What Fannie & Freddie Didn't Devour, Frank-N-Dodd Will! It's Alive!!!

 

“Reckless Endangerment”

 

A couple of weeks ago National Public Radio interviewed New York Times business correspondent and columnist Gretchen Morgenson about her recent book, Reckless Endangerment: How Outsized Ambition, Greed and Corruption led to Economic Armageddon, which she co-wrote with Joshua Rosner.
Let me quote two excerpts from the interview.  Here is the first:

“[DAVE] DAVIES: What's fascinating about this story is that you have this entity [i.e., Fannie Mae], which you said became the largest and most powerful financial organization in the world, you had this entity, which has government guarantees and government subsidies, although perhaps indirect, but it engages in major political contributions and lobbying expenses. How big a player were they in terms of contributing to politicians and lobbying?

Ms. MORGENSON: They were very large. The numbers might not seem large in today's terms, but they were extremely shrewd and, you know, took great care, especially of the congressmen that were on the House Financial Services Committee and the senators on the Banking Committee.

They knew that these were very important people to their livelihood and to maintaining the government perquisites as they were.

One of the really big beneficiaries, albeit indirectly, was Congressman Barney Frank of Massachusetts. Back in 1991, when Congress was writing the legislation that would, you know, enhance or improve the oversight of Fannie Mae, or so they thought, Frank actually called up the company and asked them to hire his companion, who had just gotten an MBA from the Amos Tuck School of Business.

Of course the company was happy to provide a job for his companion and rolled out the red carpet in a series of interviews with a variety of executives, and it ultimately did hire the man. And he stayed there for I believe seven years.

So that was an example of the kind of thing that Fannie Mae would do. Now, when I asked Mr. Frank about this, I asked him, did it have any impact on his approach to the company. You know, was it a conflict? Did he feel that it had been a conflicted, put him in a conflicted spot? And he said absolutely not, that he didn't really remember being interested or having much to do with the 1992 legislation.

But the record shows that he was very aggressive and really tough on those who were testifying in Congress about reining in Fannie Mae and Freddie Mac. He was very aggressive to, for instance, the head of the Congressional Budget Office at that time, who was trying to call for increased capital requirements and to call for a focus on safety and soundness at Fannie Mae, that Frank really took him apart in testimony.

DAVIES: Right, and you write there were a number of occasions on which he defended Fannie and their record of promoting home ownership but in the end had a different view of the company, right?

Ms. MORGENSON: Well, after the taxpayers had to take it over, he, you know, came around, finally. But by then it was too late. He said: Well, we should shut them down. But, you know, it really was far too late, and he had been such a vocal supporter for so long that it was sort of an odd turnabout.”

Here is the second:

“DAVIES: This book is replete with examples throughout the '90s and 2000s of voices who saw this coming and alerted regulators - or in some cases, people in the regulatory structure who tried to warn us. And one of them I really found fascinating is this guy Walker Todd, this guy from the Federal Reserve Bank of Cleveland. And this - well, he found an obscure provision in a law that raised a red flag. Tell us that story.

Ms. MORGENSON: It was interesting. It was 1991. So, again, this is after the savings and loan crisis had shaken everyone's, you know, confidence in the financial - our financial system. There was a new law that was being written to beef up the FDIC's ability to take over failing institutions. It was a good law that was really necessary that came out of the S&L crisis, and it gave regulators more power.

So it was an interesting moment in the writing of that law, that there came a sort of an amendment that had been brought to the floor by Chris Dodd which enabled insurance companies, brokerage firms, non-bank financial companies to tap into the Federal Reserve's special powers in time of crisis.

What that means is that these firms that had not been able to gain access to Federal Reserve borrowings in time of crisis - insurance companies did not have access. Brokerage firms had not had access. It was really only banks that were able to call on the Fed in times of trouble. This small, unnoticed part of the bill that was carried by Dodd expanded the federal safety net to include these companies.

It was a moment nobody noticed, except for Walker Todd, who was a research fellow at the Federal Reserve Bank of Cleveland. He thought this was fascinating, because the law that this was buried in was supposed to, you know, restrain the ability of financial companies to harm the taxpayer and to create losses that would be funded by the taxpayer. So it was counterintuitive. It was a paradox to Walker Todd that this small thing was inserted into the bill.

