A comprehensive account of the rise and fall of the
mortgage-securitization industry, which explains the complex roots
of the 2008 financial crisis. More than a decade after the 2008
financial crisis plunged the world economy into recession, we still
lack an adequate explanation for why it happened. Existing accounts
identify a number of culprits-financial instruments, traders,
regulators, capital flows-yet fail to grasp how the various puzzle
pieces came together. The key, Neil Fligstein argues, is the
convergence of major US banks on an identical business model:
extracting money from the securitization of mortgages. But how, and
why, did this convergence come about? The Banks Did It carefully
takes the reader through the development of a banking industry
dependent on mortgage securitization. Fligstein documents how
banks, with help from the government, created the market for
mortgage securities. The largest banks-Countrywide Financial, Bear
Stearns, Citibank, and Washington Mutual-soon came to participate
in every aspect of this market. Each firm originated mortgages,
issued mortgage-backed securities, sold those securities, and, in
many cases, acted as their own best customers by purchasing the
same securities. Entirely reliant on the throughput of mortgages,
these firms were unable to alter course even when it became clear
that the market had turned on them in the mid-2000s. With the
structural features of the banking industry in view, the rest of
the story falls into place. Fligstein explains how the crisis was
produced, where it spread, why regulators missed the warning signs,
and how banks' dependence on mortgage securitization resulted in
predatory lending and securities fraud. An illuminating account of
the transformation of the American financial system, The Banks Did
It offers important lessons for anyone with a stake in avoiding the
next crisis.
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