By Viral V. Acharya, Matthew Richardson, Stijn Van Nieuwerburgh & Lawrence J. White, Princeton University Press, $24.95, 232 pages
Guaranteed to Fail is a scholarly work that lays the main fault for the 2007 financial failure at the feet of government- sponsored-enterprises Fannie Mae and Freddie Mac. The Authors lay out a detailed case of how government agencies, even though privatized prior to the crash, distorted the market due to implied government support, led the race to the bottom in mortgage lending handling, and grew to big to fail.. Once again, a Governments’ good intentions run amuck.
The book is dense with acronyms, charts, tables and footnotes and can be pretty intimidating for the merely curious. The chapters are sub numbered (5.5, 7.1.1) which should facilitate note taking for serious study. Also, some underlying understanding of the subject is assumed, for instance in this sentence: “Moreover, counterparties of Fannie and Freddie in a derivative contract might need to re-intermediate the contract right away, as it might be serving as a hedge of some underlying commercial risks.“ It is not all gobbledygook, but be prepared. For gaining that understanding, I recommend The Big Short, by Michael Lewis, which deals mostly with the private sector side of the crash, but does so in a rather more accessible style.
All in all, I started out as a skeptic who thought oh, all these people are is Government bashers, but in the end, I think they pretty well made their case. They also come up with possible solutions to the systemic problems of mortgage finance which are good but, unfortunately, stop short of suggesting actually making good loans.
Reviewed by Norman West