He tried to write about it. He, in fact, did write about it. He discovered that it had been inserted by the financial services companies at their request, and he tried to publish a paper talking about this expansion of the federal safety net. He came up against a buzz saw of criticism from the Federal Reserve Board in Washington. They tried valiantly to prevent the Federal Reserve Bank of Cleveland from publishing Walker Todd's report.

They failed, happily, and the report was published. But it was very, very interesting the degree to which the Federal Reserve Board seemed to want to keep that little amendment under wraps and to keep it from having the sunlight shone on it by this report that Walker Todd had produced.”

Now, consider that the financial reform bill passed last year was called the Dodd-Frank bill.  How does that make you feel?

By the way, I still believe that it should have been called Frank-N-Dodd.  It's just a matter of time before we learn just how bad a monstrosity it really is so we might as well get used to thinking of it in the same way that we do Frankenstein. 

The Predictable History of the Unpredictable Past of the Ever Predictable Democratic Party

Churchill once said, "Russia is a country with an unpredictable past."   I can't help but think that he would say today, “The Democratic Party is a party with an unpredictable past and a predictable history.”

The virtue of patience sits heavily upon the mantle of those cursed with the task of writing about actual historical events for, paraphrasing Churchill again, history is kind to Liberals because they write it.

To understand the enormity and complexity of this exercise, one must first realise that to study an event of yesterday and a Liberal’s role in it, one must almost solely look forward and then bide her time until the future is the past and the unforeseen known.  Only when the future becomes the past will the actions or inertia, thoughts or emotions, positions or theories, analyses or suppositions taken by Liberals today or yesterday or a decade ago be “known” regardless of how many press conferences you have watched with your very own eyes.   

Liberals will write…and rewrite…and edit, if necessary…history in a manner that dictates that the past must be changed to protect the guilty, praise the incompetent, transfer blame to the mostly inculpable and smear the innocent all while proclaiming dissent is the highest form of patriotism except when dissent is expressed by anyone, who isn’t a Liberal.

According to Robert F. Kennedy, Jr, Conservatives killed JFK:  "...Neither Beck, Hannity, Limbaugh, Savage nor the hate merchants at Fox News and talk radio can claim to have invented their genre. Toxic right-wing vitriol so dominated the public airwaves from the McCarthy era until 1963 that President Kennedy, that year, launched a citizen’s campaign to enforce the Fairness Doctrine, which required accuracy and balance in the broadcast media. Students, civic and religious groups filed more than 500 complaints against right-wing extremists and hate-mongering commentators before the FCC.  The Dallas, Texas, airwaves were particularly radioactive; preachers and political leaders and local businessmen spewed extremist vitriol on the city’s radio and TV stations, inflaming the passions of the city’s legions of unhinged fanatics. There was something about the city — a rage or craziness, that, whether sensible or not, seemed to have set the stage for Jack’s murder…The Voice of America, half an hour after the assassination, described Dallas as "the center of extreme right wing"...The mercantile elite [sic] that ruled the city carefully cultivated the seeds of hate. Radical-right broadsides were distributed in public schools; the Kennedy name was booed in classrooms; junior executives who refused to attend radical seminars were blackballed and fired…Uncle Jack’s speech in Dallas was to have been an explosive broadside against the right wing...When public school P.A. systems announced Jack’s assassination, Dallas school children as young as the fourth grade applauded … Gabrielle Giffords lies in a hospital room fighting for her life, and a precious nine-year-old girl is dead along with five others. Let’s pray for them and for our country and hope this tragedy prompts another round of examination of conscience."  No, No, No!  That's not a Commie over there!  That's Darth Vader Cheney standing behind the fence behind the grassy knoll.

Not only did Conservatives assassinate JFK, they tried to assassinate General Edwin Walker in Dallas in April 1963, who was a right-winger, espoused views that were frequently diametrically opposed to Kennedy's, and Richard Nixon, who started the Environmental Protection Agency, which is giving us all of this cap-n-trade crap by stealth.

