All the Devils are Here: The Hidden History of the Financial Crisis

by Bethany McLean

According to the United States National Bureau of Economic Research, the global recession began in December 2007; but although it has been nearly three years since the meltdown's onset, experts are still divvying up the blame. Who was at fault: Wall Street, Main Street, or Pennsylvania Avenue? Was it cynical derivative dealers, foolish homebuyers or negligent regulators? Business journalists Bethany McLean (The Smartest Guys in the Room) and Joe Nocera delve beneath the surface in this history of financial folly over two decades. Worth recommending. (P.S. The book borrows its title from a line from Shakespeare's Tempest: "Hell is empty. All the devils are here.")

Genres: Economics, Nonfiction, Finance, Business, History, Politics, Audiobook

400 pages, Kindle Edition

First published November 16, 2010

About the author

Bethany McLean is a contributing editor to Vanity Fair magazine, and known for her work on the Enron scandal. She had been an editor at large and columnist for Fortune magazine.

McLean grew up in Hibbing and received her BA in English and mathematics at Williams College in 1992. After college and prior to joining Fortune, she worked as an investment banker for Goldman Sachs.

Reviews

[Matt · Rating 4 out of 5]

“Of all the securities whose existence depended on their ability to get a triple-A rating, none would become more pervasive – or do more damage – than collateralized debt obligations, or CDOs…A CDO is a collection of just about anything that generates yields – bank loans, junk bonds, emerging market debt, you name it. The higher the yield, the better. Just as with a typical mortgage-backed security, the rating agencies would run the CDO’s tranches through their models and declare a large percentage of them triple-A. There would also be a triple-B or triple-B-minus slice, which was called the mezzanine portion, as well as an unrated equity tranche, which got paid only after everyone else had collected their returns. One astonishing fact is that the CDO managers didn’t always have to disclose what the securities contained because those contents could change. Even more astonishing, investors didn’t seem to care. They would buy CDOs knowing only the broad outline of the loans they contained. So why were they willing to do so? Because the way they viewed it, they weren’t so much buying a security. They were buying a triple-A rating…”
- Bethany McLean and Joe Nocera, All the Devils Are Here: The Hidden History of the Financial Crisis

The 2008 financial crisis – which triggered the so-called Great Recession – was one of the biggest economic meltdowns in history. Legendary institutions collapsed. Roughly nine million people lost their jobs. Unemployment peaked at 10%. Poverty rates rose while the Dow Jones Industrial Index fell. People lost their savings, their pensions, and critical earnings years. It created a crisis in capitalism not seen since the 1930s.

Yet for all that, this event seems to have vanished into a memory hole. We just don’t talk about it all that much. Part of this is a function of a particularly dark and crowded start to the twenty-first century. Much of it, though, is an intentional forgetting, a willful obscuration that makes it easier for those who caused the problems in the first place to do it all over again, while raking in obscene amounts of money entirely untethered to the creation of value.

Having lived through these times, I definitely felt the effects. What I never fully grasped, however, is how it all went down. Bethany McLean and Joe Nocera’s All the Devils Are Here provides a wonderful step-by-step guide to this incredibly complicated economic disaster. It is a story as infuriating as it is compelling, a tale in which all the villains get their comeuppance in the form of generational-wealth-sized bonuses, no lessons are learned, and nothing really changes.

***

There is never a single cause for an event of the magnitude of the 2008 financial crisis. A whole host of factors was required, innumerable moving parts greased by greed. The main achievement of All the Devils Are Here is in its ability to make sense of a convoluted process without requiring a reader to first obtain a master’s in business administration.

Unlike the financial system of the early 2000s, All the Devils Are Here is structurally sound. McLean and Nocera employ a methodical approach, introducing concepts one at a time, providing examples of how various instruments work, and then showing how one thing led inevitably to another. They start with the basics, discussing how home ownership changed – and expanded – with the advent of the thirty-year mortgage, and the invention of the mortgage-backed security. Ultimately, through a process I cannot begin to summarize, we end up with subprime mortgages being given to anyone with a pulse; those rubbish mortgages being packed into collateralized debt obligations with triple-A ratings; and those collateralized debt obligations filling the balance sheets of places like Merrill Lynch and Lehman Brothers.

As long as everyone pretended that those underlying mortgages weren’t complete trash, the party continued. Eventually, though, the obvious became really obvious, and it all went to hell.

***

While McLean and Nocera definitely tackle the technicalities of Wall Street, their narrative is very much human-driven. We meet the men and women who created items such as the now-infamous credit default swap. We spend time with the chief executives of organizations like Goldman Sachs and AIG, as they push for exponentially-increasing profits. We are also introduced to subprime lenders, regulators who failed to regulate, and the short-sellers who made a killing when the economy went down in flames. There are a lot of characters here, but McLean and Nocera provide a dramatis personae to help keep track of them.

There is a grim thrill to be had in observing these proceedings. The behavior on display is so egregious, the consequences so nonexistence, that one is tempted to simply stand in awe at the audacity. Take Joe Cassano, the chief executive officer of AIG Financial Products. His inspired leadership caused AIG to flameout in spectacular fashion, so that it required a $182 billion bailout from the government. He left office with $34 million in bonuses and a $1 million a month consulting contract. This is insane. I would have run the company into the ground for half that amount.

McLean and Nocera also cover the events of “the big short,” made famous by author Michael Lewis. All the Devils Are Here clears up the misconception that these short sellers were plucky investors teaching the market a lesson. To the contrary, McLean and Nocera note how the short sellers made sure that there was no effort to help homeowners getting kicked out of their houses, because such help would have ruined their big bets. Pro tip: gambling is more fun when you always win.

The theme that runs through All the Devils Are Here is the myth of market discipline. Despite paeans to a beautifully self-correcting free market system delivered by individuals like Alan Greenspan, the fact is that the United States Government has repeatedly stepped in to clean up the messes created by the unbridled pursuit of profits. More to the point, free marketeers have come to expect their gambles to be backstopped by taxpayer dollars.

***

About the only downside to All the Devils Are Here is that it doesn’t really cover the crisis itself, at least not at depth. Indeed, the book ends just as things start to fall apart, denying the reader the opportunity to see titans of industry throwing themselves out windows with the most glittering of golden parachutes. I would not have minded a longer book with slightly more scope, in order to get the whole picture in one go.

