Book Review

Bethany McLean and Joe Nocera's 'All the Devils Are Here'

By Daniel Gross
Thursday, December 30, 2010; 7:41 PM


The Hidden History

of the Financial Crisis

By Bethany McLean and Joe Nocera

Portfolio/Penguin. 380 pp. $32.95

You could fill an iPad with all the books, documentaries, podcasts, slide shows and tweets that have been produced on the Great Financial Meltdown of 2008. So weary readers could be forgiven for thinking that we need another financial crisis book like we need another Web site devoted to politics.

But we do need "All the Devils Are Here." Because even as the crisis continues to unfold - in December, a civil lawsuit was filed against accounting firm Ernst & Young for its alleged role in the collapse of Lehman Brothers - some in Washington are engaged in willful attempts to misread events. All four Republican-appointed members of the federal Financial Crisis Inquiry Commission voted last month against using words such as "Wall Street" in the group's final report. And after the November elections, banking lobbyists began to scheme with the incoming 112th Congress to undo the lukewarm post-crisis reforms. So in many ways, this highly readable and instructive history of the events and mind-set that lit the kindling for September 2008 arrives just in time.

Bethany McLean and Joe Nocera, former colleagues at Fortune, take their title literally: The cast of characters listed at the beginning of the book is a nice, round 100 devils. McLean, a contributor to Vanity Fair and Slate, and Nocera, a columnist for the New York Times, were willing to sacrifice speed and buzz for the sake of quality writing and a textured, multilayered story. Unlike many of the quickie books on the crisis, "All the Devils Are Here" is tightly written, methodical and unsensationalistic. But its revelations are just as shocking as those in most of its less-well-aged predecessors.

Over the course of 30 years or so, mortgage lending and the increasingly frenzied activities surrounding it came to infect and corrupt the whole system - banks, regulators, government-sponsored enterprises and politicians on both sides of the aisle. There are good portraits of the devils we already know: Angelo Mozilo, the founder and life force of Countrywide Financial, a bundle of resentments, will-to-power and arrogance; Stanley O'Neal of Merrill Lynch, the first black chief executive of a big brokerage, who was impatient for his firm to rack up the profits earned by other Wall Street juggernauts; and Jim Johnson and Franklin Raines, the politically savvy chief executives of Fannie Mae, the giant government-sponsored mortgage company.

The authors also introduce us to some intriguing new actors, such as Roland Arnall, whose exploits have until now remained largely hidden. "Though his companies never got the blame that would later be heaped on Countrywide, Arnall was the real subprime pioneer," the authors write. Born in Paris in 1939, Arnall sold flowers on the streets in California before starting several businesses. Among them was Long Beach Mortgage, a subprime lender whose shoddy business practices brought federal scrutiny in the 1990s. Arnall cut a deal with Deval Patrick, a Clinton administration assistant attorney general (and now Massachusetts governor), under which Long Beach denied the allegations and agreed to give $1 million to nonprofits that specialized in consumer education. After Long Beach faded away, Arnall founded a bunch of subprime lenders, including Ameriquest and Argent, which typified the worst practices in the industry: exploding products, boiler-room incentives to brokers, a callous disregard for regulatory requirements.

By 2005, Arnall, who kept his companies private, was worth $3 billion and ranked 73rd on the Forbes 400 list. He plowed some of this subprime lucre into politics, donating heavily to Republican causes. He also named Patrick to a well-compensated corporate board post. In 2006, when Arnall's subprime empire again came under regulatory and journalistic scrutiny, it didn't stop him from getting funding from Citigroup or from being nominated by President George W. Bush as ambassador to the Netherlands. A young black senator from Illinois was initially wary of supporting the nomination but noted: "I've got a letter from Deval Patrick, who actually is a good personal friend of mine." In February 2006, a month after Ameriquest announced a $325 million settlement with state attorneys general and four months before the company essentially shut down, Arnall was confirmed.

In theory, Arnall's companies were supposed to be working for the people and the government - how else could they justify the enormous subsidies they received in the form of tax breaks and quasi-government-guaranteed funding? In reality, as McLean and Nocera demonstrate, the czars were working for the Cossacks. While the authors push back against the absurd right-wing meme that Fannie and Freddie were solely responsible for the subprime mortgage crisis, they show in damning detail how the companies were able to fend off regulatory pressure. They convincingly argue that those charged with safeguarding the system remained willfully blind to the risks. (Alan Greenspan's memoir, they note, didn't contain the phrase "subprime mortgage" or "predatory lending." And they say the system mobilized to smack down anyone who protested or raised tough questions.)

Arnall died in March 2008, but many of the devils are still with us. Their most diabolical act may be leaving behind problems that defy easy (or even difficult) solutions. Noting that the Dodd-Frank financial reform bill did nothing to change the status of Fannie Mae and Freddie Mac, McLean and Nocera conclude: "The reason that the legislation makes no mention of [Fannie and Freddie] is that nobody can figure out what to do."

Like a book about Pearl Harbor that ends in late November 1941, "All the Devils Are Here" closes just before the action really starts. But it's very much worth reading for its damning conclusions and its craftsmanship. McLean and Nocera weave seemingly unrelated strands of the story into a coherent tapestry. While chapters frequently begin like news magazine features - "Stan O'Neal wanted to see him. How strange." - this narrative was constructed by skilled professionals with great care and attention. It's a shame the same can't be said for our mortgage industry.

Daniel Gross, the author of "Dumb Money: How Our Greatest Minds Bankrupted the Nation," is a columnist at Yahoo Finance.

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