Architects of Ruin: How Big Government Liberals Wrecked the Global Economy―and How They Will Do It Again If No One Stops Them – A Political Examination of Economics and Policy

by Peter Schweizer

In Architects of Ruin, New York Times bestselling author and conservative historian Peter Schweizer argues that the economic crisis was caused by liberals who used the power of government to create a subprime mortgage bubble that has ravaged the global economy. Rebutting charges that the financial collapse was caused by conservative deregulatory zeal, Schweizer, the author of Do as I Say (Not as I Do): Profiles in Liberal Hypocrisy, shows that it was actually the result of “do-good capitalism.”

Genres: Politics, Economics, Nonfiction, History

240 pages, Paperback

First published January 1, 2009

About the author

Peter Schweizer is a research fellow at the Hoover Institution, Stanford University. From 2008-'09 he served as a consultant to the White House Office of Presidential Speechwriting and he is a former consultant to NBC News. He has written for the New York Times, Wall Street Journal, Los Angeles Times, USA Today, National Review, Foreign Affairs, and elsewhere. His books include The Bushes, Reagan's War, and Do as I Say, Not as I Do.

Reviews

[Amora · Rating 4 out of 5]

How did the 2008 financial crisis happen? Was it the result of predatory lending or banks being left unchecked? According to Schweizer, the answer is neither. What caused the financial crisis was efforts by activists and politicians to increase homeownership with minorities and the poor. Proponents of this did this by loosening lending standards and creating quotas for banks. By creating quotas, banks began giving away loans left and right to minorities and the poor, even if they weren’t qualified for a mortgage. How does Schweizer prove that the efforts by activists and politicians caused the crisis? Schweizer shows concrete data showing that most defaults occurred in poor and minority neighborhoods during the crisis. Excellent book with dozens of citations!

[Andria Potter · Rating 1 out of 5]

It's a shame that so many people think bettering everyone regardless of race or sex is such a crime.

[Dana · Rating 5 out of 5]

Up until this plain-language, well researched and sensible book I was on-board with the narrative that greedy unscrupulous predatory lenders foisted their subprime mortgages on the unsuspecting poor then sold the high-risk loans off as mortgage-backed securities to foolish pension-fund investors who bought without due diligence.

This book shines the light on another hidden aspect of the problem. Well-intended, do-good activists with the social justice agenda of making home ownership available to the poor advanced their cause by exposing what seemed like discriminatory lending by "racist" banks. Banks were only lending to credit-worthy people. This was clearly unfair and had to stop. Government liberals jumped on this cause and enacted legislation to force banks to loosen underwriting rules. Banks were made to comply by relaxing rules. They had to make NINJA loans to people with no income, no job, no assets. When the banks objected the government sweetened the deal by buying the bad loans and attendant risk away from the banks thus infusing more capital with which the banks could continue lending to the unqualified and making profit with no risk. But loose lending criteria alone wasn't producing new home ownership fast enough because down payment requirements still impeded lending to the poor so the government supplied down-payment grants to borrowers who could now borrow with no skin in the game at 100% loan-to-value.

With the new incentives rational bankers ratcheted up the process of risk-free profits. They couldn't do it fast enough.

Thus the subprime mortgage fiasco started and ended as many predicted - horribly. The people at the root cause of this government/activist push have not learned anything and continue to place blame squarely on the "unregulated" greedy lenders and are calling for more regulation, and not realizing that it was government meddling that fueled it.

Well written, clear and enlightening. Looking up the references in the copious footnotes to verify some unbelievable claim is eye-opening. OMG.

[Walter · Rating 5 out of 5]

Architects of Ruin
by Peter Schweizer

By 2007 up to 4.2 Trillion dollars of sub prime loans had been made. "By 2005, almost 33 percent of the new mortgages were interest-only and 32 percent of new home buyers put no money down "(Schweizer, 2009 ).

Peter Schweizer's book: Architects of Ruin explains how these dire credit conditions and the resultant economic calamity happened.

Schweizer asks and answers this question: "Why has this story been missed? It isn't all that hard to understand. First of course, the operations of quasi-governmental agencies such as Fannie Mae and Fredddie Mac are shrouded in layers of bureaucratic tedium. Few reporters take the time to actually dig into their inner workings. Besides, they are governed by congressional committees, so people naturally assume that some responsible is paying attention."

Carter
Schweizer details how activist organizations developed tactics to challenge redlining. This was begun by Jesse Jackson's PUSH and Gale Cincotta of NPA and Acorn.

"In 1976 Cincotta began pushing for something she called the Community Reinvestment Act (CRA). Again , the idea sounded simple enough: declair that banks have "an afffirmative obligation: to lend to people in their own neighborhoods, and make their record of doing so part of the approval process for mergers, acquisitions, or expansion. In short , make it the law that banks needed to lend in areas they had traditionally avoided out of fear that they were poor credit risks." Page 16.

