Michael W. Hudson's new book "The Monster" is a richly documented narrative of how the subprime lending industry, including corporate heavyweights Ameriquest and Lehman Brothers, helped precipitate the financial crash of 2008.

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‘The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America — and Spawned a Global Crisis’

by Michael W. Hudson

Times Books, 384 pp., $26

In his richly documented narrative, investigative reporter Michael Hudson traces the rise and fall of the subprime lending industry through the stories of two corporate heavyweights — Ameriquest and Lehman Brothers.

His chronicle of the melding of Orange County and Wall Street is propelled by the limitless ambition of Roland Arnall, the man who launched three of the industry’s biggest players — Long Beach Mortgage, Ameriquest Mortgage and Argent Mortgage — and expanded them with steady supplies of cash from Wall Street’s biggest banks.

Arnall, who died in 2008, survived several efforts to shut down his mortgage machine. He ingratiated himself with fair-lending activists and laissez faire politicians. His subprime empire was the single biggest source of cash for President George W. Bush from 2002 through 2004, donating more than $12 million to his re-election and inaugural events, according to the book.

But to arrive at a deeper, truer understanding of the many-headed subprime monster, Hudson brings us accounts from many characters: Former employees, victimized borrowers, and regulators. These accounts are gleaned from hundreds of lawsuits, thousands of pages of court transcripts and hundreds of interviews.

A nonfiction book like this, where the ending is known, succeeds by entertaining us with behind-the-scenes moments and personal stories from people trading their ethics for all-expenses-paid trips to Hawaii. Washington state regulators play prominent roles in Hudson’s chronicle, including a funny story about Arnall’s staff pulling a bait-and-switch on them at a dinner party.

Hudson, who’s covered subprime lending since the early 1990s, explains complex concepts in smooth prose, like this passage:

“The proliferation of wholesale lending and the rise of Wall Street securitization were creating a complex web of actors, from the brokers and the lenders to the investment bankers and the investors, as well as loan servicers and the myriad shell corporations set up to stockpile the securitized loans. It was, in other words, an extensive lineup of buck passers who could argue that someone else — or no one at all — was responsible for predatory tactics used to arrange mortgages.”

In January 2006, Ameriquest, without admitting wrongdoing, reached a $325 million nationwide settlement with the states — the second largest in history — over allegations of widespread fraud. The states alleged that the company deceived consumers, inflated house appraisals and falsified income and employment on loan applications to maximize profits.

Hudson points out that the $325 million payout “was less than the company’s annual advertising and marketing budget, and a fraction of the $1.34 billion that Arnall had earned from his mortgage operations in 2004 alone.”

While Ameriquest positioned itself as a champion of homeownership and expanding access to African Americans, Latinos and others who’d faced lending discrimination, the reality was quite different.

In 2004, just one-quarter of 1 percent of Ameriquest mortgages went toward home purchases; the rest were refinancings or home-improvement loans. These latter loans increased the odds of foreclosure by increasing the amount of debt on their homes, Hudson reports.

Hudson’s book is a guide to the worst excesses of the mortgage business. Lehman Brothers’ role in the abuses is there, to be sure, but the book devotes far more attention to Ameriquest and its ilk. Hudson notes that the book is a work of investigative reporting; he offers no policy prescriptions.

New federal legislation passed last summer is supposed to prevent the abuses Hudson highlights from happening again. Yet, after reading Hudson’s book, it’s more than plausible that financial gangsters will rise from the ashes and find new ways to prey on unsuspecting borrowers.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com