On Fannie Mae and the failure of our elites

David Brooks has an important column today about Fannie Mae, and what he calls “the most important political scandal since Watergate”:

It helped sink the American economy. It has cost taxpayers about $153 billion, so far. It indicts patterns of behavior that are considered normal and respectable in Washington.

The column is pegged to the new book “Reckless Endangerment” by Gretchen Morgenson and Joshua Rosner, which details causes of the financial crash including, but not limited to, Fannie Mae. Much has been said about the failings of the government-sponsored enterprise, on this blog and elsewhere. But Morgenson and Rosner, and in turn Brooks, add much more about how Fannie Mae came to be so untouchable in Washington. As Brooks summarizes it:

Fannie Mae co-opted relevant activist groups…. Fannie ginned up Astroturf lobbying campaigns….

Fannie lavished campaign contributions on members of Congress. Time and again experts would go before some Congressional committee to warn that Fannie was lowering borrowing standards and posing an enormous risk to taxpayers. Phalanxes of congressmen would be mobilized to bludgeon the experts and kill unfriendly legislation.

Fannie executives ginned up academic studies. They created a foundation that spent tens of millions in advertising. They spent enormous amounts of time and money capturing the regulators who were supposed to police them.

In other words, Fannie Mae did all those things that Democrats accuse Big Oil, Big Finance, the military-industrial complex, et al. of doing.

But the importance of Brooks’ column — and the point I want to make today — is not to revel in “everybody does it” but to denounce the fact that everybody does it:

The scandal has sent the message that the leadership class is fundamentally self-dealing….It has sent the message that we have hit the moment of demosclerosis….

The final message is that members of the leadership class have done nothing to police themselves. The Wall Street-Industry-Regulator-Lobbyist tangle is even more deeply enmeshed.

Folks, neither major party and its allied groups has a monopoly on the self-dealing or lack of self-policing. That is the reason anti-elitism has gained currency. Anti-elitism, especially on the tea-party right, has been mislabeled as anti-intellectualism. But broadly speaking it is best identified as anger at Fannie Mae-style cronyism and unaccountability — that the elites, the intellectuals, the ruling class, whatever you want to call them, have failed us while enriching and empowering themselves.

There will be politicians who try to gain personal advantage from the situation. But if they are smart, they will not make it a partisan issue. That was the political wisdom in the following statement on TARP in Monday’s debate by Michele Bachmann:

I fought behind closed doors against my own party on TARP. It was a wrong vote then. It’s continued to be a wrong vote since then. Sometimes that’s what you have to do. You have to take principle over your party.

Brooks names Bachmann as one candidate trying to tap a populist nerve, and I agree with him that there’s a hunger out there for that kind of willingness to buck one’s own teammates once in a while when it matters — the “maverick” tendency that John McCain and Sarah Palin tried to play up but which, ironically, Barack Obama ultimately tapped into with his “post-partisan” talk. In fact, I still think Obama’s biggest political mistake came at the very beginning of his presidency, when he delegated the stimulus package to the old liberal lions in Congress and first gave Republicans an opening to portray him as any old spendthrift Democrat.

That gave rise to the tea party, and the rest is history.

I don’t know whether Bachmann will be the one to seize that opportunity. But it’s waiting for someone who demonstrates the will and wherewithal to follow through on it.

– By Kyle Wingfield

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30 comments Add your comment

Lil' Barry Bailout

June 17th, 2011
12:39 pm

“demosclerosis” needs a capital “D”.

Lil' Barry Bailout

June 17th, 2011
12:43 pm

Demosclerosis is strangling the economy…spending, regulations, cronyism…it really is all the Democrats fault.

Moderate Line

June 17th, 2011
12:58 pm

I still think Obama’s biggest political mistake came at the very beginning of his presidency, when he delegated the stimulus package to the old liberal lions in Congress and first gave Republicans an opening to portray him as any old spendthrift Democrat.
+++++
I actually agree in theory that stimulus spending can work. However, in implementation it doesn’t because of politics. If the stimulus spending had been aimed at the areas of the country with high unemployment it would have been more effective. For example Florida which was one of the hardest hit states by the recession received the lowest in stimulus spending. Also, not the population of Florida would have allowed for a bigger bang for the buck.