Reagan and Bush I
"For more than fifteen years, fair housing activists had been using the Community Reinvestment Act to compel banks to make increasingly risky loans. Using tactics of intimidation, delay, and public embarrassment, they had achieved stunning results. By 1990 some $5 billion had been shaken from banks through these tactics."

Clinton
"By early 1995, the Clinton administration was pushing a revision to the CRA. It wanted a numerical quota system to be used to evaluate whether banks were loaning enough to low-income and minority groups." Page 66

"By the middle of the Clinton administration, Fannie and Freddie were no longer simple lubricants of the American financial system. Instead, they became ground zero of a vast social engineering project that was willing to take exorbitant risks with taxpayer dollars. Once securely in the hands of idealistic baby boomers who constantly confused their corporate mission with their activist vocation, these institutions soon abandoned their traditional conservative approach to mortgage finance and became avenues for relaxed lending standards, helping in turn to inflate the subprime credit bubble." Page 80

"Meanwhile , the Clinton adminstration had created a culture of government-funded risk in the financial markets and in collusion with Wall Street had midwifed a new form of state capitalism. The constant bailouts of failing Wall Street firms meant that the large banks and investment houses were shielded from the consequences of unruly speculation." Page 153

By the end of the Clinton administration, Treasury Secretary Robert Rubin could proudly announced that "the number of home mortagage loans extended to African-Americans has increased by amost 60 percent, to Hispanics by a little over 60 percent, to low and moderate income borrowers by a touch under 40 percent, figures that are well above overall market increases." page 72

Bush II
"Owen Ullmann, a former BusinessWeek writer who covered economic policy for USA Today, wrote of Fannie Mae, 'It will hire key government critics to buy their silence, and it will intimidate lawyers, consultants and financiers who go up against it by pressuring clients of opponents to withdraw their business.' he goes on to quote a congressional source: 'Fannie has this grandmotherly image. But they'll castrate you, decapitate you, tie you up and throw you in the Potomac. They're absolutely ruthless.' Not what you expect to hear about a government-sponsored agency." (Page 108)

"To cope with the rising tide of concern in the Bush administration and on Capitol Hill, Fannie and Freddie embarked on a an ambitious political plan." (Page 111)
"Fannie and Freddie sponsored more than eighty fund-raisers for congressional candidates, even though federal law bans corporations from engaging in direct political activity. This blatant violation of the law would lead to a record fine of $3.8 million from the Federal Election Commission." (Page 111)

"Both Snow and Greenspan were blunt: 'The mortagage portfolios of Fannie Mae and Freddie Mac present a risk to the nation's financial system and federal geovernment.'
"In early 2003, the Senate Banking Committee approved bill to tighten the regulation of these lenders, thanks to the support of every Republican on the committee. All committee Democrates voted against it. The bill was killed on the Senate floor." (Page 113)

"As she wrote, "Since 1996, sub-prime lending has grown 489% -- from $90 billion to $530 billion -- largely through the extension of credit to first-time borrowers." (From Meredith Whitney page 160)

"Mortgage-backed securities are very complex investment tools. Basically, they involve pooling large batches of mortgages, splitting them up into small pieces, and selling the resulting products to investors as securities." (Page 161)

Conclusions
"Vernon Smith, a Nobel laureate in economics, says the federal government 'set the stage for housing bubbles by creating those implicitly taxpayer-backed agencies, Fannie Mae and Freddie Mac, a lenders of last resort.' In other words, far from being the results of runaaway capitalism, the housing bubble and the financial crisis that followed are the results of runaway government." (Page 119)

"The great irony is that those who unleashed this economic calamity appear to be the main beneficiaries of the crisis they helped to create. What's more, they are back in power today and are basicaly planning the next one." (page 166)

[Grace · Rating 5 out of 5]

One of the most informative books I've read in a long time. How was the public not made aware of just how underhanded the Democrats were during the Clinton years (and even before then) in their quest to fundamentally destroy, or in their words "reshape", the American Dream?

[Bojan Tunguz · Rating 5 out of 5]

The financial meltdown of 2008 has turned into one of the greatest economic crisis in history. Like most other economic crisis of that magnitude, it seemed to have come practically out of nowhere, and it will be analyzed and discussed by the historians, political scientists and economists for the decades to come. For all of us who have to live with its consequences it matters very little in the short run what really caused this crisis. However, it would be good to know with some level of certainty what major miscalculations lead to this unraveling of the global financial system, so hopefully we can avoid a similar fate in the future.

