Gary Benedix

Jason Kwong

Louis Toedt

Discussion Questions from “All The Devils Are Here”

1.) “The seeds of financial disaster were sown more than 30 years ago when 3 smart, ambitious men… create a shiny new financial vehicle called the mortgage-backed security. In the simplest of terms, it allowed Wall Street to scoop up loans made to people who were buying homes, bundle them together by the thousands, and then resell the bundle, in bits and pieces, to investors. “ (p.4)

What potential long-term problems could you imagine coming as a result of this financial vehicle?

2.) “Though a 30-year fixed mortgage may seem simple to a borrower, mortgages come full of complex risks for investors. 30 years, after all, is a long time… part of the answer came from tranching, carving up the bond according to different kinds of risks. Investors found this appealing because different tranches could be jiggered to meet the particular needs of different investors.” (p. 8)

Tranching has obviously changed the nature of the relationship between borrower and lender into a baffling economic reality. Do you feel that tranching could theoretically possess the redeeming quality of encouraging a greater level of investment in the housing market, or is this merely a ‘quick fix’ scheme and not worth the risk of long-term fallout?

3.) “At one congressional hearing, [the] chairman of the Mortgage Guaranty Insurance Corporation, a private insurer of mortgages, offered up a prophetic warning: …’we should… have appropriate and equivalent concern relative to keeping people in houses.’ Historically, he noted, less than 2% of people lost their homes to foreclosure, because ‘what was good for the lending institution was also good for the borrower.’ But the new securitization market threatened to change that, because once a lender sold a mortgage, it no longer had a stake in whether the borrower could make his or her payments.” (p. 19)

With such an abstract relationship between borrowers and lenders emerging in the late 20th century, should anyone have been surprised by the recent financial crisis? Can a system in which lenders have no stake in borrowers being able to make their payments ever hope to succeed on any level?

4.) “On July 21, 2010, President Obama signed into law the Wall Street Reform and Consumer Protection Act…. unquestionably, the biggest change in the regulation of the financial industry since the aftermath of the Great Depression… the federal reserve would get new powers to look broadly across the financial system. A council of federal regulators led by the Treasury secretary would help ferret out systematic risk. A new consumer agency was created to help end the lending abuses and keep people from getting loans they could never hope to pay back…. The bill creates a process to liquidate failing companies, so that there is a reasonable alternative to bailouts.” (p 358)

Are these changes enough to make you agree with President Obama’s assertion that, “because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes?” Why or why not?

5.)“The bank and their political allies seemed to want to pretend that the crisis hadn’t ever happened at all.” “Thanks in large part to continued support from the Federal Reserve…the big banks had quickly returned to profitability.”Jamie Dimon, CEO of JP Morgan, whose company paid back the money loaned by the government, said that “Americans needed to get over their anger at the banks.”

While Wall Street was recovering and creating profits, Main Street was hurting. “Those same, mostly poor neighborhoods where the predatory practices of the subprime companies had been most prevalent; that’s where you could see it. Just as homeowners in those neighborhoods had been the ones most taken advantage of during the bubble, they were now the ones paying the price in its aftermath.” (368-369)

With Wall Street striving again and the American people continuing to feel the effects of the housing crisis, was the United States government correct in not bailing out homeowners who were in the state of foreclosure? If not, what should have been done?

6.)Regulation is either a solution or a problem depending on how a person views Wall Street. Some, such as Alan Greenspan, view government regulation as unnecessary. They believe that the market will do its own regulation while remaining profitable. Others believe that current regulatory bodies are purposely neutered to prevent them from meaningfully interfering with the financial sector. Undeniably, regulationsare intended to bring accountability to the financial industry, but how much power do regulatory bodies need to be maximally effective?

7.) This book holds sacred the view that desire for increased home ownership spurred the growth of mortgage-backed-securities and subsequent other financial investments. It was with this mindset that banks and other financial institutions moved away from traditional 30-year mortgages and expanded into shady areas such as sub-prime mortgages and other predatory tactics such as hidden fees, fraudulent appraisals of homes, and robo-signing loan documents. Does the American Dream place too much emphasis on homeownership or to what extent should homeownership be encouraged on a national policy level.

8.) Financial crises have occurred in the past, and afterwards there have always been attempts to prevent future crises from occurring in the same way. With this history in mind, is it conceivable that the country can hope to prevent this boom and bust pattern from continuing in the future or will our efforts be spent better mitigating the negative effects of any future financial crises because they are inevitable in our capitalist economy?