***

Any proper response to the 2008 financial crisis would have included pitchforks and torches. Revolutions have started over far less. At the very least, there should have been criminal prosecutions, long prison sentences, and a thorough audit of the systemic faults that wiped out so much wealth. Instead, the responsible parties were bailed out by the taxpayers, showered in bonuses, and allowed to go on their merry way. There were no mass prosecutions because the line between “fraud” and “just doing business” is impossible to define, mainly because the laws have been written by corporate lobbyists. The ordinary people who lost jobs or savings received no appreciable help, since they were not too big to fail, and just the right size to ignore. The watered-down legislation passed in response to the crisis has already been partially repealed.

The lesson is that we are in rigged game; that we have always been in a rigged game; and that we will likely always remain within a rigged game.

[Jean · Rating 1 out of 5]

Along with Michael Lewis' "The Big Short" this is a must-read if you want to understand the recent financial crisis. The authors also did "The Smartest Guys in the Room" about the Enron scandal, and I found that book both enlightening and interesting. The story paints a picture of a true financial bubble. Anyway, maybe I finally understand CDOs and derivatives. Maybe.
It's a chilling story, and I found myself horrified many times. The worst was reading about synthetic CDO's, which were like zombie derivatives. They were derivatives of derivatives and allowed investors to either go long (betting the product would increase in value) or short (betting it would go down). Unbelievable.
The biggest thing I learned was "don't trust anyone." These guys were constantly saying, "everything's all right" when they knew or should have known, it wasn't. And, worse yet, none of this stuff was illegal. It just wasn't regulated.

The story jumps around a bit, introducing players and situations in different companies and organizations as it works toward the inevitable crash. Several thoughts from my reading:
1. The whole situation was a "boiled frog" one. It kept building little by little. No one got caught, so they kept doing more and more bad stuff.
2. This was a failure of regulation. Shame on Greenspan, who didn't believe in any regulation, ever. And this is one time Congress should have stepped in, but they were convinced by the financial people that they knew what they were doing. How do you know a financial person is lying? His lips are moving.
3. Bubbles happen. They've been going on since tulips in Holland in the 1700s. This bubble never looks like the last one, so we don't believe they will happen this time. One very important comment was that they happen when "greed overcomes fear." Good point, well illustrated in the book.
4. I kept thinking, "How in the world could the average investor have known what was going to happen?" I do know several people who pulled out just before the crash, but they are in the minority. Most of us lost at least 30% of our savings.

I'm heading toward the finish but wanted to share my thoughts. If you really want to know what happened, this is the book to read. Don't worry; it's really interesting as well as informative.

[Mal Warwick · Rating 5 out of 5]

Now we know who caused the Great Recession. And it wasn't just the bankers on Wall Street.

Once upon a time, not so long ago, really—it was 1999—there was a group of three exceedingly smart men whom Time Magazine called The Committee to Save the World. In fact, these three men— Alan Greenspan, Larry Summers, and Robert Rubin—seemed to think they were the smartest people in the whole wide world. Together, they had put in place the economic policies of the Clinton Administration. And, boy, did things look rosy then, back in 1999. There was a huge federal budget surplus, and the Dow Jones averages were heading for Neptune!

Oops! Something went wrong. Catastrophically wrong.

So, a decade later seemed to be a good time to reassess those three men in light of the economic events of 2008, 9, and 10. The result, of course, was that they didn’t look so smart anymore. But, guess what? Larry Summers had yet to exit the Obama White House. He’d been the driving force behind the Administration’s economic policymaking. And Robert Rubin was reported to be on the short list to replace him!

Of the three men, only Alan Greenspan, finally retired in 2006 as head of the Federal Reserve Bank after three decades and four Presidents, had actually apologized after a fashion. For years, he had persisted in his stubborn refusal to face economic facts. Facts that were obvious at the time to anyone well versed in finance who wasn’t blinded by greed, willful incompetence, stupidity, or right-wing ideology. The other two men? Well, we haven’t heard so much as a hint of an admission of responsibility from Summers even three decades later. And only a generalized expression of “regret” from Rubin.

So, why did it happen?

So, what did “The Committee to Save the World” do to lay the foundations for the 2008 financial crisis? As best I can tell, collectively they made three fateful errors:

** They engineered the repeal of consumer protections put in place during the Great Depression (the Glass-Steagall Act).

** They routinely deferred to Wall Street when shaping economic policy, paying special attention to the effect of their actions on the bond market. (That’s where the really big money is to be found.)

** They stubbornly refused to recognize the dangers in the alarming growth of the unregulated “derivatives” market. (If you don’t understand what a derivative is, don’t sweat it. Nobody else does, either, not really.)

** Not so incidentally, these same three geniuses were also instrumental in fashioning “The Washington Consensus” that guided the work of the International Monetary Fund and the World Bank. It was this constellation of restrictive policies that caused tens of millions of people to starve in dozens of developing nations for years afterward. But back to Topic A: the financial crisis.

Blame falls on “The Committee to Save the World”—among others

We’ve identified three of the principal culprits. But, in fairness to Greenspan, Summers, and Rubin, there were many other characters who played leading roles in the tragedy. Some of their actions merely reflected changes set in motion years before. And nobody in any government position, including the Oval Office, calls all the shots. But the buck stops . . . somewhere. When it comes to the public policy that foreshadowed the financial crisis, the committee that “saved” the world bears a lot of the blame.

Now about those other leading characters in this modern immorality play. Chief among them were a mixed bag of people both in and out of government. And if your memory of such things runs to the years when George W. Bush and Barack Obama were in the White House, you’ll recall that there was loud and persistent agitation for the government to prosecute many of these people. Millions (including me) strongly believed that a passel of financial executives deserved long prison sentences for their roles in the crisis.

Senior financial executives
On Wall Street, there were dozens of senior executives at such financial powerhouses as Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, AIG, Citibank, and many others whose shared delusion that money is life’s greatest good helped set the course for economic ruin. Some of these men (and a very few women) were brilliant and found ways to make lots of money even when conditions were really, really bad.

