Saturday, July 20, 2013

Book Review: Reckles$ Endangerment

Copyright © 2013, Steven E. Houchin. All rights reserved.

The financial crash of 2008 was a failure of professional integrity, political courage, and government policy. That is the takeaway message I received after reading Reckles$ Endangerment, a non-fiction work by Gretchen Morgenson, a Pulitzer Prize-winning business columnist for the New York Times, and Joshua Rosner, a financial adviser on housing and mortgage issues. Before reading the book, I had heard it said that anyone who read it “would never vote Democrat again.” Now I know why that is said.

The inciting incident that set into motion the 2008 calamity begain in 1994, when President Bill Clinton launched the National Partners in Homeownership program (referenced here as the Initiative), which sought to increase home ownership in America through a partnership among home builders, banks, realtors, Wall Street firms, and dozens of housing interest groups around the nation. Those targeted by the Initiative were primarily the poor, who would supposedly benefit by lower construction costs by builders and “creative financing” offered by lenders.

Ultimately, the push for creative financing had a corrosive effect on the mortgage industry as a whole. Many lenders viewed Clinton’s Initiative as permission to lower lending standards to reckless levels, and saw an opportunity to become wealthy along the way by significantly increasing the volume of mortgages pumped through their firms.

James Johnson was one of those who saw an opportunity for amassing wealth via the Initiative. He gained experience with the workings of Washington as an advisor to Vice President Walter Mondale and other prominent Democrats. He was appointed to an executive position at Fannie Mae in 1990, and soon became its chairman. Seizing upon the Initiative, he refocued Fannie Mae to lower lending standards while at the same time increasing profits to justify huge executive bonuses.

Fannie Mae is a quasi-government corporation that buys mortgages from lenders and repackages them into an investment instrument called a Mortgage-Backed Security. As the largest firm doing this, Fannie Mae historically set lending standards for the industry. These securities pay interest and are backed by the taxpayer. Banks, brokerages, pension funds, and others made large purchases of these securities as other fixed-income interest rates fell in the late 1990s and early 2000s. With the arrival of James Johnson as chairman, the book describes how Fannie’s lending standards were reduced, using Clinton’s Initiative as the excuse. That action rippled through the mortgage industry, creating a culture of recklessness that resulted in completely unqualified home buyers obtaining loans they could never pay.

Seeing the profits flow into Fannie Mae, Wall Street firms jumped into the Mortgage-Backed Securities business with a seemingly insatiable appetite for buying loans to repackage and sell. In their case, however, taxpayer guarantees were not available, so they turned to AIG (American International Group), a giant insurance company, who sold to these Wall Street firms something called a Credit Default Swap for mortgages - an instrument that was neither an insurance policy nor an investment - that would supposedly pay if the loan went into default. In any case, AIG kept few cash reserves on hand to pay out claims. After all, real estate was not considered a risk. In fact, the prominent credit ratings firms considered Mortgage-Backed Securities so safe they received a better than AAA rating - the best of the best.

Of course, the politicians don’t escape blame in this saga. Chief among them - but hardly alone - was Congressman Barney Frank (MA) who served as the ranking Democrat on the house Banking Committee. He, along with most other Democrats and a few Republicans, were staunch defenders of Fannie Mae’s risky lending practices, partly to support Clinton’s Initiative, but also due to Johnson’s skillful lobbying efforts. All attempts by regulators and the Bush Administration to sound the alarm were rebuffed. Interestingly, the Republicans, and especially the much-maligned President Bush, are mentioned very little in the book; the disastrous policies that led to the Initiative - and those who supported it politically - were mostly Democrats.

Reckles$ Endangerment goes on to detail the various shady operators that infested the mortgage industry as the Initiative firmly took root. It also names politicians who repeatedly issued denials that a financial crisis was building as the housing bubble grew. The Federal Reserve’s role is also examined, where they kept interest rates excessively low in the wake of the post-9/11 recession, even after economic recovery had occurred. Morgenson and Rosner’s writing style makes the book a compelling read, and the financial jargon is not too heavy that it can’t be digested. Anyone who wants to know the real facts of how all that Wall Street greed came about should definitely read this book.

It's Real Life, For Once - Part III

Copyright © 2013, Steven E. Houchin. All rights reserved.

Shame on me for not following up my last posting on this subject from July 2011, where I teased about my real-life story of a letter I wrote in 1962 while in kindergarten. The letter, addressed in my child's scrawl, was returned to me by a cousin unopened in the spring of 2011. The story of its journey and what it contained was published by a local newspaper in the fall of 2011.

To finish the story here: I held onto the letter for several weeks without opening it, until I had the chance to get together with my sisters and we could all share in the surprise of what it contained. The postmark gave a small clue: October 31, 1962 - Halloween. What in the world had I sent my grandmother for Halloween?

While gathered around a table in a restaurant with my family, I carefully slit open the envelope with my pocket knife and pulled out a single sheet of paper that had been folded over twice. Unfolding it revealed a crayon drawing of a pumpkin with my name written at the top! As best I can guess, it was that day's kindergarten assignment, and my mother must have suggested we send it to her mother, who lived in a rural town about 30 miles away. Why grandma never opened it, yet saved it all those years is a mystery I'll never be able to solve.

Tuesday, January 29, 2013

Great Movie Plot: "Derailed"

Copyright © 2013, Steven E. Houchin. All rights reserved.

I saw a great thriller the other day: the 2005 movie Derailed, directed by Mikael Håfström. So many movies that bill themselves as thrillers disappoint, with predictable and overused plots -- or violence and special-effects masquerading as a plot -- and characters that are a bit too heroic for ordinary mortals. Derailed thankfully avoids that.

Really great mystery/thrillers fool the reader into thinking they know what's coming next. The protagonist starts out as an innocent Joe who is sucked into violent or dangerous circumstances beyond anything he's encountered before. As the story progresses his life is thrown into turmoil. But little by little, he becomes hardened and more savvy. He learns to fight back. And there's a plot twist.

In Derailed, Charles, a married man with a chronically ill daughter, meets a sexy woman named Lucinda (Jennifer Anniston) on a commuter train. Within a few days, their innocent encounters go further, drawing them to a cheap downtown hotel room. But as they are about to consummate their adulterous act, a thug bursts into the room to rob them. Charles is beaten into unconsciousness and the woman is raped. Later, she refuses to allow Charles to call the police; her husband will divorce her and take away the children.

But, the criminal isn't done with them: he has their wallets and knows where they live. He demands money. Charles pays, thinking that will end it, while desperately trying to conceal the affair from his wife. But the harassing calls keep coming, as do the demands for more blackmail money. He takes Lucinda hostage, demanding $100,000. Charles feels guilty that Lucinda was raped, and will pay anything to protect her.

Charles enlists the help of an ex-con he knows, who works in the company mail room. The ex-con's plan is to frighten the blackmailer with a gun when the money is to be paid. Instead, he is murdered while in the car with Charles. Charles escapes, but the police are now investigating the murder and question him.

As the story nears the end, we discover the robbery and blackmail are not what they seem. Charles becomes suspicious when Lucinda vanishes, and finds she didn't have the high-powered job and family she claimed. He soon discovers she and the thug are a team of scam-artists, and Charles was their latest mark. He then hatches his own plan to trap them in their next scam.

The plot twist -- the scam -- comes as a total surprise because the viewer has invested so much sympathy in Lucinda. Charles' character is slowly transformed from a naive, frightened victim into a determined, cunning schemer bent on revenge. In the final scene, where the sneering thug has Charles right where he wants him, Charles turns the tables, and the thug realizes he's the one who has been set up, making for a thoroughly satisfying ending.

Friday, January 25, 2013

Book Review: The Chase, by Clive Cussler

Copyright © 2012, Steven E. Houchin. All rights reserved.

The Chase, written by Clive Cussler, is the first offering in his Issac Bell series. It is set in 1906, where Bell is an ace detective for the Van Dorn detective agency of Chicago.

The plot centers around a clever bank robber who murders all witnesses in the target bank, earning him the nickname Butcher Bandit. The crimes take place mostly in small western mining towns on the very day a large payroll lies in the vault. His escapes bewilder local authorities; he seems to vanish without a trace.

Issac Bell and the Van Dorn agency are called in to solve the case. Bell is independently wealthy, heir to a Boston banking dynasty, who foregoes the banking business to instead chase criminals for Joseph Van Dorn’s agency. Working from the Denver office, he assembles a small team of detectives and sends them off to the affected towns to scour for any information that may help. They gather a few sparse clues that eventually lead them to San Francisco, drawing them tantalizingly close to their villain.

The Chase contains many enjoyable historical details about towns in the West, the railroads, and the raunchy lifestyle of San Francisco. A few historical characters make cameo appearances, such as author Jack London. And, of course, the climax coincides with San Francisco’s 1906 earthquake.

The book begins and ends in April 1950, where a salvage crew attempts to raise a submerged train from Flathead Lake, Montana. As the 1906 plot unfolds, the reader is drawn closer and closer to the event in Montana that results in the sunken train.

The plot is excellent, pulling the reader forward from chapter to chapter. However, the writing itself is somewhat crude, especially Cussler’s annoying overuse of adverbs with dialog tags. Phrases like “she said sincerely” or “he said pessimistically” litter the pages by the dozens and dozens. Also, I found several obvious errors, such as using the wrong person’s name on dialog tags or in narration, leading me to believe this book was never professionally edited before publication. These flaws aside, The Chase is a good read for a lazy weekend.