Aaron Clarey, also known as Captain Capitalism, began his career as a commercial banker.

You might have read about the housing crash from the perspectives of hedge fund managers before, in best-selling books like “The Big Short” by Michael Lewis, but you probably haven’t read an account from someone who was actually examining the underlying loans that were grouped up into those famously toxic CDOs.

In this book, “Behind the Housing Crash,” he writes about his experience evaluating almost universally bad loans, wrestling with banking bureaucrats who won’t even let him optimize a spreadsheet, and glad-handling fraudulent real estate developers to help his bosses make their quarter.

Clarey writes:

Completely ignoring the burgeoning level of supply, brokers, bankers and developers used data dated from the hot and undersupplied housing market of 2004 to legitimize their pricing, and would approach me with deals that when you looked at their appraised values and pricing, you had a hard time taking them seriously.

It was entirely possible to look at housing supply data and nix developments before construction began, but nonetheless, banks continued to green light lending. Fraudulent appraisal methods also added to the problems, as banks assumed that they would be able to recoup losses through foreclosure based on impossibly optimistic projections of home values.

This memoir is also leavened with some humor about the pervasive vanity of commercial bankers:

Ultimately I concluded the bank was very much like the militaries of dictatorships or one of those African rebel groups where seemingly everybody is a “general.” Where all the enlisted men curiously start off as “captains,” giving themselves inflated ranks and titles to boost their egos. Therefore, if you filed, faxed and made the coffee at my bank you were considered a “reserve vice president.”

Although the book doesn’t get into the broader economic context of what was going on during this period, it does have many enjoyable slice-of-life observations of contemporary American life:

I developed the term “Trophy Wife Economics” to describe a phenomenon I noticed while looking at the tax returns of rather well to do clients. If the tax return was filed jointly, typically what you’d see is the husband making all the money and the wife would have some kind of token business that was perpetually losing money. For example, the husband would be a surgeon and the wife would run a little trinket store called “Beads and Bobbles” or “Daisy’s Doilies.” The store would never make money, and I was left to surmise it was some trophy wife who wanted to feel productive, and so the husband would give her some seed capital to start a business.

I have seen this, myself, also — the woman will run a loss-making business that feeds her sense of vanity more than it does her pocketbook. There are rare exceptions, but the Trophy Girl Entrepreneur is the general tendency.

Another thought-criminal act of noticing that Clarey engages in:

They don’t know the difference between debt or equity spending. Trophy wives don’t care if the money you spend on them is debt or equity, as long as you spend it on them. They don’t care if you actually make the money or borrow it, as long as you spend it on them. In other words, you could buy them a diamond bracelet on your credit card or pay cash and they wouldn’t care, let alone know the difference. You could buy them a Ferrari with a home equity line or cash and they couldn’t tell. And the reason why is all they care about is ownership and consumption, not how it is financed or actually paid for.

This fact also makes up the core plot of “The Merchant of Venice:” Portia can’t tell that Antonio has borrowed the gold with which he uses to court her. His gambit is that he’ll be able to borrow from Shylock and overcome her father’s riddles and win her heart, and then repay the lender with his winnings from the marriage.

My main criticism of the book is that there is little to tie the events on the ground with business cycle theory. This prevents it from being a ‘full’ account of the crisis, which is only properly comprehensible within a coherent system of economic theory (which I know that Clarey gets into in other posts elsewhere on his blog).

These problems recur often in the history of banking in the US. When banks can issue credit arbitrarily, they reduce lending standards in a systematic fashion, especially when put under political pressure to do so.

In more direct words, the history of banking in the US is a history of fraud and malpractice at huge, recurring scale. American commercial banks have never enjoyed a reputation for rectitude, apart for some brief periods in which recovery from  the most recent crisis embarrassed the establishment into enforcing something resembling a disciplined banking system based on sound money.

Clarey comes off as someone who should probably be a commercial loan officer, who would have probably done well in banking before 1971, but who found himself out-of-step with the trend to lend as much money as possible to as many people as possible, regardless of their creditworthiness.

My closing critical comment is that this book is better-written and better-edited than I thought that it’d be. If you’re interested in finance, economics, and the recent history of the US with the propaganda filters knocked off, take your $5.50 down to the link below and buy the Kindle edition.