The two main culprits have emerged for this latest economic catastrophe: the government-subsidized and controlled mortgage industry, and the Wall Street investment banks. Those on the political right had vilified the former ones, while the political left reserved all of its contempt for those "greedy" capitalist bankers. It turns, according to this book, that both sides are right. The mortgage industry has been systematically under the assault of various "community" organizations for almost half a century, and in that process it had been gradually forced to abandon many of its core landing standards in order to appease various activist interests groups. One of the more valuable qualities of this book is the very detailed reconstruction of the architecture of this process. In particular Schweizer claims that most of the rationale and the methods for the shakedown of banks can be traced to Chicago activist Saul Alinsky. I not knowledgeable enough on this subject to ascertain its veracity, but the fact remains that a significant number of high-ranking Democratic politicians and activists are the product of the "Chicago school." Schweizer does not refrain from naming names and this book is a much more ground-level description of the unsavory housing regulations and mortgage industry practices than for instance Thomas Sowell's The Housing Boom and Bust: Revised Edition.

For me at least, the real eye-openers were the chapters that dealt with the financial industry. Far from being a bastion of pure capitalism, the Wall Street according to Schweizer had over the years become increasingly reliant on governmental support. The massive seven hundred billion dollars bailout in the fall of 2008 was only the latest instance of the federal government having to bail out the financial sector in recent decades. In effect, these large banks have come to expect that if anything were ever to happen to them they could rely on public money to get them out of the sticky situation. In a phrase that had since become widely used, they were "too large to fail." As in the case of the mortgage industry, I am far from being an expert in these matters, but the claims that Schweizer is making seem eminently plausible.

This is an important book that reveals some startling facts about the interplay between the activist community organizers, banking industry and politics. As far as I am concerned, this is the most plausible and comprehensive explanation of the 2008 financial crisis. I hope as wide of an audience as possible gets to read it.

[Nathan · Rating 3 out of 5]

When I first saw the book, the subtitle seemed hyperbolic and inflammatory. The guy backs it up with plenty of documentation. His claim is accurate.

He downplays a little too much the role Republicans played in the disaster. We all remember George Bush and Karl Rove's "ownership society." Yes, this was a consequence of liberal policies, no matter which party was pushing them along.

The best thing the author did was to refute the idea that the crisis was a failure of the free market system. The market isn't free, and that is precisely the problem.

[Jon · Rating 4 out of 5]

There are a couple of narratives "out there" about how we ended up with the subprime meltdown and the massive government bailouts a couple of years ago. One of them blames the lack of government regulation of the banking industry for encouraging predatory lending practices, and the other blames the government for encouraging banks to make loans to people who traditionally didn't qualify for them, and encouraging big financial players to take on huge risks, with the expectation that the government would bail them out if the worst happened. This book is a tale of the second of those.
Schweizer traces the roots of the subprime mess back to the Community Reinvestment Act, which was designed to stop the passive racism of banks denying loans in geographic areas that were heavily black or hispanic. It was thought that home ownership would be the key to raising minorities out of poverty. People in poverty stricken areas typically do not have good credit ratings, substantial down payments, or (obviously) a history of steady income. These are things which banks have traditionally looked at when underwriting home loans.
A rather large coalition of activists pushed the government and banks to relax their lending standards in order to get more minorities loans to own their own homes. They demanded that things like paying rent and utility bills should be considered as if they were a part of credit history, and that down payment requirements be reduced from 20% to 5% and even, eventually 0%, with flexible methods of covering closing costs, and that verifying income be downplayed, resulting in the "stated income" rule. As a result of these changes, home ownership among minorities did indeed increase, but the relaxation of traditional lending standards introduced an element of risk that had not previously been there, and so there were billions of dollars in loans that were extremely likely to fail.
In addition to this, over the last couple of decades, firms like Goldman Sachs and Bear Stearns had made risky investments in places like Asia, Russia after the fall of communism, and Mexico. When the governments in those places came to the point of defaulting on their bonds, and these firms and others like them should have taken the loss, they were determined to be "too big to fail" by their political allies in Congress and the White House, and taxpayer money was used to bail out those investments, so that the financial companies reaped all of the profits, but the American people covered the losses.
The law of unintended consequences and the snowball effect created the huge housing boom, and the speculative runup of home prices with cheap borrowed money. When the bubble collapsed, it delivered a massive hit to the US economy, and we're in the midst of a recession today because of it.
There's a ton of interesting information and history in this book, and I highly recommend it to anyone able to stomach the double-dealing and corruption that plague our government these days.

[Steven H · Rating 3 out of 5]

WAS THE CAUSE OF THE FISCAL CRISIS "LOWER LENDING STANDARDS" PUSHED BY THE LEFT?