Others were—well, not to put too fine an edge on things—downright stupid. Their firms (principally, Bear Stearns, Lehman, AIG, and Merrill Lynch) either disappeared entirely in a whirlwind of worthless paper or took refuge under someone else’s wing. By contrast, the champion money-maker, Goldman Sachs, racked up billions in profits by victimizing some of its biggest clients. Being Goldman Sachs, of course, none of its partners faced criminal charges, as they clearly would have done in a marketplace guided by reason and fairness.

Non-bank co-conspirators
On Main Street, there were also dozens of co-conspirators. For the most part, these were the people who ran the “non-bank financial companies” like Countrywide and other firms that sold mortgages to people who couldn’t possibly afford them. Some were outright crooks running fly-by-night operations, many of them classic bucket-shops, others simply self-deluding or (again that word) stupid. Most of them got filthy rich, though, at least for a time. Dozens should have gone to jail, but did they? What do you think?

Fannie Mae and Freddie Mac
Back in our nation’s capital, two institutions unfamiliar to most of the American public found themselves in the middle of the maelstrom: the two quasi-private mortgage repositories, Fannie Mae and Freddie Mac. Don’t feel sorry for them, though, because, to cop a phrase from an earlier practitioner of misdirection, “mistakes were made.” The leadership of both institutions grabbed at opportunities to make a quick buck. They succeeded, for a time, but only until the profits disappeared—and we taxpayers paid the bill to the tune of hundreds of billions of dollars.

George W. Bush
Don’t forget George W. Bush. The decider-in-chief may not have played a meaningful role in economic decision-making (if only because it’s highly doubtful he had a clue about what was going on). But, dazzled by the argument that the “free market” would regulate the financial sector all by itself, Bush II deliberately appointed to key regulatory positions such world-class ignoramuses as Christopher Cox to head the Securities and Exchange Commission. It wasn’t enough that the regulatory agencies’ teeth had dulled considerably over the years and that the powers-that-were in the Clinton Administration had refused to sharpen them. No, George W. Bush insisted on appointing financial regulators whose stated intention was not to do their jobs.

This book untangles the complexities of the financial crisis

So, what does all this bloviating have to do with All the Devils Are Here? This is, after all, (ostensibly) a book review. It’s simple, really: Bethany McLean and Joe Nocera’s superb book brought into high relief the roots of the financial crisis like no other book I’ve read and made it possible for me to untangle in my mind the complex interrelationships among Wall Street, Main Street, the Fed, and the Treasury Department.

In previous months, I’d read:

** Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System–and Themselves by Andrew Ross Sorkin

** The Big Short: Inside the Doomsday Machine by Michael Lewis

** The Devil’s Casino: Friendship, Betrayal, and the High Stakes Games Played Inside Lehman Brothers by Vicky Ward

Among others, all of them excellent books. But McLean and Nocera’s treatment of the crisis from a long-term perspective, with its roots in the evolution of housing policy as well as greed and excess on Wall Street, put the whole question into perspective. If you’re looking for the best way to begin understanding the financial meltdown of 2007-2008 that came close to tanking the global economy, start with All the Devils Are Here.

About the authors

Bethany McLean is an American financial journalist and contributing editor for Vanity Fair magazine. Her coverage of the Enron scandal and the 2008 financial crisis won widespread praise. Before joining Vanity Fair, she was an investment banking analyst for Goldman Sachs. McLean was born in 1970 in Minnesota and educated at Williams College. She is the author or coauthor of five books.

Joe Nocera is the author of five business books, three of them coauthored. He has also written a column for The New York Times since 2005. Nocera was born in Rhode Island in 1952 and earned a BS degree in Journalism from Boston University.

[Mehrsa · Rating 4 out of 5]

I re-read this one because I think I’ll be assigning it in my class. I’m worried we forgot about the stupidity, greed, and hubris that led to the crisis (with the gov’t, GSEs and banks all sharing the blame). There are a lot of good financial crisis books out there. I like this one better than most because it focuses on mortgage backed securities and has more about Fannie and Freddie than others. I also love 13 bankers which I assign. So I guess I’m saying everyone should read this book again—especially if you’re a gov regulator or work in finance.

[Trudi · Rating 4 out of 5]

Shakespeare wrote: Hell is empty, and all the Devils are here. I'm going to zombify this sentiment just a tad by saying what I know to be true: There is no more room in Hell, and the Devils now walk the earth. Oh yes...they do. Is there any doubt? Little ones and big ones, all spread out like an infection. And if there's a cure to wiping them off the face of the planet and sending them back to Hell it's yet to be implemented because apparently it takes balls and brains and a pretty reliable moral compass (all of which are in very short supply at the top where it matters most).

Here are a few things I've come to understand and firmly believe: Greed -- for lack of a better word -- is not good. Greed in fact, turns people into out-and-out sociopaths (if they weren't already). Greed makes people cheat and lie and break the law. If the stakes are high enough, greed can and will topple global financial institutions. It can perpetuate a form of terrorism that should leave us quaking in our beds at night because the kind of sickly, lustful, unchecked greed which motivated sub-prime mortgage lending, the deregulation of banks, the stratospheric rise of predatory lending, unregulated derivatives, CDOs and credit default swaps is the kind of greed which cost millions of people their jobs, homes and pensions not just in the United States, but all over the world. We're talking pandemic here. In the interconnected global world market, the reality is these days no one is safe. Everyone is in bed with everyone else, and nobody is wearing a condom.

Here's something else -- the "free" market is not self-disciplined or self-regulating. You know why? Because it is an artificial construct made by humans to self-serve humans. It can be manipulated in a thousand million different ways. The "free" market does not exist beyond the domain of the evil that men (and women) do. It is vulnerable to illusion and delusion. It can be infected by greed. And it can crash, splinter, implode and bring the whole world down with it. Unfortunately, sensible solutions to addressing free-market vulnerabilities with things like regulation are seen as ham-stringing, anti-capitalist, anti-American, "liberal" or worst of all smacking of socialism (this is where you're supposed to spit - put-tooey).

