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Fallout: The Financial Crisis

All the Devils Are Here: Everyone was to blame in financial crisis

Marketplace Staff Nov 16, 2010
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Fallout: The Financial Crisis

All the Devils Are Here: Everyone was to blame in financial crisis

Marketplace Staff Nov 16, 2010
HTML EMBED:
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TEXT OF INTERVIEW

Kai Ryssdal: Today’s news on foreclosures that we started with is just the latest reminder that we’re still a long way from being done with the financial crisis. The history of how we got into that crisis is a long one, too.

It’s recounted in detail in a new book by Joe Nocera of the New York Times and Bethany McLean from Vanity Fair. It’s called “All The Devils Are Here.” Also here is Joe Nocera to talk about the book.

Joe, good to have you with us.

Joe Nocera: Nice to be here, Kai.

RYSSDAL: We had this concept during this crisis of systemic risk — how the whole system was vulnerable. The arc that comes through in this book for me is this concept of systemic culpability — it was everybody. It was the regulators, it was government, it was the banks, it was consumers; it’s the whole she-bang.

NOCERA: That’s exactly right. And that’s why we called it “All the Devils,” because it’s not one thing. And the surprise is how they interacted. The regulators pushing back against people who are trying to stop sub-prime lending. The way Wall Street is egging on sub-prime lenders to make worse and worse loans. The way the mortgage brokers are sucking people in with offers of cash refinancing and so on. And everybody gets caught up in it.

RYSSDAL: You and Bethany McLean, your co-author, spent a lot time in the early stages of this book talking about Fannie Mae and Freddie Mac, the government-sponsored entities and their role in creating and helping to create this bubble, and how powerful they are. Give us some inkling of where they came from and how they began.

NOCERA: They began as a way to allow banks and the savings and loan industry to make more loans. The idea is a great idea; it allows for more home ownership, it allows for more capital to be freed up. Over time, they became unbelievably powerful politically, and they became the most powerful force in the mortgage marketplace, especially for prime loans. And part of the thing that we discovered in the book is at least part of the rise of sub-prime lending was a way for Wall Street and industry to get around having to conform to Fannie and Freddie’s rules. Then, as you get further along, Fannie and Freddie start to lose more and more business to the sub-prime lenders, and they think, ‘Oh my god, we have to get into this business too.’ You know, there has been a lot of political hay made about the role of Fannie and Freddie, but we wound up thinking that Fannie and Freddie was not a leader in sub-prime — they were a follower.

RYSSDAL: Let me ask you this, as long as you’ve brought up sub-primes: what good did they wind up doing for us? The banks lost money, people lost their houses — why? Why did this happen?

NOCERA: They turned out to do much less good than they were promoted as doing. And that was always the fact. Sub-prime was supposed to be a way to allow more people to own homes, and that in America is the American dream. We care about that a lot. In fact, the number of new homes that were financed by sub-prime lending was far, far smaller than you would think. Most of the sub-prime lending, in fact, went to refinancing and cash-out refinancing, and you use it for whatever — vacation, who knows.

RYSSDAL: So who led who down the primrose path — was it the bankers or was it the government? What happened?

NOCERA: Certainly the government, both ideologically, in terms of believing in home ownership, and as a practical matter, refusing to allow anybody to do anything about sub-prime lending, it is one of the villains here. Certainly the sub-prime companies. And then the big banks, buying up these lousy mortgages, bundling them, selling them off to investors, knowing they were lousy — you know, it’s too strong to say it’s a grand conspiracy, but it went well beyond delusion into areas where people knew things that were bad were happening and they did nothing to stop it.

RYSSDAL: I wanted to ask about the current foreclosure crisis, that whole paperwork mess. As you were reporting and writing this book, did you see it coming?

NOCERA: I didn’t know the paperwork mess, per se, was going to happen, but you know, in talking to servicers and in talking to banks, it was so obvious that we were going to have a foreclosure fiasco, the likes of which the country has never seen before. And what we were thinking about, as we were reporting the book, was the destruction-wrought neighborhoods. My co-author Bethany spent a lot of time in Cleveland, which was one of the real early warning signals, and she talked to a lot of people there who kind of said, ‘Look how bad it is now. And we saw this coming and we tried to say things and nobody would listen.’

RYSSDAL: Joe Nocera is the author with Bethany McLean of the new book, “All the Devils Are Here.” It’s about the long lead-up to, and the history of the financial crisis. Joe, thanks a lot.

NOCERA: Thank you Kai.

RYSSDAL: We’ve got more on a new feature on our website, it’s called The Big Book. You’ll find an excerpt from the book, “All the Devils Are Here.” You can post some comments too, even ask Joe Nocera a question and hear his co-author Bethany McLean talking to our morning show guys.

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