Allowing the Dems in congress to control the bill allowed for the bill’s ultimate ineffectiveness and contributes to the reason why no one believes in stimulus spending.

http://www.usatoday.com/money/economy/2010-08-04-1Astimulus04_ST_N.htm

MightyRighty

June 17th, 2011
1:06 pm

I have one major reservation about the publishing of “Reckless Endangerment” by Times reporter Gretchen Morgenson and Joshua Rosner. As Brooks said, Fannie Mae and the causes of our economic downturn SHOULD be the biggest scandal since Watergate, but they won’t be, because “FannieGate” doesn’t attack a sitting Republican president. It might have been as big as Watergate if the NY Times had published the story as a series of ever-more-outrageous above-the-fold front-page news stories. Instead, it is a book. So I guess it wasn’t news that the Dems ruined our economy…

Sam Eagle

June 17th, 2011
1:06 pm

The tea-party is anti-elitist? Well, that puts them in fine company with every other group (blacks, mexicans, gays, parasites, humanists, muslims, and the french) the partier’s hate.

Moderate Line

June 17th, 2011
1:09 pm

I still think Obama’s biggest political mistake came at the very beginning of his presidency, when he delegated the stimulus package to the old liberal lions in Congress and first gave Republicans an opening to portray him as any old spendthrift Democrat.
+++
I am not sure I would say it’s the biggest but I would say it is not worse than number 2. I would probably put the healthcare bill no 1 since for three reasons it was partisan, unpopular and nothing to do with the economy. The partisan aspect of the bill destroyed any appearance he was post partisan. The unpopularity and the fact that bill had no relation to the economy resulted in the image that he is out of touch with the people. At lease the stimulus bill looked like he cared about the economy.

However, whether you put it 1 or 2 does not dimished the impact politcal. His image now is more about what hed has done over the last three years not what he says in the election. His geatest achievement is an unpopular healthcare bill. Hard to brag about that.

Moderate Line

June 17th, 2011
1:12 pm

MightyRighty

June 17th, 2011
1:06 pm
I have one major reservation about the publishing of “Reckless Endangerment” by Times reporter Gretchen Morgenson and Joshua Rosner. As Brooks said, Fannie Mae and the causes of our economic downturn SHOULD be the biggest scandal since Watergate, but they won’t be, because “FannieGate” doesn’t attack a sitting Republican president. It might have been as big as Watergate if the NY Times had published the story as a series of ever-more-outrageous above-the-fold front-page news stories. Instead, it is a book. So I guess it wasn’t news that the Dems ruined our economy…
++++
I would say the biggest problem is it hard to dramatize the failure is the reason the media has not made a big deal out of it. What they did is what companies and government do everyday. Enron was pure curruption but Fannie Mae was people working within the system.

Carlosgvv

June 17th, 2011
1:12 pm

Running for election or re-election in this Country requires a huge amount of money. As long as this is the case, “taking principle over your party” will never happen. We have the best Congress money can buy and that will not change in the foreseeable future.

jconservative

June 17th, 2011
1:13 pm

“I still think Obama’s biggest political mistake came at the very beginning of his presidency, when he delegated the stimulus package to the old liberal lions in Congress and first gave Republicans an opening to portray him as any old spendthrift Democrat.”

Kyle I completely agree. He really got some lousy advice. And it will cost him a second term I believe.

Lil' Barry Bailout

June 17th, 2011
1:17 pm

We have the best Congress money can buy and that will not change in the foreseeable future.
———

…president too…

Remember when the Idiot Messiah and his receptacles used to crow about Wall Streeters donating more to Obozo than to GOP candidates? Not so much lately?

David Green

June 17th, 2011
1:29 pm

And so Kyle round and round we go while the conservative republicans here in Georgia led by deal play the same game being played out in Washington which you condemn (tongue in cheek) when the democrats are in charge. Yet you remain strangely silent about the same unethical behavior being practiced underneath the gold dome. Your selective condemnation has left you as a conservative republican with absolutely no credibility whatsoever. So once again I say put up by calling on deal to resign from office or shut your mouth and remain forever silent.

