Reddit reviews All the Devils Are Here: The Hidden History of the Financial Crisis

At the height of the subprime boom Fannie and Freddie's business was actually shrinking, while the large private lenders (Countrywide most notably) were expanding. It wasn't uncommon for them to push borrowers who could qualify for conforming 30s into the exotic types of mortgages. The selling, packaging, slicing, insuring and purchasing of loans was an enormously profitable engagement for everyone every step of the way.

Mortgage lenders won every time they handed out a nonconforming loan, which was a lot more valuable than a vanilla 30 year fixed. They did't care about quality because the banks were all but telling them straight out 'we'll buy anything'.

Banks profited on creation and sale of the collateral debt obligations and because the CDOs allowed them to hold less money in reserve to guard against borrower default. They didn't care about quality because they'd turn right around and package the loan into a CDO.

The insurance company AIG was winning on collecting premiums on AAA-rated securities that they thought had no chance in failing. Oh, and they got to be rated AAA because the agencies handing out the grades were paid by the banks. So if Moody's won't give Countrywide the needed grade, then Standard and Poor's across the street surely will.

Hell, even the man on the street profited by using the house's rising value as a piggy bank. Or they just speculated by buying investment property, waiting not too long of a time, and flipping it for a good profit.


If anyone wants to really understand the full extent of the crisis, pick up All the Devils are Here or Michael Lewis's The Big Short. For the tl;dr version you can read this

In no particular order, here are several non-textbooks that were either required or recommended for higher level economics courses that I have taken:

The Big Short: Inside the Doomsday Machine by Michael Lewis

All the Devils Are Here: The Hidden History of the Financial Crisis
by Bethany McLean

Fool's Gold: The Inside Story of J.P. Morgan and How Wall St. Greed Corrupted Its Bold Dream and Created a Financial Catastrophe by Gillian Tett

Zombie Economics: How Dead Ideas Still Walk among Us by John Quiggin

ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism by Yves Smith

You might also have success looking through the "Customers also bought" sections for these books.

I really liked "All the Devils are Here"

If you want unbiased, stay away from Michael Lewis. I love him, but the man loves to spin a good tale.

As a whole we can't blanket say "Banks are greedy", but there is evidence that there was a systemic problem with the banks leading up to and since the subprime mortgage fiasco. The Devil's are All Here outlines this very well.

After the financial crisis I read as much as I could about the subject, I read "All the Devils are here", The Big Short, Too big to fail, Crash of the Titans, The Chicken Shit club and many others. So I'm well aware of the culpability of the ratings agencies. But that doesn't excuse the big banks or their actions like you seem to be implying. The banks knew that the MBSs were stuffed with dog shit subprime loans, yet they also knew by getting a CDO from AIG they could get a Triple A rating. They deliberately gamed the system so individual bankers could make huge short term profits selling MBSs. Yeah, Moody's, Fitch, and Standard and Poor's were incredibly corrupt, but who was corrupting them? The big banks that were paying them. The Big Banks were not innocent players, who naively saw a short term advantage that they could use. They were an active participant, they gamed the system, then paid off the referees.

On your second point, I agree, the financial recession wasn't caused by bankers being malicious or evil, but I do think it was caused by short term greed, and willful ignorance. A see no evil, hear no evil, let's not rock the boat, while a good thing lasts greed.

I'm still very new to the world of finance. I'm learning about all of the derivatives and how money is made off of them, but it's crazy to me that everyone involved neglected the risk aspect of this. In hindsight, it's so easy to explain what was happening. I guess when everyone is making money hand over fist, it's easy to look the other way. Even the federal gov't played a tremendous role in the crash. Looking at that FRED graph is probably the easiest way to explain the ramifications of the crash.

I'm reading All the Devils Are Here right now that was recommended to me by my GF's father. It gives context to the crash in a digestible way, but isn't too dumbed down. I highly recommend it.

The man played for the USA on the "Miracle" team and then went on to become a successful bonds trader. I've learned more from my conversations with him than I think I'll ever learn in school. Dude is brilliant and can go for hours on anything finance related.

Would you mind throwing a few links up if you get a chance? I'm slowing working through All the Devils Are Here and would like to get as broad of a picture as possible of the root causes. Thanks either way for the info.

Start with All The Devils are Here, Amazon will probably recommend you two other books, The Big Short and Too Big to Fail. TBS is obviously what the movie is based on. Then if you want to go even deeper, you can look up the bibliography in all of those books to get an even deeper understanding of the subject matter.

>It's a well documented fact that tons of "AAA" securities were in fact backed by shitty mortgages.

Jesus christ, are you literally brain dead?

Yes, you are right. unfortunately, it was not realized that this was happening until after the crisis was over, meaning that at the time, nobody knew the AAA's weren't actually AAA.

For someone that wants to send people back to school, you seriously lack even the most basic critical thinking skills that are acquired just by living.

>The whole point of the act was to prevent banks from investing deposits in securities.

No, it wasn't. Try actually reading the paper.

the seperation of investment banking and commercial banking by the glass steagall act would have done literally nothing to prevent investment banks from investing in mortgage backed securities.

Tell me, in 2008, when you found out about the crisis, were you still able to go to your bank and retreive your funds? Of course you were, because there was no bank run, thanks to the fed. Guess what the glass steagall act was originally intended for? Preventing bank runs. This clearly wasn't the problem, and thus, the act would do literally nothing to prevent it.

>This was the cause of the first great depression and reason the act was put in place.

Wrong again. Check out the first 2 paragraphs of the wiki entry. They have more knowledge than you do about economics at large, it seems.

Main stream economists widely believe it was due to under consumption, the exact opposite of what caused the 2008 depression, which was over utilization of appreciating home values to refinance, and thus, pay down mortgages.

Furthermore, your link actually doesn't agree with you either. The main cause of ratings agencies slapping AAA on things that didn't deserve it, was the deterioration of underwriting. Guess who created the model for underwriting a MBS? That's right, Goldman Sachs.

>In their book on the crisis — All the Devils Are Here — journalists Bethany McLean and Joe Nocera criticized rating agencies for continuing "to slap their triple-A [ratings]s on subprime securities even as the underwriting deteriorated -- and as the housing boom turned into an outright bubble" in 2005, 2006, 2007.

The big short movie is heavily biased against ratings agencies, and does a very poor job of showing the complete picture. "The devils are here," the book mentioned in your link, does a fantastic job of explaining why the final fault shouldn't lie with them, if you are picking only one player for wrong doing (there were several parties, in reality).

My degree is in financial economics, minor in behavioral studies.

You truly don't understand the 2008 financial crisis, and because you also don't understand 1929 or 1873, you are compounding even more wrong information on top of what you already don't know, and then questioning others education? That's scary.

>Go do some research on the subject matter.

Watching a movie, and reading a wiki article, is not doing research. If you want to do actual research, so you can start spreading information that is actually correct, here are some sources for you to read (NOTE: read, don't use cliffnotes or wiki)

Understanding the 2007–2008 Global Financial Crisis:Lessons for Scholars of International Political Economy

The economist

Themotleyfool (Best public returns on stock market in recent history)

All the Devils Are Here

The big Short (please actually read the book. It's very different from the movie)

Greed, by many parties both governmental and financial.

http://www.amazon.com/All-Devils-Are-Here-Financial/dp/159184438X/ref=sr_1_1?ie=UTF8&qid=1348083276&sr=8-1&keywords=all+the+devils+are+here