If anything on god's green earth should be regulated it has to be banks, mortgage lenders and credit rating agencies. These institutions represent a sacred public trust. Gigantic loopholes and unfettered restraint should not be realized upon which greed can flourish and evil deeds thrive -- for a toxic brew of sub-prime contagion to be concocted in the labs of Main St and Wall St USA and shipped to the rest of the world like the deadliest of viruses. But this did happen, and will likely happen again for two reasons: humans have short memories... and all the Devils are still here. With nary a slap on the wrist and HUNDREDS OF MILLIONS of untaxed dollars lining their pockets. I could vomit.

If you really want to get to the heart of the 2008 financial crisis in America you could do a lot worse than this book. It is a very frank, well-researched assessment filled with cogent arguments and incisive observations -- and all things considered, a rather sane, sensible look at the "how". Rome wasn't built in a day, and neither were the seeds of the financial crisis sewn in a week. It took about a decade, not all that long all things considering. There were those who saw the writing on the wall and did nothing. There were those that tried, and failed.

But far outnumbering the naysayers, was a group made up of fervent capitalist ideologues, free-market believers, and most of all Devils with power driven by their unquenchable thirst for cash. It was this group -- spread out across all sorts of institutions -- banks, CRAs, mortgage brokers, insurance companies, Wall Street traders and into the highest reaches of government -- who paved the way for deregulation of banks and for the rise of derivatives, CDOs, and credit default swaps at the heart of which was the immoral practice of extortionist predatory lending and sub-prime mortgages.

What you had in fact were sociopaths motivated by greed who with the help of deregulation became medieval alchemists transforming lead into gold. Game players took Product A -- not worth anything -- and turned it into Product B -- now worth everything (and credit agencies were right there, with their hand out, willing and able to give these new products a Triple A score). This was a crucial step to the alchemical process -- Wall Street could securitize but it was the CRAs who legitimized these products with their ratings which made the questionable products safe and secure (and which meant pension plans could now legally buy them).

I think the better informed we all are on this subject, the better off we'll be in the long run. We have to start demanding better protection from such dubiously legal economic practices. We have to start demanding transparency and accountability, and more than anything else, we have to start demanding more regulation. Even after the worst has happened (not the least of which was the grotesque yet necessary bailouts), regulation has been slow to come. It's being fought against in a ferocious battle by the same people who fucked us all (pardon my French) the first time and if things don't change will likely fuck us all again.

This isn't just an American story about the sins of Wall Street and the complete and utter lack of integrity represented by a Lehman Brothers before its fall -- what happens in America doesn't just stay in America (not anymore). Their economy is its largest export and we are all at the table gobbling it up. If the food is laced with arsenic or Ebola, I for one want to know. Better yet, how about strictly regulating the "food" so that the worst blemish it's going to have is a bit of mold on the edges of the bread. That I can pick off myself and it's not going to kill me.

Guess what? Regulation is not going to kill you either. It won't equal death to capitalism or the "free" market. It's simply adding responsible checks and balances into a system that's gotten far too big and complicated for its own good where the lunatics are running the asylum -- dressed in Armani suits and spouting economical equations that us "little people" just can't possibly understand. Fuck you.

The last thing I've learned: Nothing is too big to fail so you better have a Plan B.


Inside Job (2010)

Meltdown: The Secret History of the Global Financial Collapse. All four parts available on YouTube: Part I Part II Part III Part IV

[Kurt Reichenbaugh · Rating 4 out of 5]

I read this book over several months at work. I'd copy chapters of it off the copier while everyone else was "working" remote and then read them at my cubicle. That way, on the few days other employees actually showed up in the office, if any of the productivity patrol were roaming the floor it would appear as though I was studying just another bullshit memo or something like that. I read approximately a chapter a day when I could. The whole time nothing really surprised me in the book. I've been in the corporate/finance world long enough (over 30 years) to know it's all mostly a house of cards built by charlatans and idiots and layered with rules that only apply to the little guys. And I remember when it all happened. You don't need a degree in finance to read or understand the book. It deals with mechanisms that even smart guys didn't really understand. Basically you have to know that a bunch of greedy guys discovered they could make fast money on producing subprime mortgages (bad loans to people who don't have the means to pay them back) and bundling them up into tranches and selling them as collateralized debt obligations (CDO's) to investors under bogus ratings so that they appeared safe. And they did this under the noble guise of "putting people into homes." Then when the house of cards began to shudder they created "synthetic CDO's" made up of credit default swaps, options, or non-cash assets, to prolong the ride. Money was made betting on loan defaults that way. That's where things get murky for the average investor. But this was all great times for the big shots. Then it all came crashing down in a spectacular manner. The fun is reading about CEO's who should have known better getting caught with worthless assets on their books. But don't worry about them. They did just fine. It's the perfect book for cynics like you and me. Hi-dee-ho!

[ScienceOfSuccess · Rating 4 out of 5]

great read, all explained in details.

[Steve · Rating 3 out of 5]

This is a good survey of the 2007-08 financial meltdown and the events leading up to it. The world of mortgage finance is arcane and to begin with, and it was made even more arcane by Wall Street’s groovy new inventions. Joe Nocera (NY Times business reporter) and Bethany McClean (The Smartest Guys in the Room, Enron..) take on the task of transforming that world into a compelling story and succeed, mostly.

My only criticism of the book would be that it never takes a step back from the events to take a broader economic or historical view. The reader is left with the sense of doom. How will we ever construct a useful credit system in the US when all the players are corrupt or incompetent? I think a bit of historical context would have been useful here.

For one thing, the climax of the story is a classic banking panic as the authors themselves observe. In June 2007 Bear Stearns' creditors tried to get their money all at once, and couldn't. There was no market for the debt. As the author's put it, it was “a classic run on a bank---except those racing to pull their money out weren’t depositors. They were bankers.”

Not mentioned is the fact that banking panics on this scale had not been seen in the United States for 80 years. Before that panics were common: 1857, 1873, 1893, 1907, 1929---all years of financial panic followed by economic collapse. Somehow we got the banking sector under control for several decades after that. Maybe we can do it again.

[Ms.pegasus · Rating 4 out of 5]

The companies involved in the financial crisis: Countrywide, AIG, Merrill Lynch, Ameriquest, Lehman Brothers, and Bear Stearns, didn't simply sprout horns and tails one night The elements personified in the title are instead a list of financial tools, events, and attitudes that didn't just coalesce but rather evolved in almost predictable though unintended ways. Their growth was part of a monstrous symbiosis.

