The Greatest


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

By: Joe Nocera

Joe Nocera is an American business journalist and author. In the late 1970s he was an editor at the Washington Monthly. In the late 1980s he was an editor at Newsweek. He became a business columnist for the New York Time in April 2005.

The New American System’s Powerhouse

By: Nicolas Azoulay

Anyone that knows anything about the economy knows that there is one factor that goes into economic growth. People need to be making money so that they can spend it. This ideal lies in the hands of industries. Spending gets the economy going. When people aren’t spending and businesses are losing money they can’t employ as many people. In simpler terms, it’s a cycle of business.. Just as the economy relies on spending, investors rely on fundings and risks. “Though a thirty-year fixed mortgage may seem simple to a borrower, mortgages come full of complex risks for investors”(50). As shallow as it may seem, investors and brokers take advantage of the cycle of cash in our economy everyday. This ideology is a largely discussed topic in the novel, All the Devils Are Here: The Hidden History of the Financial Crisis, written by Bethany McLean and Joe Nocera, as the housing market industry declined and led our country into one of the greatest recessions in U.S. history. The novel discusses how our economy works in relation to fundings, and what exactly led to the financial crisis in late 2007 and later what was known as the Great Recession.

All the Devils Are Here: The Hidden History of the Financial Crisis, a novel written by Bethany McLean and Joe Nocera, describes how they interpret and reveal the truths about the causes of the financial crisis in the United States in 2007. The true causes of the financial crisis are explained in chronological order. First, McLean and Nocera discuss how the banks created too much money and used the money to push up house prices and speculate on financial markets. Then, the debts became unpayable, causing a financial crisis. It began in 2007 with a crisis in the subprime mortgage market in the U.S. This later developed into a full-blown international banking crisis following the collapse of the investment bank, Lehman Brothers, on September 15, 2008. Excessive risk- taking by banks, such as Lehman Brothers, helped to magnify the financial impact globally. Massive bailouts of financial institutions and other policies were enacted to prevent a possible collapse of the world financial system. The crisis was nonetheless followed by a global economic downturn called the Great Recession. The European debt crisis, involving the banking system of the European countries using the Euro, followed later. The basis of what caused the financial crisis is the main focus in the novel; however, McLean and Nocera go into much more depth about what organizations and what people truly caused this crisis.

The two authors begin explaining the history that caused the financial crisis to have started. It all started over 30 years ago when “The Three Amigos,” stated to be three smart, ambitious men, created what is known as the mortgage- backed security, a financial powerhouse. This allowed Wall Street to collect loans made to people who were buying homes, bundle them together by the thousands, and then resell the bundle, in bits and pieces, to investors. Lewis Ranieri, the well- known bond trader who ran the Salomon Brothers mortgage desk, and whose role in the creation of this new product would be immortalized in the best-selling book Liar’s Poker, was one. Larry Fink, his arch- rival at First Boston, would later go on to found BlackRock, one of the world’s largest asset management firms, and who served as a key adviser to the government during the financial crisis, was another. David Maxwell, the chief executive of the Federal National Mortgage Association, a quasi-governmental corporation known as FannieMae, was the third. With varying degrees of fervor they all thought they were doing something not just innovative, but important. All these men knew that fortunes were at stake and what they were proposing could seriously danger the economy and millions around the U.S. At around the same time, Congress created FreddieMac to buy up mortgages from the thrift industry. Again, the idea was that these purchases would free up capital, allowing the S&Ls to make more mortgages. Until 1989, when FreddieMac joined FannieMae as a publicly traded company. Freddie was actually owned by the thrift industry and was overseen by the Federal Home Loan Bank Board, which regulated the S&Ls. People in Washington called Fannie and Freddie the GSEs, which stood for governments sponsored enterprises. A year later, FreddieMac issued the first mortgage- backed securities using conventional mortgages, also with principal and interest guaranteed. In doing so, it was taking on the risk that the borrower might default, while transferring the interest rate risk from the S&Ls to a third party- investors. Soon, Freddie was using Wall Street to market its securities. It was not a huge success due to the lack of volume growth.

