the mess are still in positions of power or have risen to an even higher rank.”

The book “names names,” the most obvious culprit being James A. Johnson, head of Fannie Mae, who took home millions ($21 million in 1998 alone), and used lobbyists (some of whom were apparently paid just to be unavailable to critics), political connections, and Al Capone-like charitable largesse to maintain Fannie’s government backing and other influential support.

The authors also call out Wall Street banks and rating firms for securitizing loans they knew to be bad, and misrepresenting them as “investment grade,” in order to keep the gravy train going.

Mortgage originators like Countrywide understood their role in the machine, making loans to anyone who was breathing (one executive said the sole criterion for making a loan was whether the person could fog a mirror).

Then there are the complicit politicians: Barney Frank brushing off concerns about people buying more house they could afford saying “We’ll deal with that problem if it happens,” and co-sponsoring the Dodd-Frank financial reform law that left Fannie Mae and Freddie Mac intact; Newt Gingrich lauding Fannie at a corporate event; Deputy Secretary of Treasury Larry Summers quashing a report suggesting Fannie Mae and Freddie Mac be privatized; and the collective shrug of Congress in response to a Congressional Budget Office report “that Fannie and Freddie gleaned about $7 billion in benefits from their government links in 1995, and they kept $2.1 billion for themselves and their shareholders.”

The book also has an index, “so Larry Summers, Donna Shalala, Alan Greenspan, Robert Rubin, Barbara Boxer, Joseph Stiglitz and Tim Geithner won’t have to read all 317 pages to learn how they are portrayed,” writes Ms. Canavan.

Morgenson concludes: “A system where perpetrators of such a crime are allowed to slip quietly from the scene is just plain wrong.” Were any crimes committed? There may be no crime in, for example, the movement of Robert Rubin from head of Goldman Sachs, to Treasury Secretary, to Vice-Chairman of Citigroup, pocketing $100 million as Citigroup imploded as a result of its subprime exposure, as his prot?g?, Timothy F. Geithner, the current Treasury Secretary, looked the other way. However, the revolving door interchange between Wall Street and the federal government played a significant role in fostering the “too cozy” relationships that enabled an economic disaster to occur.

Page Perry is an Atlanta-based law firm has represented hundreds of investors in subprime-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. For further information, please contact us.