Readers with a non-finance background should not be dismayed by the parade of ever more complex financial tools described in this book: Tranches, derivatives, collateralized debt obligations (CDO's), CDO's squared, credit enhancements, and credit default swaps. McLean and Nocera direct their explanations at the general reader. However, as with any accounting technique, one can really only begin to understand these instruments within the context of specific numbers and scenarios. The broader picture they paint is of techniques to manage risk. Risk management such as practiced by the “quants” at J.P. Morgan evolves into risk dilution (tranching, and hedging), which leads all too easily to merely the appearance of risk reduction (the role of the ratings agencies, passing risk on to 3rd parties as if it were a hot potato, and ultimately, the inability to even identify where the risk lay in the layers of repackaged shadow securities). It's interesting to learn that when Merrill Lynch was in crisis, several of its board members began requesting tutorials on CDO's. So again, don't be intimidated by the financing terms!

The first half of the book deals with these elements in the context of the Savings and Loan crisis, rising interest rates, changing banking legislation, an ideology of non-regulation, and a political agenda of increasing the numbers for home ownership. It is startling to learn that the authors chart the seeds of the crisis 30 years back in time. History, not specific villains, is the focus here. Most fascinating, perhaps, is the interplay between Wall Street and the political clout of Fannie Mae. This segment even peaks with a punchline; we learn what a "fannie pack" is.

The second part of the book follows specific “characters”: AIG, Countrywide, Ameriquest and Merrill Lynch. It is striking that the guiding human emotion in these stories was not greed but envy. Companies and leaders feared that their competitors might pull away from the pack, and that fear motivated the drive toward expansion and risk.

Despite the fact that the focus is not on blame, it is clear that McLean and Nocera are ardent skeptics of the self-regulation credo the financial community has so long espoused. Greenspan and like-minded economists at the Federal level failed in their duty to protect the public, even when regulators and consumer advocates at the state and local level were pointing to problems. None of these people have yet shown any public remorse for the mistakes that were made. (Somehow, an admission of "Oops" doesn't seem to suffice). The assessment of Goldman Sachs is more problematic. The authors emphacize that Goldman Sachs was despised, not so much for its lack of ethics, as for its success in execution of its game-plan.

This book serves as an introduction to a much closer scrutiny of the investment industry. ALL THE DEVILS ARE HERE is the first book I have read on the financial crisis. It won't be the last. It is definitely well-written and cohesive, and will encourage readers to delve further.

[Bob Mayer · Rating 4 out of 5]

I pulled this off the bookshelf to go through again because it seems that we're heading for another one. The 2008 one was the mortgage bundling. What is happening now is car loans are lapsing at an extremely high rate. And many of the rules put in place after 2008 are being tossed out by this administration. The fact former lobbyists are now running agencies that are supposed to police the very industries they lobbied for is not a good sign.
It appears we do not learn from history.

[Pat Murphy · Rating 4 out of 5]

This book tells the tale of the 2008 financial crisis. So far it's the most complete compilation of info on the subject that I have read. I expected no less, but I didn't expect it to start in the eighties. Not to worry though, it doesn't dwell there. I was just disappointed that the laws and inventions of the subprime practices started that long ago. I was hoping for a lineup of faces I could point at and hate. It puts the reason for the happenings on the original ideas of lending money in a shady fashion in so many places that it is hard to point a finger. But the book is complete enough to point it at some. Greed certainly had its place there, and it lasted not only through the years 2005 to the crash, but right through the government's infusion of help in the way of money and taking over certain areas to control the financial future in a certain way. You learn this in the last 12 pages of the book, but there is enough larceny throughout to get anyone's blood boiling. The writing is good and it's understandable. There are a couple places where I got a little bogged down but what can you expect from book about economics. I have read probably 15 or so books about economics and financial techniques and events and this is one of the easier to understand. It has a pretty good flow to it. But I think the reader probably will be better served if they have an interest in that kind of thing. If not, I think it will be a more difficult or require more work to get through the book.

[Tiffany Conner · Rating 4 out of 5]

I must profess at the outset that I have a bit of a nerdy girl-crush on Bethany McClean. She is everything I wish I could be: Intelligent, articulate, well-versed on topics of financial and economic complexity, and a respected journalist. She's also very beautiful, but I am what I am so far as that is concerned.

I continue to read as much as I can about the Crisis of 2008. Maybe it's because I am unemployed and grow more and more bitter with each day? Maybe I'd like to be able to rail against Wall Street with some arguments rooted in substance? There's a little bit of that, but mostly, I'm fascinated, utterly and completely fascinated, by the complexity and outrageousness which went into creating the most disastrous financial disaster of my lifetime. There is more than enough blame to go around for more than one party. Truth be told, it's next to impossible to blame just one party. But the drama's usual players are to be found here: Subprime mortgage, derivatives, lax regulation, greed. Even so, McClean and Nocera do a fine job of revealing a few little known tidbits. For example, how many people know that more than half of the subprime loans given during the lead up to the crisis were not even for first-time home buyers? Most of the loans went to people seeking to purchase second homes or looking to get loans to make improvements on their current homes. Conservatives in denial (and also in the pocket of Wall Street contributors) like to place the blame on "borrowers taking out loans they knew they could not afford." That was a significant problem, but this didn't stop mortgage officers from falsifying applications or slacking on underwriting because they were being told that Wall Street needed more loans to put into the hot new instrument (Collateralized Debt Obligations) making everyone rich. Feed the Beast. This didn't stop mortgage companies from pushing applicants who could have qualified for prime loans into subprime loans. Why? Because subprime loans offered more in the ways of fees and compensation. And then there were the credit ratings agencies agreeing to offer the best ratings to securities they knew were junk. It's hard to refuse the request of the very banks upon whom you are dependent for your survival, isn't it?

This book is dense, but well worth the effort. I'm not a finance mind and there was enough history and profile-type writing in this book to make it approachable for an intelligent reader. McClean and Nocera are equal opportunity in that they don't politicize this story. It's easy to want to, but as mentioned, there is plenty of blame to go around for anyone.

