A Review of Jay Richards’ Infiltrated: How to Stop the Insiders and Activists Who Are Exploiting the Financial Crisis to Control Our Lives and Fortunes

I have long believed that the talent and areas of focus of Jay Richards are a lethal combination, and from his 2009 masterpiece on Money, Greed, and God (reviewed here) to his frequent scholarly endeavors around the morality of economics, Dr. Richards has few bigger fans than I, and beyond my personal appreciation, I am being non-hyperbolic when I say his work is among the most important work out there in our efforts towards a free and virtuous society.As I have reviewed dozens upon dozens of books on the financial crisis of 2008, and have my own work on the subject planned for a 2017 release (details forthcoming), it seemed appropriate to review Jay’s book for this site as well. I am used to reading and reviewing perspective on the crisis from those far outside of my own worldview, and though Jay took a very interesting perspective on the crisis (writing mostly about its aftermath as far as government intervention is concerned), it brings me great joy to have read (and now review) a work that comes from the same worldview assumptions and tenets that I come from. He has not disappointed.What Dr. Richards has done here is cover the wide array of individuals and entities who profess to have commitment to “fair lending,” and expose the (a) Tremendous conflict of interest embedded in much of this movement, and (b) The sinister consequences from so much of these post-crisis efforts. Very few readers would know how substantial the movement was to curtail short term lending programs (pay day lending, etc.) in the aftermath of the crisis, and Richards properly shines a light on how the crisis was used as the excuse for ideologues to wedge in to this issue, and how the consequences have been, once again, to hurt those their efforts were supposed to assist. But what the major contribution of the book is comes down to breaking different parts of the cycle down so laymen can understand it, and explaining in a clear and persuasive manner how thoughtful people can better understand reasonably complex and sometimes controversial subjects. It is contrarian but not extreme; it is profound but not a stretch.His work on how government intervention distorted the virtuous cycle of home ownership is remarkable. The entire thesis underpinning the home ownership cult is torn down – that in and of itself home “ownership” is the desired aim, even when separated from the prudence, thrift, responsibility, and savings that are traditionally associated therewith. That form of the home ownership process is a virtuous cycle; the version that played into the financial crisis was the textbook definition of vicious.A couple minor bones of contention … The government is not alleged to have pressured Bank of America to buy Countrywide, as Richards alleges, but rather in the midst of the crisis when BofA passed on Lehman they certainly pressured BofA to close the deal with Merrill. And Merrill CEO, John Thain, didn't convince Bank of America CEO, Ken Lewis, to buy Merrill instead of Lehman; Bank of America passed on Lehman for a variety of compelling reasons, and then Merrill President, Greg Fleming, had to beg Thain to consider the overtures Lewis and BofA were making towards Merrill. I am not sure these factoids matter for any of the points Richards was making, but as a student of the crisis I felt compelled to point them out.I also do not support Richards’ apparent agreement with Peter Wallison on the Credit Default Swap aspect of Lehman's failure, and believe he misses the pro-cyclical nature of it. "Only AIG collapsed because of credit default swaps" - but that misses the whole point - how many of their counter-parties would have failed if AIG had not received the government support, enabling those counter-parties to be made whole? And then, had those counter-parties not benefitted from the AIG support, how many of their counter-parties would have tipped over? Perhaps there would have been no ramifications (I assure you, that is not the case), but in saying there was not contagion risk in the CDS story and that there were no failures around CDS besides AIG, we are missing the whole point. AIG was bailed out, so those credit default swaps were honored. And I would add, as we saw with both Bear Stearns in March of 2008 and Lehman in September, and then dramatically so post-Lehman with various counter-parties that all had buy and sell CDS arrangements up and down their own books, the issue was not merely which credit default swaps resulted in payment, but (a) the funding requirements around collateral posting that their weakness required along the way in the midst of a catastrophic liquidity crisis, and (b) the signals the CDS spreads sent to the rest of the market. On both counts, the credit default swap markets of 2008 were far more integral to the crisis than Wallison concedes. I address this more in my review of Wallison’s book here. What I think Richards is doing in agreeing with Wallison’s peripheral points is expressing his broader agreement with the more important thesis Wallison demonstrated: That non-traditional mortgages exploded because of ill-advised government policy, and from those NTM’s came the financial crisis. On this, Wallison, Richards, and myself are in complete agreement.So with those couple minor points notwithstanding, Jay Richards’ book is a valuable contribution to the subject of the financial crisis, and particularly the malignant policy aftermath that we are sure to struggle with for the foreseeable future. His critique of Dodd-Frank is extraordinary, and all of his actionable suggestions in the end of the book are vintage Jay Richards – practical, spiritual, activist, responsible, and thoughtful. In a day and age where the convoluted thinking that created the financial crisis is matched only by the convoluted thinking that has evaluated the crisis, Dr. Richards’ book is a breath of fresh air.