Peter Schweizer (born 1964) is a conservative author and a research fellow at Stanford University's Hoover Institution; he has also written books such as 'Do As I Say (Not As I Do): Profiles in Liberal Hypocrisy,' 'Makers and Takers: Why Conservatives Work Harder, Feel HappiER...' and, 'Victory: The Reagan Administration's Secret Strategy That Hastened the Collapse of the Soviet Union,' etc.

He wrote in the Introduction to this 2009 book, "This book will illuminate the hubris and impatience of liberal baby boomers who for the most part have spent their careers in government, high finance, and social activism and as a result know almost nothing about how wealth is actually created in the system that has been entrusted to their care... this book is meant to be a cautionary tale... about what the future will hold in an era of liberal economic dominance."

He is particularly critical of the 1976 Community Reinvestment Act (CRA), as well as the ACORN activist group, arguing, "There is a direct line between the CRA and the explosion of so-called subprime loans a decade later." (Pg. 45) He asserts that although President Clinton meant to help renters by encouraging home ownership, "the greatest victims were the very people Clinton was trying to help." (Pg. 73) Later, he charges that Fannie Mae and Freddie Mac "were effectively hijacked by liberal activists who helped change their mission." (Pg. 77) He admits, though, that subprime lenders were "willing accomplices in a massive social engineering scheme." (Pg. 103)

He strongly criticizes various foreign "bailout" programs of the 1990s and later (e.g., Mexico in 1995), summarizing that "at taxpayers' expense, U.S. investment houses were walking off unblemished and unchastened, with extra money in their pockets." (Pg. 134-135) Later, he says bankers were thus encouraged to "risk and risk big because the government would bail them out." (Pg. 147-148) Ultimately, he blames "the relaxed lending standards championed by the Left for some thirty years: no-money-down loans and liberal underwriting." (Pg. 159)

You may or may not agree with the conclusions reached by Schweizer, but this is one of the most detailed presentations of this viewpoint of the economic crisis of 2008-2009.

[Leib Mitchell · Rating 5 out of 5]

There is a lot to be taken away from this book.

1. This book could be read as a discussion of policy lending/ the use of banks as policy lenders. This is something that has been tried and has failed countless times. Japan. China. Taiwan. South Korea. The names and dates are a bit different, but the results are exactly the same.

2. This book could be read as a discussion about some of the costs of free speech and free press. In the case of multiracial Singapore, there is a law on the books that puts any erstwhile Al Sharptons/ Jesse Jacksons/ Gail Cincottas in jail to think about the consequences of their words. Many Americans have this idea that Every Good Thing must follow from the unlimited ability to say what you want to say, but this book shows that some reevaluation of that belief might be necessary.

3. This book could be a discussion on the use of black people as tools / cudgels for someone who wants to foment revolution for his own purposes/ personal vanity. The theme that was shown time and time again in this book was some person wanting influence and incidentally finding some number of useful idiots (nearly all of whom happened to be black) to press that point.

4. This book could be an expansion on points that have been made by Eric Hoffer about fanatics (people who are inflamed about anything at any time just for the same of being inflamed).

5. This book could be read as an indictment on the Obama administration. This person came from a corrupt political machine (Chicago-- ever noticed how every single bad thing seems to start there?) and how it relates to the origins of the current corrupt, dishonest administration.

6. This book could be read as an example of how racial politics can destroy a country.

Of the mechanics of the book:

1. Schweizer's prose is very linear, clear, interesting, and easy to read.

2. As with his other book that I've read (Do As I Say Do), there is a yeoman's work that has gone into combing *years* of articles and press clippings and more than a passing familiarity with the press.

3. The entire book should take about 3-4 hours to read.

Verdict: This book is worth the time (and mine is very scarce these days) and worth the money. I highly recommend it.

[Don Lewis · Rating 4 out of 5]

Revealing

Thanks for sharing Peter. A very good explanation of bubbles created and the value of government participation in private sector activities.

[Diane Kennicker · Rating 4 out of 5]

This book was published in 2009, and it was very informative about how government meddling in the banking industry, because of activism and social justice, had done great damage to the US economy. I read how the banks were bailed out with the start of the Clinton era, and how it became 'expected' for the government, via taxpayers, to bail out Fannie, Freddie, and other big-name financial institutions. This book helped me to understand about the

[Steve · Rating 3 out of 5]

Good explanation of today's bailout culture. Covers the real estate meltdown mostly, but hits the financial crises of the 90's as well. Very Informative but not especially stylish.

[Gretchen Davis · Rating 5 out of 5]

Excellent analysis of government corruption.

[Doug J. · Rating 3 out of 5]

The government is not the peoples' friend and this book shows why.