“All the Devils are Here” Bethany McLean and Joe Nocera

I finally finished this book! Bethany McLean also co-wrote “The Smartest Guys in the Room” which is about the fall of Enron which I greatly enjoyed. I thought that book is a book ALL auditors should be required to read. I think this book, “All the Devils are Here”, should be required reading for ALL bank auditors. This was a great book!

In the interest of full disclosure, I should tell you I’m an internal auditor with a small community bank ($1.5 bil in assets, 33 financial centers to give you some perspective). So that may color my review of this book but to be fair, it’s not just regular non-banking folks who were mad about the financial crisis, I was too for some of the same reasons that everyone else was and for some reasons because I’m a bank auditor.

The book basically covers the early history (back into the 70s in some cases) of companies like Fannie Mae, Freddie Mac, Ameriquest, Goldman Sachs, and Lehman Bros, etc. It takes the reader through the CEOs and how they molded these companies into the modern-day entities we know (and probably loathe) and the evolution of the stance of government from both the White House, Treasury, and Congress. The book does a great job of explaining why you can’t blame just Democrats or just Republicans for the crisis because they all contributed to it, including current President Obama when he was a senator. The book only takes you up to a certain point in 2010 (and this includes the epilogue) so it doesn’t include a great deal of detail about the bailout situation and those absolutely outrageous bonuses that some of these executives got after the crisis was in full swing (it’s highlighted) or pending lawsuits or criminal charges (they highlight those as necessary).

One of the problems I really had with this book is that it seems slanted against the Office of Thrift Supervision (OTS) which is the regulator for thrift institutions. In modern-day banking, the only difference between a thrift (aka savings and loan) and a commercial bank is that thrifts tend to have mortgage loans making up a larger percentage of their assets (not necessarily subprime mortgages which is what in part caused this crisis) and commercial banks tend to have business loans make up a larger percentage of their assets. Commercial banks tend to be regulated by the Office of the Comptroller of Currency (OCC). The book alleges that the OTS took their fees from the banks they regulate but doesn’t go onto say that so does the OCC, FDIC, the Federal Reserve, and each state’s Banking Regulatory body (the names vary). This is basically how they make the money they need to cover the expenses of regulating these. Do I agree with this? No because it impacts their independence and objectivity (although being subjected to exams by both the OCC and OTS, it doesn’t feel like it!) but I think taxpayers would have a much bigger fit if they had to foot the bill for this so that’s up to the reader to decide what they think. But the authors also suggest that the OTS is an easy regulator and again, having been through exams through both, I agree but that would imply the OTS is easy and that is NOT the case. I think the OTS does a better job preparing thrifts for an exam than the OTS and as an auditor, I want departments to be prepared for my audits to a certain extent. It should never be about “gotcha” but about making significant improvements to the process so that people can do their jobs as efficiently and effectively as possible while being in compliance with the thousands (and I’m not exaggerating here) of regulations and laws in place.

In only one place in the book do the authors hint at one cause of the crisis being the borrowers themselves (Chapter 6). And I think this is a big point to make: I have a really hard time believing that the janitor alleging making $3,901.58 a month in California didn’t realize that she couldn’t afford a $600,000 house (pg. 227). Granted, I’m a senior auditor in the Midwest making something similar (:)) and I KNOW I can’t afford a $600,000 house. I don’t care what they tell me the payment is – the math just isn’t logical!! But maybe I’m assuming/hoping people are smarter than they really are…

Finally, if you believe in free markets, this book probably is going to make you mad – it’s almost anti-free market in its tone. I’m not anti-free market but I’m not free market excited either but I was mad every time they bashed Alan Greenspan for some reason.

If you want to know what contributed to this crisis, read this book but I would probably recommend reading it with a couple of other books (the book mentions Hank Paulson, former Treasury Secretary’s biography several times so I’m thinking about reading that at some point). I think the more informed and knowledgeable a person is, the better off they are so you can never read enough books!

Well, I’m over business books for quite some time so I’m resuming my normal reading enjoyment by picking up “Hesitation Kills” by Jane Blair. This book is told from the female US Marine perspective about Operation Iraqi Freedom. This is my first foray into books about the Iraqi/Afghanistan wars. Any book recommendations for me on this topic?


About jenvolk5

Bank auditor by day, trivia and knowledge hound all other times.
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