[Matt · Rating 5 out of 5]

I've read a number of books on the financial crises and, for a layperson, think I have a pretty good grasp of what exactly happened. However, it never really *clicked* until I read this one. I had the vocabulary but it still seemed abstract. The Big Short was easy to understand but too anecdotal. To Big To Fail was an amazing play-by-play of the actual crisis but pretty scant on the underlying causes. 13 Bankers was somehow forgettable (though in fairness, I read it start to finish on a plane to London). This one *nailed* it. It's not shrill. It's not an anti-Wall Street screed, but it's also not an apologetic. It's soundly argued and well-written, knowing when to get broad and when to focus nearer. Most importantly, it cemented what I knew and made me aware of what I don't understand (I can't quite get my head around synthetic CDO's, as yet). This is an amazing book, and one I imagine I'll return to.

[William Schrecengost · Rating 4 out of 5]

A pretty good history of the 2008 financial crisis. I liked how the authors showed that it was about 30 years in the making. How the banks, government, rating agencies, and investors were all doing things that set up this spectacular debacle. The authors also did a good job of showing that there was an abundance of early warning signs that were all ignored, probably because of an unrealistic level of confidence in the rating agencies.

[James · Rating 3 out of 5]

I liked the book for its comprehensive set up of why the financial crises happened. Could have been written a little more engaginglz for example I thought sorkins too big to fail was much more entertaining,

[Raja · Rating 2 out of 5]

I was looking for a good introduction to the 2008 Financial Crisis and this was not it. Somehow way too much detail and not enough detail at the same time: too many "characters" with couple sentence bios that make them seem significant, but who end up being insignificant, and the few financial terms that are defined in any detail usually reference other financial terms. I've loved reading popular histories that strike the right balance between academic and popular (see: The End of the Myth: From the Frontier to the Border Wall in the Mind of America) and that have tight sentence structure. This books doesn't meet either criteria.

So what I took away from this book is a list of things that seem important, but that I still don't understand:
-How exactly does a CDO work and how did it enable the endless repackaging of base mortgages (that themselves were often refinancings)?
-What lessons should public finance take away from how Fannie Mae and Freddie Mac performed during the crisis, especially in light of our current housing crisis? Other than trying to prevent regulatory capture lol
-How should this type of systemic risk be measured and managed? Seems like value-at-risk is not nearly enough.
-etc. etc.

In fairness, I don't think this was written as an intro. The book was published in 2010 and seems to try to distinguish itself from the several other books on the topic by conducting and showcasing lots of interviews.

It does show the personal foibles of plenty of finance execs (and often seems to go to pains to minimize Goldman Sachs role/intent in the crisis -- not entirely surprising given the background of one of the authors). And it does cast a wide net of culpability, in particular I had not heard much criticism of the role quants and certain Congresspeople had played. But overall, I felt like this was more of a time capsule from the immediate aftermath of the crisis than the popular overview I had hoped for --especially after reading recommendations from Mehrsa Baradaran and Segue Sustainable Infrastructure.

[Susan in NC · Rating 4 out of 5]

I don’t pretend to understand the complex financial instruments described in this excellently reported and written account of the financial crisis of 2008, but I do understand and remember from the news at the time, this was a predictable and preventable crisis.

Most of us learned timeless things like “there is no free lunch”, “buyer beware”, “if it seems too good to be true, it probably is” from our parents or teachers. We were all appalled when we heard the stories from the subprime housing crisis, the janitor or retail worker making minimum wage, but getting pushed into a six-figure loan they had no hope of paying for, and the sleazy loan officer falsifying documents, or not requiring documentation, to get the loan out the door. Inevitably struggling people ended up “under water”, and walked away from their houses. Some never even moved in, knowing they couldn’t pay - that wasn’t supposed to happen, the whole rickety house of cards (pun intended) was built on the specious notion that home values only go up, and home ownership was sacred.

As this book clearly lays out, through exhaustive reporting, the housing market crisis built up over decades:

“The seeds of financial disaster were sown more than 30 years ago when three smart, ambitious men, working sometimes in concert - allies in a cause they all believed in - and sometimes in opposition - competitors trying to gain advantage to over each other - created a shiny new financial vehicle called the mortgage-back security. In simplest of terms it allowed Wall Street to scoop up loans made to people who are buying homes, bundle them together by the thousands, and then resell the bundle, and bits and pieces, to investors.”

The authors go on to explain how a bond trader, his arch rival who would go on to found one of the world’s largest asset firms, and the CEO of the Federal National Mortgage Association (also known as Fannie Mae, a “quasi-governmental corporation”) got the ball rolling. All three believed that they were doing something very innovative but also important, making the American dream of owning a home possible (not to mention all the money that their firms could make from the mortgage back securities).

The authors go on to profile a rogues gallery of idealistic, greedy, venal, hard-charging (a few sociopaths sprinkled in there, I’m sure) go-getters, some of whom truly believed they were helping people, many who just loved the money, power and competition of Wall Street. There were regulators who tried to be Cassandras warning of the risks with subprime mortgages pushed out because they got in the way of the money train. There were old school bankers and traders who knew risk and the importance of managing it, but didn’t realize the hidden systemic risks being created by the complex new financial tools.

I was fascinated by both Countrywide founder and CEO Angelo Mozilo, and the controlling AIG CEO Hank Greenberg. They were both smart, tough, old school businessmen, who believed in the importance of underwriting standards and sound risk management, but “...by 2006, there was a distinct Dr. Jekyll and Mr. Hyde-like quality to Mozilo.” He had long been warning that subprime lending was getting the industry into dangerous territory, but he was sure it wouldn’t be a problem for Countrywide - they weren’t “just some fly-by-night subprime lender”. Greenberg was so controlling of the insurance business he built up and called his ‘baby’ that his own two sons worked for him for awhile, but left once they realized he wouldn’t name a successor, and wanted to hold so tightly to the reins that all of the various businesses and their managers were siloed off. Goldman Sachs, on the other hand, which weathered the crisis better and is again flourishing, encouraged open communication among divisions and was obsessed with risk and managed it better. But as the authors note in the epilogue, Americans were still pissed at the bailouts and wanted to break out their pitchforks!