Republicans love Wall Street—oh look, Wall Street just made historic campaign contributions to Obama; he must be really cool.…

As Jane Fonda said, "We understand that Nixon's aggression against Vietnam is a racist aggression, that the American war in Vietnam is a racist war, a white man's war... We deplore that you are being used as cannon fodder for U.S. imperialism."  Just ignore the fact that JFK started the war.   LBJ sent in hundreds of thousands of grounds troops.  Nixon ended the war.  Ford removed the last soldiers and personnel.  Meanwhile, back at the Potomac Swamp, the Democrats were defunding the war while hundreds of thousands of Americans were in the jungles of Southeast Asia fighting for their lives.  But, get your eye on the left shell and remember that Vietnam was a Republican War.

Republicans hate the poor because they’re trying to block government policies promoting easy mortgages.… Oops, I wonder why the economy just tanked. 

It’s because Bush drove it into a ditch!   It was certainly not because Carter pushed the Community Reinvestment Act nor because Clinton pushed public-private partnerships and his Homeownership Strategy nor because Andrew Cuomo, while Secretary of HUD, announced that he had transformed the agency into an affirmative action programme, nor because Janet Reno and Eric Holder threatened to sue banks for redlining nor because the Federal Reserve Bank of Boston put out a bogus study that tried to prove that banks were engaging in discrimination nor because James Johnson and Franklin Raines fought off oversight of Fannie Mae while committing fraud and raking in hundreds of millions of dollars.  Look over there!  It's a bird!  It's a plane!  It's Nancy Pelosi and Barney Frank on a broom made for two!

Enron collapsed and Paul Krugman says it’s Bush’s fault. Krugman was paid by Enron and Bush wasn’t?   Didn't Gore bring Kenny Boy to the White House to discuss, develop and plan the implementation of cap-n-trade long before Bush enter the White House?  By the way, have you noticed how toned the First Lady's biceps are lately?

Rachel Carson and environmentalists lied about DDT and tens of millions of black Africans died.  Bush lied, kids died! … Obama lied about "days, not weeks", men, women, and children died and terrorists received arms.  Obama lied about the stimulus and the economy died.

Oil prices went up under Bush—it’s his fault—he’s an oilman! Oh but then oil prices went down under Bush.… Hey, look over there! A shiny object!

Bush is a deregulator.  Democrats believe in regulations.  Clinton deregulated Wall Street.  He began gunning for Glass-Steagall Act as far back as 14-15 December 1992 at the Clinton-Gore Economic Conference in Little Rock, Arkansas, overruled the suggestions about regulating derivatives made by his own CFTC chair, Brooksley Born, and signed the Financial Services Modernisation Act of 1999 repealing Glass-Steagall.  Of course, George W. Bush added more than 70,000 new regulations to the CFR and signed Sarbox into law, which added more regulations on Wall Street.  Clinton deregulates Wall Street.  Bush regulates Wall Street.  But, Bush is the deregulator of Wall Street.  Go figure.

In other words, “We didn’t do it.  He did it and he went dataway!”

Welcome to the Predictable History of the Unpredictable Past of the Ever Predictable Democratic Party!

As a stickler for fact and evidence, I have to admit that, while Liberals generally frustrate me to no-end with their illogical arguments (Bush is a liar:  He lied about WMD.  Bush isn’t a liar:  He said Clinton left him a surplus.  Which is it?  Liar?  Truth-teller?  Pick-n-choose?), I admire their breathtaking chutzpah.   

 Only a Liberal will lie to you with a straight face and believe his lie as it leaves his lips when he says:  “Bush is responsible for the worst recession economy since the Great Depression.  He deregulated Wall Street.  He didn’t pay for Medicare Part D.  He didn’t pay for either illegal war.  His tax cuts caused the 'Great Recession.'” 

Let’s take these one at a time to see how incredible they really are:

1.  “Bush is responsible for the worst recession economy since the Great Depression.”

A couple of points:

First, Democrats always charge Republicans with causing the worst recession since the Great Depression.  

When running for president in 1991-92, Bill Clinton and other Democrats were decrying all of the new Hoovervilles popping up around the country and the cataclysmic 15,904% unemployment rate.