Thulsa Doom

June 17th, 2011
1:45 pm

Kyle,

What is the political makeup of the people who run and hold most of the C- level positions at Fanniemae. I’ve read several times that Fannie and Freddie are pretty much a who’s who of Democrats- Franklin Raines for example.

griftdrift

June 17th, 2011
1:51 pm

When the “tea party” and their darlings such as Bachman jettison the creationists and the global warming deniers, I might be able to take this thesis more seriously.

Of course that would mean they would also have to eject Bachman as she is both.

Ayn Rand

June 17th, 2011
1:57 pm

Fannie Mae was managed as big business, exactly like the other financial institutions that caused the financial blowout of ‘08.

As I recall, the functions allocated to Fannie Mae were handled by the government until they were “privitized” in order to achieve the management effectiveness of big business.

Private enterprises, unless tempered by competition and regulation, always run amuck. No surprises here.

Carlosgvv

June 17th, 2011
1:58 pm

Barry

When you’re right, your’re right.

Lil' Barry Bailout

June 17th, 2011
2:45 pm

Ayn, Fan and Fred were able to run amok because of the implied federal government guarantee–they were able to borrow much more and take bigger risks as a result. Private profit but public risk, or put another way, heads the government’s cronies win, tails the taxpayer loses.

Lee Weber

June 17th, 2011
3:13 pm

One guy who could capitalize on this sentiment without inflaming the Left and moderates who just can’t seem to take Bachmann seriously is Chris Christie. Built his career putting elites and their cronies in jail. Since he’s not running, he might be able to accomplish as a VP candidate what Palin could not.

stranger in a strange land

June 17th, 2011
3:32 pm

and the mess summed up in 3 phrases (and picture the monkeys):
see no evil
hear no evil
speak no evil

Lil' Barry Bailout

June 17th, 2011
3:42 pm

Pentagon bomb scare–anyone seen Obozo’s friend Bill Ayers?

1961_Boomer

June 17th, 2011
3:44 pm

Haven’t read “Reckless Endangerment”, but CLEARLY the mistakes of Fannie Mae (through the creation of mortgage backed securities and the multiplier affect of unregulated derivatives) CAUSED the financial meltdown. At the lowest levels, DEMOCRATIC lawmakers (Barney Frank and company) authored bill after bill that encouraged FNMA to lower standards so that more people would qualify for loans. Republicans went along with these for two reasons: 1) to stand up against these changes made them look like elites who did not want “poor” Americans to gain home ownership and 2) they were making tons of money. So both Democrats and Republicans were complicit in the weakening of mortgage standards. What they could not foresee nor control was how these would be bundled into securities, and how these poor lending practices would be magnified 10 fold or 100 fold by derivatives… derivatives which simply cannot be effectively regulated any more than gambling laws can prevent the boys from playing cards for $$$ on Friday night.

At the same time and aside from what was going on in banking, commodities prices were spiking pretty much like they are now.

These two forces precipitated an economic collapse. It was not “Bush’s fault”. It was not “Republicans who drove us into the ditch” It was a bunch of do-gooder politicians on both sides of the aisle trying to create an “ownership society”. Screw them. While some poor would take advantage of an opportunity to get into a house with no down payment, MOST simply had no business getting a mortgage. When people want a house, the save the down payment, they understand the costs of running a house, they value and take care of it. When it is given to them without ever having earned it, they sign for it without looking at the fine print, and walk away from it at the first sign of trouble. FNMA made it possible for far too many people to sign on the dotted line without a credit check, without a down payment, without verifying stable employment. This tiny mistake was made about 5 million times, and financially multiplied by an order of magnitude with derivatives that bet against mortgage backed securities. Now, everyone at every level of society is paying the price, and will continue to do so for years to come.

ByteMe

June 17th, 2011
3:44 pm

As far as Fannie goes, they were no worse than, say, Goldman Sachs. But no one wants to talk about dissolving — or even perp-walking — them. Wonder why.

wallbanger

June 17th, 2011
4:44 pm

I guess it also helps organizations like Fannie Mae if they can get their executives enlisted as sleeping partners with the members of Congress delegated to be their regulating watchdogs–Barney Frank come to mind?

saywhat?

