Book spreads blame for economic collapse

Financial markets are reeling, and it's not just from Standard & Poor's downgrade of U.S. bonds. The wheels are coming off the economic bus all around the globe — national debt crises in Europe, stagnating markets in developing countries, famine in Africa, and the lingering aftermath of the housing crisis in the United States.

The best explanation of how and why our economic foundations began crumbling is found in "Reckless Endangerment" by Gretchen Morgenson and Justin Rosner. The subtitle is "How Outsized Ambition, Greed and Corruption Led to Economic Armageddon." The authors trace the beginnings of the 2008 economic meltdown to the 1980s and '90s, then walk the reader through the incompetence and corruption that steadily increased the danger factors until the whole flimsy structure collapsed.

Morgenson and Rosner find plenty of blame to spread around. Greed and ambition play major roles as Fannie Mae, the guarantor and financier of most mortgages, became increasingly politicized and self-serving, cooking the books to maximize executives' bonuses and making political contributions to powerful members of Congress who obediently did Fannie Mae's bidding and ignored the fiscal hazards. Almost all members of Congress ignored the warning signs of endangerment and corruption and blindly supported Fannie Mae and its cousin Freddie Mac as they made increasingly risky investments and put the national mortgage structure in danger.

Every political sector can find a villain in this book. For conservatives, it is the hell-bent determination to increase home-ownership rates during the Clinton administration. Riskier mortgage-writing rules began with the Community Reinvestment Act of 1977, which required banks to pro-actively seek out mortgages in poorer neighborhoods and to lend to poorer borrowers. Those mortgages carried greater risk, but Congress and federal regulators ignored these risks for the "greater good" of turning lower-income renters into homeowners. But these riskier borrowers in the emerging "sub-prime" market ended up as the worst-hurt when the financial markets collapsed and mortgages went underwater. No-interest loans, no-documentation mortgages and "liar loans" became parts of the banking landscape.

Liberals can point to the slack regulation of Fannie Mae and Freddie Mac as federal agencies ignored the higher risks these mortgage giants were taking. They can also point to the changes in bank regulation, eliminating Depression-era reforms that limited banks' services and the riskiness of their investments. In the post-Reagan anti-regulation climate, banks got a blank check to delve into all kinds of riskier investments. Among those investments were bundled mortgages put together by Fannie Mae, Freddie Mac, commercial banks and others that could be sold to investors like municipal bonds. But the sub-prime mortgages hidden in these derivatives wound up dragging down the whole package and leading to global economic collapse. Ratings agencies, such as Standard & Poor's, also share the blame because they ignored the riskiness of these bundled mortgages, awarding them AAA status when they were really junk bonds. Powerful politicians who sold their principles to bankers and others in exchange for political contributions also are responsible for the financial morass.

"Reckless Endangerment" is a sobering look at how ineffective and even corrupt our political and regulatory systems are. Even now, Congress concentrates on political gotcha battles over the debt ceiling or gay rights instead of addressing the systemic problems that are destroying our democratic process. If every American could be required to read "Reckless Endangerment," Washington might be forced to reform.