Wednesday, May 07, 2014

Morgenson/Rosner on Fannie/Freddie etc.

The topic for the moment is Reckless Endangerment by Gretchen Morgenson and Joshua Rosner, which came out in 2011, so I'm only three years late.  The subtitle is "How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon."  You'll recognize immediately that--well no, with a title like that it might as well be about vaccines or tracking, and the title would suit anything new on the South Sea Bubble.   But no: this was the  big book about "the GSEs"--Fannie Mae and Freddie Mac--and their role, or lack of it, in the Great Meltdown.  

Still, you may recall--in the maelstrom of finger-pointing that inevitably followed on the collapse, there was a school of thought that it was all the fault of what I am pleased to call the "Bleeding Gums Murphy" school of financial analysis--that it was all the fault of some old black guy in Detroit who was so uppity as to suppose he could service a mortgage, and who thereby toppled a whole ninepins of  financial titans. Or more prosaically: the Community Reinvestment Act of  1977 (thank the cornpone Jimmy Carter) plus the delusional romanticism of lefties like (the black) Maxine Waters and (the light-in-the-loafers) Barney Frank whose never-met-a-payroll gullibility turned these same titans into the helpless pawns of their febrile dreams.

Though you wouldn't guess it from the title, I somehow got the impression that M/R offered more of the same.  I figured I was OD'ing at the time, so I put it at the bottom of the stack for more leisured consideration.

I finally got around to it this week.  In retrospect, I'm a bit sorry I didn't get to it before.  I'll admit that the book surprised me, in good ways and bad.  It is, as I guess I suspected, a deeply flawed book, but its flaws are not quite what I expected. But it has virtues, and some of them aren't quite what I expected either.

Executive summary: this is a book about "the GSEs," but only in a narrow sense.  First, by "the GSEs," the authors really mean Fannie--Freddie is mostly a sideshow.  And by Fannie, they mean the money machine ginned up by James A. Johnson, CEO of Fannie through the 90s and a master of bureaucratic slash and grab right up there with the best of them.   It also offers, somewhat disjointedly,  helpful narratives on a few--hardly all--of the other chapters in the long, sordid mortgage mania story.  Through all of this, M/R do a first-class jobs of plunging into the weeds of bureaucratic machination (both public and private) to show how it's done.  I see that Johnson has a degree from the Woodrow Wilson School. I don't know if they offer a concentration out there in Power and Intrigue, but if so, I'd say this chronicle of their distinguished alum deserves a place in the syllabus.

But back to the GSEs.   I said already how I had heard so many voices trying to explain away the Meltdown by demonizing the poor and the vulnerable, together with their wicked manipulators in Congress-and how I got the impression that M/R were singing in that particular choir.

Oddly enough, they aren't, actually.  The offer immensely valuable accounts of how Johnson built Fannie power.  But just about nowhere do they plug Fannie into the standard chronicle of blame.  Rather to the contrary, the plain fact is they provide next to nothing about larger context at all--these are gumshoe investigators we are considering, of core, not grand strategists.  Still, the remarkable thing is that based on their own evidence, the reader can draw a moral almost entirely the opposite of the familiar story.

Specifically: everything that M/R present impels the conclusion that it was not Congress that bullied the GSEs.  Rather it was just the other way around.  On the record here, it is clear that Johnson early figured out that he could exploit the politician's enthusiasm for low-income housing to help aggregate his own empire.   He could beguile them with the promise of more low-income housing; he could threaten them with the pains of hellfire if they dare not to cooperate; and he could bully them into submission if they began to slip out of harness.  But at all times, low income was never anything more than the velvet sock puppet on Johnson's iron fist.

So, go ahead and read it, if you are still absorbing stuff about the Meltdown.  I won't even say "read it with skepticism," because I can't even say there is a lot here with which I know how to quarrel.  Read it for the details; read it to stock your own bag of dirty tricks. But for deeper analysis--well, that's fine, not everybody can do every job.

No comments: