In a series of clearly written narratives with many names, dates and figures, [Morgenson and Rosner] show that government officials took actions that benefited well-connected individuals, who in turn helped the government officials. This mutual support system thwarted good economic policies and encouraged reckless ones. It thereby brought on the crisis, sending the economy into a tailspin.
Taylor mentions a few of the specific cases that Morgenson, a veteran New York Times reporter, and Rosner feature. For instance, Countrywide's ties with Fannie Mae:
In the meantime, Countrywide, the mortgage firm led by Angelo Mozilo, partnered with Fannie in originating many of the mortgages Fannie packaged (26 percent in 2004) and gave "sweetheart" loans to politicians with power to affect Fannie, such as Sen. Chris Dodd of Connecticut. The authors write that "Countrywide and Fannie Mae were inextricably bound."
Morgenson has been all over this relationship for a long time. In the fall of last year she provided a report on Countrywide's activities with Fannie that is simply damning:
Outwardly, Fannie and Freddie wrapped themselves in the American flag and the dream of homeownership. But internally, they were relentless in their pursuit of profits from partners in the mortgage boom. One of their biggest and most steadfast collaborators was Countrywide, the subprime lending machine run by Angelo R. Mozilo.
Countrywide was the biggest supplier of loans to Fannie during the mania; in 2004, it sold 26 percent of the loans Fannie bought. Three years later, it was selling 28 percent. What Countrywide got out of the relationship was clear - a buyer for its dubious loans. Now the taxpayer is on the hook for those losses.
But what was in it for Fannie?
An internal Fannie document from 2004 obtained by The New York Times sheds light on this question. A "Customer Engagement Plan" for Countrywide, it shows how assiduously Fannie pursued Mr. Mozilo and 14 of his lieutenants to make sure the company continued to shovel loans its way.
Nine bullet points fall under the heading "Fannie Mae's Top Strategic Business Objectives With Lender." The first: "Deepen relationship at all levels throughout CHL and Fannie Mae to foster alignment and collaboration between our companies at every opportunity." (CHL refers to Countrywide Home Loans.) No. 2: "Create barriers to exit partnership." Next: "Disciplined Risk/Servicing Management" and "Achieve Fannie Mae Profitability Goals." ...
The engagement plan also recommends ways that Fannie executives should mingle with Countrywide's top management, because "fostering more direct senior level engagements with key influencers throughout their organization will be beneficial in ensuring strategic alignment and building organizational loyalty."
Hopefully Reckless Endangerment will put an end to the partisan differences in explanations of the financial crisis. It would be pointless to argue over whether government or Wall Street was responsible for the crisis if they were acting as one.
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