The authors go on to analyze the birth of mortgage-backed securities by claiming it didn’t just change Wall Street and the GSEs. It changed the mortgage business on Main Street, too. Mortgage origination—the act of making a loan to someone who wants to buy a home—had always been the province of the banks and the S&Ls, relied on savings and checking accounts to fund the loans. Securitization promoted that business model. These new mortgage originators were of two distinct breeds—only at first. One set of companies originated fairly standard loans to people with good credit, which they sold to Fannie and Freddie; Countrywide Financial was a good example of that kind of company. The second group had very different roots. They grew out of what was known as hard-money lending—lending made to poor people, primarily. (“Hard money” refers to the large down payments its customers had to make, even for a basic item such as a refrigerator.) These new companies moved hard-money lending into the mortgage market, making loans that would eventually become known as subprime. They couldn’t sell to the GSEs, because for a long time, the GSEs wouldn’t buy such risky mortgages. On the other hand, this influx of new lenders created exactly what Wall Street had been searching for: mortgage products it could securitize without Fannie and Freddie.

The final portion of the novel is where the two authors truly put together the pieces of how the financial crisis really came to be. The American economy is built on credit. Credit can expand corporations, as well as create jobs. Credit was and still is one of the most important keys to our society. But in the last decade, credit went unchecked in our country, and it got out of control. Mortgage brokers, acting only as middle men, determined who got loans and then passed on the responsibility to others in the form of mortgage- backed assets (after taking a fee for themselves originating the loan). Risky mortgages became commonplace and the brokers who approved these loans absolved themselves of responsibility by packaging these bad mortgages with other mortgages and reselling them as “investments.” Thousands of people took the risk of taking out loans that they had no idea if they could even ever be able to afford. A lot of people got rich quickly and people wanted more. Before long, all you needed to buy a house was a pulse and your word that you could afford the mortgage. Brokers had no reason not to sell you a home. They made a cut on the sale, then packaged the mortgage with a group of other mortgages and erased all personal responsibility of the loan. But many of these mortgage- backed assets were ticking time- bombs that just went off. According to the two authors, this caused the housing market to decline and then the credit well to dry up. The Economic Bailout was then created to increase the flow of credit. The novel ends with an interpretation of the American financial system and what it’s built on, as well as how it could be maintained.

The two authors state that the main cause of the financial crisis had really began over three centuries earlier when, “The complicated interplay that evolved between Wall Street and these two strange companies—a story of alliances and feuds, of dependency and resentments—gave rise to a mortgage-backed securities market that was far more dysfunctional than anyone realized at the time. And out of that dysfunction grew the beginnings of the crisis of 2008” (45). These two companies were Fannie Mae and its sibling, Freddie Mac, the Federal Home Loan Mortgage Corporation.

Joe Nocera, New York Times columnist and co-author with Bethany McLean of All the Devils Are Here, talks with EconTalk host Russ Roberts about the origins of the financial crisis. Drawing on his book, Nocera identifies many people he considers devils for contributing to the crisis and a few angels who tried but failed to stop it. The discussion covers the history and development of securitization and the peculiar incentives created by securitization and the relative lack of regulation of the securitization process. The conversation also includes a discussion of whether past bailouts contributed to the crisis. Both the authors being journalists and being experts on the subject of the financial crisis, puts them in a perfect position to write this novel. In the late 1970s he was an editor at The Washington Monthly. In the 1980s, he was an editor at Newsweek; an executive editor of New England Monthly; and a senior editor at Texas Monthly. Nocera was the “Profit Motive” columnist at Esquire from 1988 to 1990 and wrote the same column for GQ from 1990 to 1995. He worked at Fortune from 1995 to 2005, in a variety of positions, finally as editorial director. He became a business columnist for The New York Times in April 2005. In March 2011, Nocera became a regular opinion columnist for The Times’s Op-Ed page, writing on Tuesdays and Saturdays. He is also a business commentator for NPR’s Weekend Edition with Scott Simon. In November 2015, Nocera’s began writing in the sports page of The Times. Executives at The Times cited Nocera’s interest in sports, specifically injuries to student athletes and business issues in college athletics, as the reason for reassignment to the sports page from the Op-Ed page. In his last column on the Op-Ed page of The Times, Nocera offered his views on several issues unrelated to sports including gun control and Michael Bloomberg’s involvement with the issue, Supreme Court terms, education in the United States, e-cigarettes, and election day in the United States. In January 2017, Nocera began writing a column for Bloomberg View on business, political and other subjects as of the first two month.[5]

He lives in New York City. Not only has the main author of the novel dealt with the subject for many, many years and had much experience in this field, but the year they wrote the novel, in the late 2000s allows them to really touch back on the complete history of what led up to the crisis and what had caused it.

