SHAKY GROUND

The housing sector is a house of cards.

So economics writer McLean (co-author: All the Devils Are Here: The Hidden History of the Financial Crisis, 2010, etc.)—who, having covered Enron in The Smartest Guys in the Room and the financial meltdown of 2008, knows a thing or two about such constructs—reveals in this report from the trenches. One conclusion comes early on in this latest book, a brief exposé: namely, that we have it all backward by privatizing health care and socializing mortgages, the reverse of most countries. “Most of the mortgage market in this country,” writes McLean, “is now supported by government agencies, more so than it was before the financial crisis.” Fannie Mae, Freddie Mac, and other government-sponsored enterprises may have helped precipitate the crisis—as the author notes, by 2006, almost three-quarters of all mortgages issued in the U.S. were less than prime—but they weren’t the only causes. Furthermore, though the surviving banks are pretty much back to normal, the mortgage market is not, retaining its old vulnerabilities while layering on bureaucracy. The result: when the next crisis comes, McLean suggests evenhandedly, the mortgage sector will lead the decline. The author charts the situation in vigorous prose whose arguments are often announced in her chapter titles (“The $9 Billion Accounting Fraud,” “Mr. Hedge Fund Goes to Washington”). What is clear is that the mortgage market requires reform of various kinds, particularly to rein in its tendency to value profit over fundamentals. What is less clear is just how to effect such reform, with recent efforts amounting to a roundabout way “to rebuild a system that, in a key way, would have been similar to what we had”—and that would still leave taxpayers with the burden of paying for the mistakes of the private sector.

Readers of this maddening, sharp report will rightly wonder why Fannie Mae and Freddie Mac have been allowed to survive and why we can’t do better.