The affordable housing scam: raking over the politicians, regulators, brokers, and bankers who caused the financial crisis.

• Author: McClaughry, John
• Position: Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon - Book review

Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon, by Gretchen Morgenson and Joshua Rosner, Henry Holt & Co., 315 pages, $30

THERE WILL probably never be an Oxford Companion to the 2008 American Financial Disaster. Those interested in this baneful topic, however, would do well to read Reckless Endangerment. Veteran New York Times business reporter Gretchen Morgenson and financial analyst Joshua Rosner (who, Morgenson says, "has seen every trick there is") acknowledge that their book about the events that led up to the financial crisis is not the last word on this sorry episode. But it is, they promise, a work that names names and smokes out 20 years of key incidents that produced the crash and its trillion-dollar aftermath. In this they deliver.

The thesis of Reckless Endangerment is simple: In a rush to orchestrate affordable home ownership--and generate enormous profits--politicians, government-sponsored enterprises, pusillanimous regulators, greedy mortgage brokers, and profit-chasing Wall Street investment bankers combined to drive the American economy into its worst crisis in 70 years, saddling taxpayers with trillions of dollars of debt and leaving the financial landscape littered with the wreckage of ruined lenders, borrowers, and taxpayers.

Morgenson and Rosner begin this ugly tale in 1991, following the savings and loan crisis and subsequent taxpayer bailout. "In just a few short years," they write, "all of the venerable rules governing the relationship between borrower and lender went out the window, starting with the elimination of the requirements that a borrower put down a substantial amount of cash on a property, verify his income, and demonstrate an ability to service his debts."

The poster boy for this narrative is Federal National Mortgage Association ("Fannie MAC') CEO James A. Johnson, an ambitious Minnesota lad who worked his way up in Washington via connections with Walter Mondale, Bill Clinton (his roommate at a 1969 anti--Vietnam war conference), and other Democratic luminaries.

The Roosevelt administration created and capitalized Fannie Mac in 1938 when no private group came forward to charter a national mortgage association. Its purpose was to provide a secondary market for mortgages issued by bank lenders, thus replenishing their loan capital.

In the 1950S Congress pressed Fannie Mae into becoming the purchaser of otherwise unmarketable government-insured mortgages with below-market interest rates. In 1968 Congress created a federal corporation, the Government National Mortgage Association (Ginnie Mae), to purchase government-insured mortgages, and spun Fannie Mae off as a pseudo-private corporation to buy private mortgage paper from banks and other loan originators. Although it was now owned by private stockholders, Fannie Mae retained an exemption from securities laws, an exemption from D.C. real estate taxes, and the right to draw ultimately $2.5 billion from the U.S. Treasury...