Reviews on the novel show how the authors ambitiously break down the the causes and what lead to the crisis. New York Time’s review on the book even claims that, “Two of our finest business journalists have written a thorough account of the origins of the financial crisis of 2008. More than offering just a backward look, it helps explain the most troubling business headlines of the moment, as well as those that are certain to come” (NY Times). The New York Time’s review even goes on to say that, “The authors show that beginning back in the 1970s, the simple transaction of a bank collecting monthly mortgage payments got caught up in a far more complicated Wall Street invention”(NY Times). The reviews on the book show how in depth the two authors go on the subject. The authors show the reader that our system works like a cycle based off fundings which investors base their risk and chances off. However, this ideal could lead to problems if not done properly. Understanding many business terms is extremely important to completely understanding what the story encaptures. The novel written by these two authors, has earned its named in the past years and has even been a best seller.

What was known as one of the greatest crisis since the Great Depression, originating back to the 1930s, the financial crisis had become one of the most important topics of the century, as the crisis ha descended into a recession. As soon as the financial crisis erupted, the finger-pointing began. Should the blame fall on Wall Street, Main Street, or Pennsylvania Avenue? On greedy traders, misguided regulators, sleazy subprime companies, cowardly legislators, or clueless home buyers? According to Bethany McLean and Joe Nocera, two of America’s most acclaimed business journalists, the real answer is all of the above-and more. Many devils helped bring hell to the economy. And the full story, in all of its complexity and detail, is like the legend of the blind men and the elephant. Almost everyone has missed the big picture. Almost no one has put all the pieces together. All the Devils Are Here goes back several decades to weave the hidden history of the financial crisis in a way no previous book has done. It explores the motivations of everyone from famous CEOs, cabinet secretaries, and politicians to anonymous lenders, borrowers, analysts, and Wall Street traders. It delves into the powerful. American mythology of homeownership. And it proves that the crisis ultimately wasn’t about finance at all; it was about human nature.

The novel refers to much more than just what led to a crisis. It discusses how our economy and markets have been functioning for decades on decades and what it’s run on. Capital markets in the United States provide the lifeblood of capitalism. Companies turn to them to raise funds needed to finance the building of factories, office buildings, airplanes, trains, ships, telephone lines, and other assets; to conduct research and development; and to support a host of other essential corporate activities. Much of the money comes from such major institutions as pension funds, insurance companies, banks, foundations, and colleges and universities. Increasingly, it comes from individuals as well. As noted in chapter 3, more than 40 percent of U.S. families owned common stock in the mid-1990s. Very few investors would be willing to buy shares in a company unless they knew they could sell them later if they needed the funds for some other purpose. The stock market and other capital markets allow investors to buy and sell stocks continuously.

The markets play several other roles in the American economy as well. They are a source of income for investors. When stocks or other financial assets rise in value, investors become wealthier; often they spend some of this additional wealth, bolstering sales and promoting economic growth. Moreover, because investors buy and sell shares daily on the basis of their expectations for how profitable companies will be in the future, stock prices provide instant feedback to corporate executives about how investors judge their performance.

The novel, All the Devils Are Here: The Hidden History of the Financial Crisis, written by Bethany McLean and Joe Nocera depicts how a buildup of new methods used in our system regarding fundings have slowly lead up to the financial crisis of late 2007. The two authors go into great depth on who and what caused this and which wrongful government practices fueled this crisis. The novel truly allows the reader to understand the crisis better, as well as understand better what our American system and markets are run on.

[1] Nocera, Joe. All The Devils Are Here, 2009. 50.
[2] Nocera, Joe. All The Devils Are Here, 2009. 87.
[3] Nocera, Joe. 40.
[4] Nocera, Joe. 138.
[5] Nocera, Joe. 263.
[6] Nocera, Joe. 45.
[7] Nocera, Joe. 389.
[8] Nocera, Joe. 192
[9] Paul. “Welcome to the Casino.” The New York Times. The New York Times, 20 Nov. 2010. Web. 30 May 2017. http://www.nytimes.com/2010/11/21/books/review/Barrett-t.html?_r=0
[10] “Book Review: All the Devils Are Here.” Bloomberg.com. Bloomberg, 24 Nov. 2010. Web. 30 May 2017. https://www.bloomberg.com/news/articles/2010-11-24/book-review-all-the-devils-are-here-ikm10ih0
[11] Nocera, Joe. 271.
[12] Nocera, Joe. 85.
[13] Nocera, Joe. 194.
[14] Nocera, Joe. 114