  

"The average American expressed more pessimism about the future than at any time since the Great Depression."

"There is no question but this is the worst economic time since the Great Depression."

"Sluggish economic growth this year will cap the worst three-year period centered on a recession since the Great Depression."

"Forecasts for a weak recovery...suggest the period...will be the worst for the economy since the Great Depression."

"....the worst plunge since the Great Depression."

"The banking industry has plunged to its lowest point since the Great Depression."

"This is the most severe economic dislocation we've had since the 1930s. Few are immune."

"It's not a recession, it's a depression."

"….with the US economy locked in a recession and more people out of work since the Great Depression."

"....the worst (retail) sales period on record since the Great Depression."

"This recession is hitting white-collar workers more heavily than any since the Great Depression of the 1930s."  FN1   

Since I was still living in Britain in 1991, I would appreciate it if any of you could send me photographs or videotape of the soup lines and Bushvilles from the early 1990s.  Thanks.  Oh, and an extra-special, double-expresso thanks to Liberals, who can find the one that allegedly had more than 100,000 people living in it….ON THE MALL IN FRONT OF THE LINCOLN MEMORIAL.  BIG, SLOPPY KISS.

Secondly, people are correct when the say that the economy is the worst since the Great Depression….NOW, but it wasn’t in 2008.  The 1981-82 recession was worse in almost every economic category in terms of contraction, unemployment, etc.

2.  “He deregulated Wall Street.”

The next time that a Liberal tells you this, hit him over the head with a cricket bat.   

There are many, many things about which to be angry with George W. Bush.  The deregulation of Wall Street is not one of them.  

In fact, deregulation, Wall Street and the Democratic Party go together like Michelle Obama on a tamale (h/t Barack).   

In December 1992 at the Clinton-Gore Economic Conference in Little Rock, Arkansas, Bill Clinton and Alan Greenspan, among others, discussed derivatives and the “dinosaur” Glass-Steagall.  It was Clinton, who refused the requests of his own CFTC chair – Brooksley Born – to regulate derivatives, at the behest of Alan Greenspan, Robert Rubin, and Laurence Summers, which led to the creation of the $1.6 quadrillion behemoth CDO market.  It was Clinton, who signed the Financial Services Modernisation Act of 1999.  On the other hand, George W. Bush signed Sarbanes-Oxley Act into law, which added greatly to disclosure rules and personal liability for directors and management, among many others.

3.  Gotta run, but I’ll be back.

In other words, whether or not a Democrat had anything to do with, say, a particular piece of legislation like the CRA or administrative regulation (HUD) or mortgage credit qualification changes (Fannie Mae, Freddie Mac) or failure to regulate derivatives (Brooksley Born) or repeal of Glass-Steagall (Clinton, Johnson, Gore, Summers, Rubin, Greenspan, Dec ’92) will depend on whether it causes an unmitigated disaster in the future.  

If it does, then Bush did it and he went dadaway!

FN1: http://news.google.com/archivesearch?q=worst+economy+since+the+great+depression&num=10&as_ldate=1992/02&as_hdate=1992/02&as_user_ldate=1990&as_user_hdate=1992&scoring=t&hl=en&nav_num=10

There's Dumb And Then There's Krugman - II

ON UNEMPLOYMENT INSURANCE:

From "Macroeconomics" by Paul Krugman and Robin Wells is a/k/a Mrs. Paul Krugman

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect... In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries.

ON DEFICITS:

In 2004:

"Well, basically we have a world-class budget deficit not just as in absolute terms of course – it’s the biggest budget deficit in the history of the world – but it’s a budget deficit that as a share of GDP is right up there. It’s comparable to the worst we’ve ever seen in this country. It’s biggest than Argentina in 2001. Which is not cyclical, there’s only a little bit that’s because the economy is depressed. Mostly it’s because, fundamentally, the Government isn’t taking in enough money to pay for the programs and we have no strategy of dealing with it. So, if you take a look, the only thing that sustains the US right now is the fact that people say, ‘Well America’s a mature, advanced country and mature, advanced countries always, you know, get their financial house in order,’ but there’s not a hint that that’s on the political horizon, so I think we’re looking for a collapse of confidence some time in the not-too-distant future."

