By Loyd Eskildson

In The Sellout, Gasparino traces the implosion of the financial services industry back to the late 1970s when Wall Streeters began taking much greater risks. Using leverage to take over companies, restructure, and then sell them at a profit, churning accounts (instead of advising clients on super-safe long-term investments), and making debt-laden acquisitions (instead of suggesting improvements in eg. managing cash flow) became the new, faster routes to wealth. (Leverage in the early 1980s reached 15:1 for those dealing in collateralized mortgage obligations, hitting 30:1 and more by 2008.)
 
Gasparino, however, believes that Wall Street didn't cause the 2008 meltdown unaided. Besides hungry mortgage bankers and bond-rating agencies, Gasparino believes that the U.S. government's history of numerous bailouts, in one form or another, was also a major factor. These bailouts included 1970 Penn Central, 1971 Lockheed, 1974 Franklin Bank, 1975 New York City, 1980 Chrysler and Harley-Davidson, 1984 Continental Illinois Bank,  1989 S&L, 1998 Long Term Capital Management, and 2001 airline industry, as well as the Federal Reserve lowering interest rates to help institutions overcome 9/11 - all making speculation either less risky and/or more profitable, and summarized in the term "Greenspan put."
 
These influences were then acerbated by administration of the Community Reinvestment Act (CRA), per Gasparino. He points out that in 1995, Henry Cisneros, the Secretary of Housing and Urban Development, directed government-sponsored Fannie Mae and Freddie Mac to buy and guarantee mortgages of low- and moderate-income borrowers amounting to 42% of their annual business volume. His successor, Andrew Cuomo, moved the number up to 50%.

The effect was a flood of government-subsidized lending that Gasparino and others claim laid the foundation for the 2008 market collapse. Law professor Michael S. Barr on the other hand, a Treasury Department official under President Clinton, contends that a Federal Reserve study found only about one in four sub-prime loans were made by institutions fully subject to the CRA, and that the worst of those were made by those with the least supervision. Other Wikipedia-cited sources provide consistent conclusions. Thus, Gasparino's analogous claim that the SEC's application of Basel capital standards giving banks more credit for owning mortgage-backed securities than many other assets dramatically increased the supply of sub-prime loans through tilting the  regulatory landscape suffers from the same criticisms.
 
Bottom Line: The Sellout (HarperBusiness/ Nov 2009) is too long and too late - other sources have already well-covered the 2008 meltdown, and far too much of Gasparino's book is taken up with pointless details. Worse yet, his castigating the government (totally justified regarding Greenspan's leadership of the Federal Reserve) seems biased (eg. omits the topic of ineffectual regulation, consideration of those with data-driven contrary views). I'd suggest reading instead Richard Posner's A Failure of Capitalism, and William Fleckenstein's Greenspan's Bubbles.

Charles Gasparino is a correspondent for CNBC and a former writer for the Wall Street Journal and Newsweek. Gasparino was nominated for the Pulitzer Prize in beat reporting in 2002 and won the New York Press Club Award for best continuing coverage of the Wall Street research scandals.

Loyd Eskildson is retired from a life of computer programming, teaching economics and finance, education and health care administration, and cross-country truck driving.  He's now a reviewer for Basil & Spice.

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