Book Review – The End of Wall Street by Roger Lowenstein
By Travis Kent
The End of Wall Street is the most complete historical account of the sub-prime mortgage crises that I have seen. Roger Lowenstein conducted 180 interviews with government officials, wall street power brokers and heads of industry. The result is an easy to read and follow account of the time lines and decisions that helped lead the U.S. to it’s current economic state.
Mortgage lending in the U.S. has predominantly been an upfront money down, 30 year note market. Lenders (mostly bank’s at this time) historically adhered to tight underwriting standards and rarely took chances with their long term credit decisions often requiring as much as 33% down payment. In about 1960, along came the Beneficial Loan Society. Beneficial was not a bank and hence were not regulated. They were a precursor to credit cards as they made their hay by lending to homeowners for furniture, home appliances and such. If the borrower defaulted, beneficial would repossess the item. By 1960, Beneficial entered the mortgage market. Lending to those with weaker credit and accepted only 20% down payment. These were the early days of the sub-prime mortgage market.
What Roger Lowenstein captures is not just the high risk, profit hungry mindset of 90′s and 2000′s wall street banks and lenders. He also reveals the basis of wall street greed. Exotic mortgage backed securities packaged for sale to high worth and institutional investors. He provides insight by recapping the events that led to corporate bankruptcy and wall street brokerage failures. He goes behind the scenes with Federal Reserve Governors, Treasury Secretaries and CEO’s of long time stalwart wall street investment firms and provides a frightening disregard for conservative principles and basic common risk reward analysis.
Before we all rush to judgment and blame solely corporate and government greed, we also need to look at the demand for these products by consumers. As Lowenstein writes:
“The business (subprime mortgages) took off in states, like California, where housing was least affordable. Subprime catered, if not to the poor, then at least to the emergent middle class, the striving middle, and the upwardly covetous middle.”
“Eager Lenders such as Countrywide and New Century were hailed as suburban Johnny Appleseeds, planting mortgages in every backyard. ”
In the end, Lowenstein has provided us if nothing else, a fantastic work to provide future generations with historical perspective. His book is well written and, easy to read and although his timelines jump around as he changes perspectives, it is easy to follow.