Got that? The federal budget deficit, at the time about 3.5% of GDP, represented a potential catastrophe. In 2010, the deficit was more than 9% of GDP.  Here he is June, 2010:

 

"Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession. And here in Germany, a few scholars see parallels to the policies of Heinrich Brüning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic. But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here, where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity."

ON ENTITLEMENT REFORM:

From 1996:

"Generous benefits for the elderly are feasible as long as there are relatively few retirees compared with the number of taxpaying workers — which is the current situation, because the baby boomers swell the workforce. In 2010, however, the boomers will begin to retire. Every year thereafter, for the next quarter-century, several million 65-year-olds will leave the rolls of taxpayers and begin claiming their benefits.
The budgetary effects of this demographic tidal wave are straightforward to compute, but so huge as almost to defy comprehension. Mr. Peterson, the chairman of the Blackstone Group, a private investment bank, informs us that ”the combined Federal cost of Social Security and Medicare, expressed as a share of workers’ taxable payroll, is officially projected to rise from the already burdensome 17 percent in 1995 to between 35 and 55 percent in 2040. And this figure does not include the many other costs — from nursing homes to civil service and military pensions — that are destined to grow along with the age wave.”

But aren’t Social Security and Medicare basically pension funds, in which workers’ contributions are invested to provide for their retirement? Hardly. A private pension fund that planned to pay the benefits these programs promise would be accumulating huge reserves. In fact, the so-called ”trust funds” are making barely any provisions for the future. In another spectacular statistic, Mr. Peterson notes that if Medicare and Social Security had to obey the same rules that apply to private pensions, the reported Federal deficit this year would be not its official $150 billion, but roughly $1.5 trillion.
In short, the Federal Government, however solid its finances may currently appear, is in fact living utterly beyond its means. While the present generation of retirees is doing very nicely, the promises that are being made to those now working cannot be honored.

What did the old Paul Krugman think of Peterson’s proposals to rein in costs and raise the age of eligibility for federal entitlements? He called them “sensible:”

Both Mr. Morris and Mr. Peterson offer plans to avert the crisis ahead. The details differ, and Mr. Peterson’s proposal is more completely fleshed out, but the general thrust is clear: slow the growth in benefit levels, gradually raise the retirement age, impose limits on expensive terminal medical care that prolongs life for only weeks or days and — last but not least — raise taxes moderately now, rather than massively later. We need not dwell on their sensible proposals, however, because there is not the slightest prospect that they will be put into effect — or indeed that we will do anything serious about the looming crisis until it is almost upon us.

Fanniegate: Gamechanger For The GOP?

By: Walter Russell Mead 

 

Democrats, watch out.

The Republican Party and especially its Tea Party wing have just acquired a new weapon of mass destruction — and it has nothing to do with any of Congressman Wiener’s rogue body parts.  If they deploy this weapon effectively in the next election cycle — a big if — then they have the biggest opportunity to move the country rightward since Ronald Reagan took the oath of office back in 1981.

The Tea Party WMD stockpile is currently stored in book form:  Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. By Gretchen Morgenson, one of America’s best business journalists who is currently at The New York Times, and noted financial analyst Joshua Rosner, Reckless Endangerment gives the best available account of how the growing chaos in the mortgage and personal finance markets and the rampant bundling of dubious loans into exotically toxic securities plunged the world, and millions of American families, into the gravest financial crisis since World War Two. It is gripping reading as well, and its explanations are clear enough that readers without any background in finance will have no trouble following the plot.  The villains?  An unholy alliance between Wall Street, the Democratic establishment, community organizing groups like ACORN and La Raza, and politicians like Barney Frank, Nancy Pelosi and Henry Cisneros.  (Frank got a cushy job for a lover, Pelosi got a job and layoff protection for a son, Cisneros apparently got a license to mint money bilking Mexican-Americans of their life savings in cheesy housing developments.)

Massachusetts Congressman Barney Frank (Source: Wikimedia Commons)

If the GOP can make this narrative mainstream, and put this picture into the heads of voters nationwide, the Democrats are toast.  The party will have to reinvent itself (or as often happens in American politics, be rescued by equally stupid Republican missteps) before it can flourish.

