Summary of Bethany McLean & Joe Nocera's All the Devils Are Here

By IRB Media

Please note: This is a companion version & not the original book. Book Preview:

#1 The creation of the mortgage-backed security allowed Wall Street to scoop up loans made to people who were buying homes, and then resell the bundle to investors.

#2 The American Dream is synonymous with homeownership. Government policy has long encouraged homeownership, and it has been a statement about values as well as upward mobility.

#3 Fannie Mae and Freddie Mac were two important agents of government homeownership policy. They were both insulated from criticism. Fannie was born during the Great Depression, and its original role was to buy up mortgages that the Veterans Administration and the Federal Housing Administration were guaranteeing.

#4 Wall Street developed securities that were much more appealing to investors than Ginnie Mae or Freddie Mac bonds. Tranching, or splitting the bond into different categories based on risk, was one method. The rating agencies became an important part of the process.

• Language: English
• Publisher: IRB Media
• Release date: Jul 12, 2022
• ISBN: 9798822544864

IRB Media

With IRB books, you can get the key takeaways and analysis of a book in 15 minutes. We read every chapter, identify the key takeaways and analyze them for your convenience.

Book preview

Insights on Bethany McLean & Joe Nocera's All the Devils Are Here

Contents

Insights from Chapter 1

Insights from Chapter 2

Insights from Chapter 3

Insights from Chapter 4

Insights from Chapter 5

Insights from Chapter 6

Insights from Chapter 7

Insights from Chapter 8

Insights from Chapter 9

Insights from Chapter 10

Insights from Chapter 11

Insights from Chapter 12

Insights from Chapter 13

Insights from Chapter 14

Insights from Chapter 15

Insights from Chapter 16

Insights from Chapter 17

Insights from Chapter 18

Insights from Chapter 19

Insights from Chapter 20

Insights from Chapter 21

Insights from Chapter 22

Insights from Chapter 1

#1

The creation of the mortgage-backed security allowed Wall Street to scoop up loans made to people who were buying homes, and then resell the bundle to investors.

#2

The American Dream is synonymous with homeownership. Government policy has long encouraged homeownership, and it has been a statement about values as well as upward mobility.

#3

Fannie Mae and Freddie Mac were two important agents of government homeownership policy. They were both insulated from criticism. Fannie was born during the Great Depression, and its original role was to buy up mortgages that the Veterans Administration and the Federal Housing Administration were guaranteeing.

#4

Wall Street developed securities that were much more appealing to investors than Ginnie Mae or Freddie Mac bonds. Tranching, or splitting the bond into different categories based on risk, was one method. The rating agencies became an important part of the process.

#5

Fannie Mae was in dire straits, and it was up to David Maxwell, the company’s new CEO, to save it. He believed that the company’s status as a government-sponsored enterprise meant that the federal government would always be there to bail it out.

#6

Maxwell was a very different person than Hunter. He was more business-oriented, and he tightened the standards for the loans that Fannie bought. He put in new management systems. However, he could not change the combination of resentment and envy that Washington felt towards Fannie Mae.

#7

Because Fannie and Freddie guaranteed the mortgages that Wall Street purchased, the two organizations became indispensable in the new mortgage market. Because of this, they were able to grow immensely and become more and more central to the housing market.

#8

The government agencies had issued almost $230 billion in mortgage-backed securities by 1983, while the purely private sector had issued only $10 billion. The fees from these deals were plentiful.

#9

The secondary mortgage market, which is made up of mortgage-backed securities, was exempt from state blue sky laws. The bill removed the restrictions against institutions like state-chartered financial institutions, pension funds, and insurance companies from investing in mortgage-backed securities issued by Wall Street, even when they lacked a GSE guarantee.

#10

The second piece of legislation was the Real Estate Mortgage Investment Conduit, or REMIC, law, which was passed in 1986. It allowed for the creation of multiclass securities and avoided double taxation.

#11

In 1987, Fannie Mae was battling with Wall Street over who would control the mortgage-backed securities market. Fannie argued that its low costs also lowered mortgage rates for consumers, while Wall Street argued that it would force the private market out.

#12

Fannie Mae was able to persuade Pierce to rule in its favor, as the bank threatened to stop delivering its mail if Salomon didn’t back down. Wall Street made huge amounts of money marketing and selling Fannie’s securities, while Fannie never had the ability to find the Japanese bank or the Midwest insurance company that might want a specific tranche.

#13

The battle between Fannie Mae and Wall Street did have consequences that would linger for a