I am glad I finally read this book - especially given the exuberance the market has displayed throughout the pandemic, and with the housing market heating up again. I don’t know where this market will leave us, but all of the economic inequality challenges we face as a country are again on painful display. More helpful information and solid reporting, like this book, can’t necessarily explain complex financial instruments, but can remind us that the buyer must beware - because human nature doesn’t change, and there will always be immoral greedy people willing to take advantage of others to make money. Assuming the worst won’t or can’t happen, and someone must be keeping an eye on questionable behavior, whether it’s greedy con men, lazy regulators or idealistic but naive policy makers, is no longer good enough. We have to pay attention and be responsible in and for the financial commitments we take on - there is no free lunch, and if it seems to good to be true, it probably is!

[Lydia · Rating 5 out of 5]

An absolutely exceptional read. All the financial stuff is really clearly explained, even if it is often still difficult to understand, and what is never in doubt is how men united by ignorance, hubris, cowardice and pure, selfish greed can and will always find a way to screw the rest of us over, whenever and however they can.

[Felix · Rating 5 out of 5]

I consider this to be the best book on the financial crisis, edging out Nouriel Roubini's Crisis Economics and significantly better than Michael Lewis's Big Short. Roubini excels more at explaining more of the economics in systemic big-picture terms and also laying out reform proposals to prevent the next crisis, but overreaches quite a bit with the latter and reads a bit more like a textbook due to a lack of characters and narrative. Lewis has plenty of narrative, concentrating on several individuals with a good view as to what was going on, but is a bit narrowly focused.

All the Devils are Here has a decent mix. It has a very comprehensive scale. I've read a significant amount of academic literature on the topic, but this one still filled in the gaps, as I didn't yet have a good grasp of what was going on in the ratings agencies. I also learned a lot more about the role of the GSEs (Fannie Mae and Freddie Mac) from this book. It also has plenty of vivid characters playing a variety of roles. There are almost too many, and several seem a bit stock in nature, but it still holds together quite well. Despite the topic, it's a rather quick and lively read, and the interaction between Brooksley Born and Bob Rubin is probably the most gripping (and a better treatment than the Frontline special on Born).

Unfortunately, neither author is well-versed in economics, so it's a rather short on analysis and has absolutely no reform proposals whatsoever. This is both a pro and con, as it refrains from being overly didactic and/or political (both flaws of Roubini's book), but it also makes for somewhat more superficial coverage. I can see readers leaving with the impression that the crisis was due to bad people doing bad things when there are numerous systemic economic issues at its core, but the book does indeed cover these issues (particularly the conflicts of interest at the ratings agencies) even if it doesn't put them center stage.

A bigger flaw is their treatment of the Federal Reserve. This is where I think the authors should have consulted more people with an economics background, as they seem to have the impression that the Fed's role in the economy is largely regulatory when in fact its primary role is to conduct monetary policy -- controlling the money supply. The Fed was the one supplying the excess dollars that inflated the bubble, and this is one of the few points largely agreed upon by economists (even if they disagree on what, if anything, ought to be done to address this).

Still, they get it mostly right (having a decent grasp of the importance of incentives and information and how securitization made a mess of things) , and considering the vast scope of the crisis, it is probably nearly impossible to cover everything and still have a readable book. Despite its minor flaws, I consider this book both a must-read and a very enjoyable read as well.

For my take on the causes of the financial crisis, please see my blog post here.

[Jacob · Rating 4 out of 5]

This is a pretty detailed history of how the 2008 Financial Crisis occurred, recommended by a friend (thanks Brandon!). If you want something a bit simpler and more gripping, The Big Short: Inside the Doomsday Machine is simplified and boiled down to the stories of a few people who made money betting the meltdown would happen. That one's good too, but this one has the tracking down of developments and choices over 30+ years that led to exactly what happened.

I actually can't think of any significant flaws in the writing or research, so this review is going to be a bit boring because there's nothing to pick at. Bonus points for a mention of Oakland as one of the places where predatory lending and defaults started hitting hard as well as other metro areas. The book covers up to 2010 when it was published; it would have been nice to get a little more coverage of what the Federal government (ineffectively) did to try to help things. The $700 billion TARP program is mentioned, but the later and bigger one isn't. Neither are the first time home buyer credits or the numerous things Congress thought of and shied away from, allowing the crisis to extend further than maybe it had to. But if you're looking for detail about the financial crisis and enjoy "hard nonfiction", this is a great read.

[Jim · Rating 4 out of 5]

An exhaustive recreation of the perfect storm leading to the sub-prime meltdown. It is fascinating and while most of the stories come from the people involved and/or other books written on the subject (an endless supply) some of the work relies on information "from someone who was there" or an unnamed "executive familiar" with one meeting or another - a few too many of those references for me but it is a nitpick. If nothing else, reading the book confirmed a few opinions I have formed over time:
1) Goldman Sachs is the sleaziest, slimiest company ever to exist
2) Anyone...ANYONE...in government service can be bought for the right price
3) Alan Greenspan's fairytale Ayn Rand world of market self regulation fails to account for the foibles of human nature, especially greed.
McLean and Nocrea successfully tackle a Herculean web of people, places and events and manage to make sense of it all.

[Mary Jo · Rating 4 out of 5]

The latest in books regarding the financial crisis. Not much new to be added . It is still amazing to me that no CEO 's, traders, no one from the rating agencies or the regulators are in jail. It is pretty apparent that everyone know what was going on, that fraud was occurring and no one did a thing, Somehow the people losing houses Were the only losers . Goldman Sachs betted against their own clients - and won (or lost less than they should ). The ratings agencies perpetuated fraud, loan originators "sold" no doc loans, and no one cared if loans were paid back / in some cases the investment companies made more if the loans were " bad ". So all these institutions who produced no tangible product - became the destroyers of the American dream - that this generation would have a better life than their parents. And the poster child for this vulture economics is running for President on how well he understands our culture,

[Lisa Cindrich]

Well. Just the fact that I was at all able to understand what was going on as the authors described structured investment vehicles and synthetic CDOs and credit default swaps and piggyback mortgages demonstrates the admirable clarity of their writing. And somehow, as they traced 30 years of gathering disaster in the financial markets (with particular emphasis on the role played by subprime mortgages), they managed to imbue the narrative with tension. Does it sound crazy to say that I actually stayed up late a couple of nights reading because I didn't want to put it down?