If Morgenstern and Rosner are to be believed, the American dream didn’t die of old age; it was murdered and most of the fingerprints on the corpse come from Democratic insiders.  Democratic power brokers stoked the housing bubble and turned a blind eye to the increasingly rampant corruption and incompetence at Fannie Mae and the associated predatory lenders who sheltered under its umbrella; core Democratic ideas may well be at fault.

This is catnip to Republicans, arsenic to Dems.  If Morgenson and Rosner are right, there is someone the American people can blame for our current economic woes and it is exactly the cast of characters that a lot of Americans love to hate.  Big government, affirmative action and influence peddling among Democratic insiders came within inches of smashing the US economy.

The Morgenson/Rosner story is a simple and easily grasped one. It is made for campaign ads.  The Great Villain, the man who almost ruined America according to the book, is James Johnson, long one of the most important members of the Democratic establishment.  He ran Walter Mondale’s campaign.  He chaired John Kerry’s search for a vice-president — the brilliantly executed search that chose the revered anti-poverty warrior John Edwards.

Barack Obama, impressed by this track record of discernment, reportedly asked him to lead Obama’s search in 2008 — though Johnson withdrew when word got out that he benefited from the disgraced and disgusting Angelo Mozilo’s corrupt program of ‘special’ mortgages for political friends.  (Mozilo was the head of Countrywide, a massively fraudulent and predatory lender which benefited hugely from its business connections with Fannie Mae.)  He is a director of the much hated Goldman Sachs, a former director of Lehman Brothers, has chaired the board of the Brookings Institution, is a major Democratic Party fundraiser who bundled several hundred thousand dollars for President Obama, helped bring old Clinton friends into the Obama organization, and has been at the center of Democratic finance and politics for a generation.

Named CEO of Fannie Mae (a government backed mortgage corporation) Johnson decided to make untold wealth by making and securitizing junk housing loans and by massaging the financial reports to ensure that he qualified for the obscenely generous maximum bonus no matter what was actually happening to the company under his care.

Fannie Mae, a historically staid and predictable government linked company, needed to turn into a cutting edge speculative growth engine to make the hundreds of millions Johnson wanted.  Since taxpayers stand behind Fannie Mae’s debts, Johnson needed to get the politicians to back his desire to turn this milkwagon into a Porsche.  Fortunately for him — and unfortunately for the country and the world — he found a way.

Fannie Mae would adopt the goal of increasing the percentage of Americans who owned their own homes, targeting the inner city poor who, allegedly, were blocked from home ownership by racial discrimination.  (A bogus study to this effect was widely circulated; devastating criticisms and rebuttals quietly ignored.) This is where such luminaries of the American political scene as ACORN and La Raza get into the act.  They served as cheerleaders for Johnson’s self-enrichment plan, camouflaging a Wall Street rip-off by hymning its benefits for the poor.

The purpose of no doc, no money down loans wasn’t, Heaven forbid, to generate rich fees and high interest rates for mortgage brokers and Wall Street.  No, the smarmy defenders of the Great American Rip-off told us, those features were necessary to make sure that poor people (so cruelly, unfairly locked out of mortgages because they didn’t qualify for the stuffy old-fashioned kind) could participate in the American Dream.  Anybody who opposed Jim Johnson’s get rich scheme was a racist who hated the poor.  Political correctness married Wall Street chicanery as Maxine Waters, Chris Dodd and Barney Frank led the band; crooked accountants and clueless rating agencies performed the ceremony; big government dowered the couple with a debt guarantee and bankers dressed as flower girls showered the happy pair in a confetti of junk mortgages and junk bonds.

Fannie Mae and the housing market were off to the races — and where Fannie Mae led the way, the financial markets followed.  Regulators were captured by the interests they were supposed to regulate; favors were dispensed with a lavish hand; taxpayer-provided money was used to assemble a vast lobby focused on extracting more money from hapless taxpayers to make James Johnson even richer. In the process, millions of financially unsophisticated low income people were stuck with obscenely unfair mortgages, honest whistle blowers were subjected to savage personal attacks, home prices lost all touch with reality, taxpayers were stuck with losses that may approach one trillion dollars, and financial markets were poisoned almost beyond repair.

