Book Review: The Monster

"It was a killer sales pitch - it fooled borrowers into thinking they would actually save money if they paid higher rates. The loan officers called it The Monster...

Michael W Hudson is a staff writer at the Center for Public Integrity, and has also written for the Wall Street Journal. The subject of the book is a true expose of the Subprime Causes - told in breathtaking forceful  detail, told at the street level, with customer names, sales managers' names, companies strategies. That is perhaps biggest punch of this book - almost every chapter has interleaved stories of real people, and how they were taken in by the unethical sales practices they were exposed to...The book deals extensively with customer stories, vividly told in painstaking detail, stories that highlight how unsuspecting and trusting customers were taken in by the unethical and sometime downright illegal practices that were adopted by the staff of the companies.  That approach elevates the book from one that is a study of why the crisis occurred; instead the book becomes one that offers a human side to the story, and enables the reader to remain connected with the ground realities. This refreshing approach also offers relief from the constant investigations, strategems, growth and fall of the subprime lenders which form the meat of the book. 

For that is precisely the main theme of the book: The rise, sustenance and fall of the subprime lenders. Here you will understand in detail specifically what a subprime loan is, who is a subprime customer and did this industry bring about the downfall of the world markets. The story starts with the Saving and Loan industry in the USA, and focusses on Ameriquest Mortgage and its rise and fall... as you can see in the ads given in its heydeys, the settlement it had to offer customers after the crash and the LA Times article - links below (Links provided so that Indian readers, who might never have heard of Ameriquest, can get a feel of the company in the ads, the wikipedia article, the settlement website and the LA Times article; also, on seeing the ads the story becomes less bookish as you establish a connection with the central company of the book)

http://www.youtube.com/watch?v=UzzMir7zbN4

http://www.ameriquestmultistatesettlement.com/

http://en.wikipedia.org/wiki/Ameriquest_Mortgage

http://articles.latimes.com/2010/jan/27/business/la-fi-ameriquest27-2010jan27

The story evolves, and explains how wall street was taken in, how Lehman Brothers got involved, and the subsequent crash of Lehman Brothers that brought down the Wall Markets. While it also covers the other companies involved in the Suprime Mortgage Industry that was the cause of the crisis, these two companies are the ones that that form the focus of the book. The book also interviews ex-employees of various companies - who explain in vivid painstaking detail the tactics used in selling, the falsification of documents, the pressure sales pitches, the fleecing of customers by salespeople who knew that they were doing the customer a huge disservice. The candid admission of salespersons that they did it to keep their jobs, or to grow, or since everyone was doing it; the near-brutal atmosphere of the sales offices, the pressures under which they operated will enable even the most uninformed of readers to understand the scenario. 

But most of all, the simple approach used to cover securitsation, its basics and its impact has been very nicely put together; the reader gets a complete picture in his/her mind of exactly how the various forces played out. And when read before (or after, for that matter) Fault Lines, enables a deep understanding of the crisis. But even on its own, the book will enable a fundamental clarity of exactly what transpired to bring about the crash of the markets - and that is its biggest take-away from a business or economic perspective. 

The slow buildup of lawsuits against predatory lending, the official investigations; how they were stalled by government, or by big business; the painstakingly slow progress and the frustrations of the investigators and the lawyers; the settlements that served to embolden the companies; and the final collapse have been covered in painstaking detail - here you will find the meat of the book as the author slowly but surely builds up the questions in your mind bit-by-bit. The various compromises made, the mistakes and the plaudits find equal mention... But at the end, the one point, the one single question that sticks out is that brutal fact that the small guy ultimately lost... the big guys moved on, they had limited personal liability as per the law. But the small guy had no recourse - or limited recourse at the most. This is the most powerful question that pops up in your mind. 

The book maintains a good pace, with its approach of interleaving human interest stories, corporate moves and investigations - which makes it an enthralling read from start to finish. It also raises questions in your mind: whatever happened to ethics and morality? How can one explain away the falsification of any document for the closure of a sale on a wholesale scale? How did it become a rampant practice to falsify even income documents? How is it that a non-productive asset like land became the center of investment? How far did the diligence processes of various companies fall that they were unable to detect the same? Conversely, in cases where the practice was known to the top guys - whatever happened to plain old common business sense? What is it about Fear and Greed that make them overpowering emotions?

Fear and Greed... the only 2 answers to whatever happened. Fear of a loss of a job made people cooperate; the inability the see the damage to the public as something unacceptable and amoral completed the circle in the salespersons mind. And Greed... well, that term is self-explanatory! Greed, over-reaching ambition, and an attendant lack of morals made for a deadly combination.  And this occurs in an atmosphere with macro factors like governmental and societal focus on affordable housing for all....