Definitely hard to feel optimistic upon completion. Moody's! S&P! Regulators! Underwriters! Traders! Fannie! Freddie! Congressmen! The Fed! How you all failed us!

It would be nice to flee the markets, I think. Too bad savings accounts offer zippo interest these days.

[Ayesha · Rating 4 out of 5]

Incredibly thorough and surprisingly interesting. Makes 'The Big Short' seem like a scratch on the surface, which it in fact is. I read this book because I no longer wanted the inner workings of finance to be an intimidating and unwelcoming topic for me. For the most part this book satisfied that goal, although the way the order of events are recounted were a bit confusing, flipping back and forth in time, and from devil to devil for unstated reasons. Having said this, a few years from now I'll likely remember this book more for its easy to understand prose, rather than the minor confusions. This book shows that we all deserve to know more about a twisted world that not only affects us more than we think, but more importantly, feeds off the common man's ignorance. Highly recommend this book to any curious reader.

[Lobstergirl · Rating 5 out of 5]

An excellent job by business journalists McLean and Nocera. One very small peeve: Fannie Mae headquarters are not in Georgetown. One puzzlement: Nocera thanking his friend Sam Waksal in the acknowledgements.

[db · Rating 5 out of 5]

I thought I understood what happened, and I did, but I also had no idea of the personalities, unintended consequences, evil and good actors, including citizens and CEOs who brought on the 2007 economic recession. Excellent read -

[Morgan Kinney · Rating 2 out of 5]

[My boss assigned me summer reading, pt. 2]

You have to marvel at the level of detail presented here. Cobbled together by two authors and presumably an army of unsung research assistants, this book untangles the details of the 2008 financial crisis. As a reader, it washed over me in a mind-numbing spray of interest rates and acronyms. You ultimately lose the forest for the trees.

Compared to “The Big Short” or even an average episode of HBO’s “Industry,” this doorstop fails to illustrate the significance of the events it chronicles. Yes, this is set up as a tick-tock procedural demonstrating the “how” stretching back decades, but the authors simultaneously present too much detail for the average reader and oversimplify matters for the egghead quant.

I was mostly fascinated by the formula they developed to introduce characters. It’s a solution to a problem: How do you introduce a sprawling cast from across dozens of regulators and financial institutions? The answer here is to set them up, virtually without fail, using the same paragraph. You get a sentence or two about their appearance (some variation of “their bald head glittered under the lights of a Senate hearing…”) and another sentence or two about their upbringing and educational background. Then it's back to credit default swaps.

I know that these lame “character studies” are designed to differentiate names and build a narrative — I’ve had editors insert them into my own writing. But the sheer number of introductions following the same formula feels counterproductive, reducing people to constellations of interchangeable datapoints. Even worse is how this book leans on these random pieces of trivia to simplify huge, complex threads of the story. I don't think one sentence about a guy's Division III baseball career explains much about why Countrywide Financial flambéed our country's housing market.

In the end, there is a damning story at the center. But the workmanlike approach — a hallmark of a book rushed to publication by a desire to be “first” — makes it hard to get through. A comprehensive account of these events would unfortunately need to be much longer and written with the benefit of additional hindsight (this was published in 2010). In roughly 400 pages, ALL THE DEVILS ARE HERE accomplishes as much as one really good Wikipedia article.

[Mike · Rating 3 out of 5]

If you think you are smart, read this book and you will quickly realize you have a lot of things you can learn. I am not even sure I understand large portions of it outside of the broad strokes of the calamity. I thought about quitting after 20 pages, but I kept reading, and eventually, everything started to coalesce enough that I didn't totally waste my time. I definitely learned some stuff and probably would say if I read 10 more books on this subject, I might be 50% competent. Don't get me wrong; I think the book is very well written and captivating enough - it's just that the world of finance is incredibly complicated for someone, such as myself, who has minimal knowledge and experience.
I enjoyed learning, however, and the authors did as good a job as could be expected in explaining complicated financial and economic principles to the layperson. I will likely undertake more reading on this subject to strengthen my tenuous grasp.
Despite my diffidence, I was heartened to read various passages that explained that nobody really fully understands everything about this - so that was uplifting in the moments I felt like a dummy. Two of my favorite movies are "Too Big to Fail" and "The Big Short" which I think helped me make enough connections while reading this book to keep my head above water.
P.S. Bethany McLean is a total babe. 🔥

[Monzenn · Rating 5 out of 5]

One day, I probably have to look back at my "2007-08 Global Financial Crisis" sublibrary and reassess ratings. Much like the ratings agencies, I may have been using stale methodology to give five stars to a majority of those books. Perhaps some of them don't deserve to be in that triple-A-esque environment.

Not today, though.

As far as I'm concerned now, so long as a GFC book is engaging and shines a spotlight on another market, it gets my nod. Calling the book a "hidden history" may be a tad too much, but I did get new insights from Fannie and Freddie and from a few of the mortgage originators. So I think it did fine in that regard. Not to mention the book was as engaging a read as Maclean's Enron tome. All good, then.

[Jay French · Rating 4 out of 5]

It’s a how-to book, but not the best kind. To accomplish what the businessmen (and occasionally mentioned businesswomen) created, you really had to be in the right place and at the right time. The right place was in a mortgage bank or financial firm, and the right time was the decade or so leading up to the 2008 financial crisis. This is the book on the building of that crisis. The focus is the building blocks of derivative contracts based on mortgages, passing off more and more risk in financial instruments as non-risky investments. The crisis deepens through the first ¾ of the book, with the last quarter of the book describing the subsequent crash and the immediate impacts of the rapid unwinding of those derivatives. I’ve read other books on the financial crisis that seemed more “back end heavy” in terms of focusing on the crisis and the response. This is more on the build-up.

And what a story it is. The moral seems to be “do your homework, especially if your assumptions have never been tested”. Well written, engaging, with plenty of anecdotes about powerful (mostly) men with over-sized personalities, and often egos.