27 November 2014 THE BULLIES OF WALL STREET by Sheila Bair, Simon & Schuster, April 2015, 272p., ISBN: 978-1-4814-0085-5

“Money, it’s a gas

Grab that cash with both hands and make a stash”

-- Pink Floyd (1973)

“Then something called ‘securitization’ happened, which dramatically changed the way people got home loans. With securitization, big financial institutions would pool together thousands of mortgages and put them into something called a trust. Investors--usually other big financial institutions like pension funds, insurance companies, and mutual funds--would pay for pieces of these trusts, which gave them the right to receive some of the loan payments. These pieces were called ‘mortgage-backed securities.’ Because of securitization, money for the mortgages didn’t have to come from banks lending their deposits anymore. So lots of people got into the business of making mortgages…

“But even more importantly, the people arranging the mortgages didn’t really have a reason to care if the borrowers could pay the loan back because they were just passing them on to big securitizers who were, in turn, selling interests in the loan payments to other big institutions...These ‘mortgage originators’...figured out quickly, the more loans they made, the more they got paid, so they started originating as many as possible, without regard to whether people could pay them back…

“Greed overtook the process, and mortgage originators started getting the idea that it was actually a good thing to make loans to people who couldn’t repay them, because that would force them to get another loan to pay off the unaffordable one.”

Six years have now passed since the dominoes began teetering and the U.S. government hastily bailed out the country’s largest financial institutions. Their futures and the nation’s entire financial system were threatened by the epidemic of greed described above. This greed resulted from the government deregulation that radically changed the system through which Americans sought home loans.

Now, in 2014, the nation’s economy is still far from being fully recovered. Why did this all happen? How has the Financial Crisis of 2007-8 affected millions of families around the country?

Former FDIC chairperson Sheila Bair has written a provocative book that begins with Illustrative fictional vignettes about the impact of the Financial Crisis upon young people. She provides clear explanations of what happened systemically to cause the Financial Crisis. She then details how, during her five-year term as chair of the Federal Deposit Insurance Corporation, she was involved in the government’s efforts to avert a catastrophic collapse of the U.S. economy. And she explains what young people are facing in the long-term as a result of the Crisis.

Bair does not hesitate to point her finger at those in the revolving door of big business and government regulation who bear responsibility for engineering the deregulation.  She graphically details how, even in the face of national disaster, they continued to put themselves and their cronies ahead of the common good.

“‘Your money’s in Joe’s house,’ [he says to one man] ‘right next to yours,’ [he says to another] ‘and in the Kennedy house, and Mrs. Backlin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay it back to you as best they can.’”

-- James Stewart, From the bank run scene in the 1946 Frank Capra film “It’s a Wonderful Life”

In 1933, President Franklin Delano Roosevelt created the Federal Deposit Insurance Corporation to help save the banking system and rescue the national economy during the Great Depression. It proved to be one of the great successes of the New Deal.

But now with so many characters in the mortgage originating business, and with securitization, the bank-regulating FDIC only oversees a slice of the home loan action. This means that the author couldn't control everything that was going on and was merely one of numerous players on the government side of negotiations as the system teetered on collapse.

Bair’s account of what happened is riveting and frequently anger-inducing. It is so clearly written that middle- and high-school students will readily grasp the otherwise intimidating subject matter. And, as someone with a business degree who learned a great deal from her eye-opening story, I can tell you that plenty of adults can similarly benefit from giving this one a read.

Richie Partington, MLIS

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