• Roger Lowenstein, The End of Wall Street. New York: Penguin Press, 2010, 298 pages, $27.95
For months now, the news has been filled with the crash of the stock market and corporate bailouts by the federal government. Blame has run rampant. But what happened and who was at fault? The bits and pieces in the news failed to satisfy my curiosity, so I began hunting for more information and I happened to stumble on economic journalist Roger Lowenstein’s book, The End of Wall Street.
As I started the book, I was more than a little intimidated by Lowenstein’s list of 104 individuals in his Cast of Characters. However, the list does come in handy and I referred to it many times. One advantage of this approach is that it allows Lowenstein to present background information about the major actors in the saga of the Wall Street collapse, putting a face on the players and breaking up a very complicated story.
Few of Lowenstein’s players are presented in a favorable light, including the two Federal Reserve chairmen. The Wall Street CEOs are often arrogant and ignore reality. Unfortunately, the few who sounded the alarm about the looming financial crisis were ignored or fired.
Another hurdle is the maze of acronyms. From A to Z, every letter of the alphabet seems to be represented. I made a list to keep them straight.
The book is about greed, and it is also about the change in borrowing habits of Americans. Lowenstein notes that after World War II, “families kept their borrowings to about a fifth of their disposable income.” Even by 1970, Lowenstein states, “households’ debts were significantly less than their earnings. Now, though, the average family owes one third more than they earn.”
From the historic change in Americans’ attitude toward debt, Lowenstein chronicles the 1980s, 1990s, and the first decade of the 21st century, featuring the personalities and the financial dealings that led to the Wall Street crash in 2008. His is a story of an entire society — including individuals, banks, Wall Street, and government — showing a total disregard for indebtedness, spending, and investment. At one point, Lowenstein says, “they” — meaning everyone — “ignored common sense.”
Local lenders ignored common sense when they granted subprime mortgages to people who had credit scores lower than 600; under normal circumstances, those scores would have disqualified anyone from receiving a regular mortgage. Lenders also issued mortgages to people who had no down payment and never verified their stated incomes. When the housing bubble burst, mortgagees who owed more than their homes were worth often walked away from these homes, at times destroying them and stripping them of appliances and light fixtures.
Wall Street was no better. Denying the fact that a housing bubble existed, financial firms bought millions of dollars of subprime loans without verifying their viability. Investors ignored the signs that the bubble was bursting and continued to buy subprime loans.
Lowenstein says the government caused the housing bubble and the crash by perpetuating the notion that everyone should own a home.
In 2007, when Treasury Secretary Henry Paulson tried to rein in two of the major players in the mortgage meltdown, Fannie Mae and Freddie Mac, congressional Democrats, who controlled the responsible committees — Rep. Barney Frank and Sens. Chuck Schumer and Chris Dodd — refused to let Paulson act. Dodd refused to even meet with Paulson. Lowenstein also recounts the failures of the Securities and Exchange Commission and the Federal Reserve. All the government regulation tasked to oversee Wall Street and the economy failed to prevent the meltdown.
Lowenstein’s book is not an easy read, but it provides in-depth information allowing the reader to understand the events and the cast of characters that led to the Wall Street collapse of 2008.