Former Fannie Mae chief used tax funds to protect cash cow
By now we all know what The Great Economic Collapse of 2008 meant to us.
Maybe you’re one of the hundreds of thousands who lost your home. Or saw your life savings shrivel to little or nothing. Or had to put off retirement for a few more years, or forever. Or maybe your kids didn’t get to go to the college they wanted, or get to go at all. Or maybe you lost your job.
The consequences of the perfect economic storm of 2008 were swift and they were severe.
It produced a familiar cast of villains: Greedy Wall Streeters, asleep-at-the-switch federal regulators, clueless politicians in one pocket or another.
But behind the usual suspects there were other villains, ones who had been at work for years, if not decades, creating the conditions that coalesced three years ago to create the greatest economic debacle since the Great Depression. There have been shelves of books written already about the events of 2008 and eventually there will be libraries of them. But one that’s fascinating is “Reckless Endangerment,” by Gretchen Morgenson and Joshua Rosner. Morgenson is a New York Times business columnist and Rosner is a financial analyst.
“Reckless Endangerment” sets out to tell the story of some of the architects of the crisis who by and large have gone unnoticed — and unpunished. Their numbers are many, too many to delve into in this piece. But one is particularly loathsome.
James A. Johnson was long retired from the chairmanship of Fannie Mae when the crisis came three years ago. He’d been gone nearly a decade. But to the extent that you have been affected by the events of 2008 you can thank, or curse, Mr. Johnson for a great deal of it.
Johnson came to big-time politics early in life. He was only 40 years old when he managed Walter Mondale’s disastrous presidential campaign in 1984, that after years of being a key advisor to Mondale when he was vice president. He later often had the ear of such Democratic luminaries as Bill Clinton and John Kerry.
But it was his role at Fannie Mae for which he should be remembered.
If there was one practice that led to economic crisis it was the lessening of underwriting standards in the lending industry, particularly the home mortgage industry. At the forefront of that movement was Johnson.
Not because of any altruistic motive to make home ownership available to more Americans, as he would have you believe. (Now we know maybe that’s not such a good idea after all.) No, the reason is one as old as the hills. The way he structured Fannie Mae’s relationship with the federal government, the more lax the underwriting standards, the bigger his paycheck.
The details are complex. But the line is not hard to follow. Morgenson and Rosner draw it very clearly. It makes one’s stomach churn.
Johnson used taxpayer money to buy off congressmen. He used taxpayer money to write legislation that governed how the government regulated Fannie Mae. One can imagine how he wrote the law that was used to oversee his organization. He used taxpayer money to hire lobbyists (as many as 36 firms at a time) to make sure he covered all the bases he need covered. He used taxpayer money to hire lobbyists to not lobby against him. He used taxpayer money to create government reports that urged Congress not to privatize Fannie Mae — and eliminate the federal subsidy that was his ticket to multimillion-dollar paychecks.
The key to all of it was buying more and more subprime loans, packaging them up and selling them to investors. Eventually they went bad, as loans that are poorly underwritten tend to do, and the federal government stepped in and bailed out Fannie Mae, along with dozens of other financial institutions that got caught up in the subprime frenzy that Johnson had been largely responsible for creating.
And the economy went south. Most of us paid. Johnson, though, weathered the storm just fine, thank you.