I don't know how exactly how many financial meltdown books but I think the correct characterization is "a slew." So I really wasn't prepared to find so much that is new and refreshing--so many answers to questions barely articulated--as I'm garnering from Joe Nocera's and Bethany McLean's All the Devils are Here. I downloaded the free Kindle sample last night and read it at a gulp: I'm on my way to pick it up again as soon as I finish this.
But I just have to salute them now for the deft elegance with which they are putting so much in order. Example: the "non-bank banks." We've all uttered that phrase, often, I suspect, with the uneasy sense that we didn't know how the hell we acquired a non-bank-banking sector. So try this: securitization. Once Wall Street (and Fannie/Freddie) churned up an appetite for securitization, they were willing to pay mucho bucks to the originators to buy mortgages. With money from Wall Street, the originators found they didn't need depositors any more. And--hey, wait a minute, if we don't have depositors, we're not a bank!
Another: I have been (and I guess I remain) an insistent fan of securitization per se, but N and M offer a succinct exhibition of the perils. For starters, securitization is neat insofar as it allows diverification. But tranching which seems almost to have been twinned with securitization at birth, undercuts the whole purpose and meaning of diversification. You wind up telling yourself you've stabilized the market when you've changed nothing or in fact made it worse. More: securitization means offloading your paper onto a quadrant far away--which necessarily saps your motivation to be careful (I think this is a "moral hazard" issue that is tied to securitization's character as insurance). And still more: the securitization model gives you deniabillity, sex without babies. Imagine our surprise that our transferors had bad mortgages. Imagine, right, you set it up that way.
M and N also do an elegant job of catching the difference in style between Roland Arnell of Ameriquest and Angelo Mozilo of Countrywide. Mozilo is the scrappy street kid who couldn't conceal his animosity for the toffs at the banking high table. Arnell was far subtler and smoother on the surface--he bought himself an ambassadorship--yet it was Arnell who flourished in the milieu of the "hard money business"--the bleak nether world of pawnships, payday lenders, "small loans" and suchlike. In the end, ironically, it probably didn't matter: each in his own way was a catastrophe for the world economy.
That's the first couple of chapters. Can't wait to find out what happens next, although I suspect it is not going to end well.