June 17th, 2011
5:11 pm

Kyle writes “Folks, neither major party and its allied groups has a monopoly on the self-dealing or lack of self-policing. That is the reason anti-elitism has gained currency. Anti-elitism, especially on the tea-party right, has been mislabeled as anti-intellectualism. But broadly speaking it is best identified as anger at Fannie Mae-style cronyism and unaccountability — that the elites, the intellectuals, the ruling class, whatever you want to call them, have failed us while enriching and empowering themselves.”

You are almost there, kyle, with a few mistakes. 1) The teaparty is not a grassroots movement created to battle elitism, it is a PR firm created, heavily rightwing-financed and rightwing media supported mob created to oppose out of hand a Democratic president. No amount of revisionist history can change that. 2) Teaparty anti-elitism IS anti-intellectualism, because it targets “elites” such as teachers, champions causes such as Birtherism, and compalined incessantly about how their taxes went up since the day Obama took office, despite the fact Obama had actually LOWERED taxes. 3) Why not just call “the elites, the intellectuals, the ruling class, whatever you want to call them” the rich, as liberals have for years, or are you afraid to be accused of wealth envy? You can be damn sure the economic collapse was not caused by poor people, teachers, Unions, blacks, illegal immigrants, liberals, socialism, etc. It was caused by very rich people greedy for more wealth, who ended up even more rich while the rest of the country suffered.

Both Democratic and Republican party members aided and abetted the pillaging of America, but at least the Democratic party has some resisters. The Republican “don’t tax the rich” party has none.

Jefferson

June 17th, 2011
5:23 pm

Run the woman, see how far that goes.

real john

June 17th, 2011
5:46 pm

Kyle:

As usual, I agree with most of your article.

However, I do think Bachman needs to be careful with the whole “I’m was totally against TARP.” TARP was the one thing the country HAD to do. TARP has been almost completely paid back with interest from the banks. The US will actually make money off of it. I don’t care how much most of us hate the banks, quite simply, we were on the verge of a total financial system collapse. Just read up on some books. We really DID NOT HAVE A CHOICE but to do TARP regardless if we liked it or not. I know Bachman may be trying to appeal to the main street people who don’t know any better, but I would not brag about voting against it. ALL **** would have broken loose had the US not step in.

Just look at how quick Lehman and Bear fell. It happened within a matter of days and it should just how fragile these MULTI-Billion dollar banks and brokerage houses really are. Most of their money is on CONFIDENCE and Paper Only.

sam

June 17th, 2011
6:01 pm

as far as i recall fannie mae was/is included in “big finance” and has taken plenty of heat since the meltdown. as for ms bachmann, i dont recall any scathing speeches against tarp before it was passed. just the typicl monday morning quarterbacking.

Songbird

June 17th, 2011
6:03 pm

It also wasn’t just poor people buying houses they couldn’t afford. Many people with money bought more house than they could afford because of easy terms and low interest rates. Some of them lost jobs and couldn’t keep up with the payments. Others walked away when the value of the house dropped below the mortgage amount.

The prevailing wisdom was that house prices would never go down and anyone who got into trouble paying their mortgage would just sell the house. Clearly, this was a huge false assumption and it took way too long for everyone to get this thru their thick skulls.

We are paying the price for recklessness and greed that took over this country for nearly a decade.

Paul S

June 17th, 2011
7:22 pm

Here’s why people are angry – Banks, etc got huge taxpayer bailouts and continued to throw people out of their homes, repo their cars, and cancel their credit cards. Not one banker, financier, fannie mae person, etc has ever, ever admitted to being wrong, or even said I’m sorry……..

Lil' Barry Bailout

June 18th, 2011
6:58 am

Do those on food stamps, public housing, or Medicaid ever admit to being wrong or say they’re sorry? Do they ever write thank-you notes to the folks paying their bills?

independent thinker

June 18th, 2011
7:23 am

Anyone ever hear of private mortgage insurance- FNMA and the big lenders did away with it to the detriment of the real estate and banking industry.Used to be a requirement if you were putting down less than 10% and it pprotected the lender against foreclosure. Now the government and big banks are sucking up the losses big time. Whose idea was it to do away with that protection?