House in Foreclosure, 2008 (Source: Wikimedia Commons)

But there’s a bright side.  Mondale-Kerry-Obama confidant Johnson made a boatload of money, and Fannie Mae was able to pay many of his personal bills — at least until it went broke.

That at least is the story of Reckless Endangerment.  No doubt Johnson’s memoirs will tell the story in a different way.  The housing bubble and the financial market meltdown were very complex phenomena, many cooks were required to spoil this broth and the arguments over what caused the crash may never end.

Truth is one thing; politics is another.  Politically, this story is a killer app for the GOP.  It demonizes Dems, lends itself to attack ads, divides Democrats between their Wall Street and union bases, and combines GOP hate figures in ways calculated to unify the GOP and heighten the intensity of the faithful.

The story illustrates everything the Tea Party thinks about the corrupt Washington establishment and the evils of big government.  It demonstrates the limits on the ability of government programs to help the poor.  It converts a complicated economic story into a simple morality play — with Dems as the villain.  It allows Republicans to capitalize on public fury at the country’s economic problems.  It links the Democrats to Wall Street — the one part of the private sector that the Republican base loathes.  It exposes that mix of incompetence and arrogance that is the hallmark of the modern American liberal establishment and links this condescending cluelessness to the real problems of real American families.  It links President Obama (through appointments, associations and friendships) with the worst elements of the Clinton legacy and it blunts some key Democratic talking points.

The story can also be a devastating wedge issue.  The Democratic Party today is a fragile coalition of elite liberals, traditionally Democratic ethnic blue collar whites, African Americans and Hispanics.  The Fannie Mae story is essentially a story of how liberal Wall Streeters raped every one else — and how the organized leadership of the other groups colluded in the attack. 

Hammering this picture home will demoralize and divide the Democratic Party, reducing enthusiasm among minorities and pulling swing white ethnic votes toward the GOP.

The story builds GOP unity even as it divides the Democrats, allowing GOP populists and establishment figures to find some common ground.  For one thing, it builds the idea that Wall Street is a liberal Democratic institution rather than a conservative Republican one.  In fact, Wall Street is in love with power and cuts deals with whoever can make them, but for years Democrats have prospered by making running on Franklin D. Roosevelt’s platform against ‘the malefactors of great wealth’.  There are many powerful Wall Street figures who are closely linked to the Democrats, however, and the James Johnson story puts a face on that alliance.  Socially and culturally, most of Wall Street stands closer to the Democratic establishment than to the Republican Party these days; linking the Democrats to Wall Street, teacher unions and race hustlers is an easy and compelling way to push the Democrats closer to the cliff even as it allows GOP candidates to lace their speeches with populist anti-Wall Street rhetoric without embracing anti-business policy.

The story doesn’t just attack a failure of Democratic policy execution; it exposes a key flaw in New Democratic thinking.  The Third Way as dreamed up by Bill Clinton and Tony Blair sought to harness the power of financial markets to a public service agenda.  Old style command and control liberalism believed in directly mandating business to do what politicians thought should be done.  AT&T had to serve rural communities, but in exchange it had a phone monopoly and regulators made sure that it made a good profit.  The airlines and bus companies had to service unprofitable routes, but regulators made sure that their route networks as a whole were profitable.

As competition became more global and the inflexible regulations of the old liberalism proved less workable, a new and updated liberalism appeared.  Instead of old fashioned mandates, liberals would use new approaches that capitalized on the power of the market.  Use cap and trade schemes rather than command and control to control carbon through the market — and by creating an international market that will make money for financial firms.  Tweak the mortgage regulations to spread home ownership to the poor.  Both Britain and the US are looking at fun new ideas like ‘infrastructure banks’ that can fund projects that liberals like without putting large new debts on the public accounts.  Private profits can grow even as the public interest is served: this was the Clinton-Blair dream that was billed as liberalism’s response to the Thatcher revolution.  Additionally, liberal politicians like Al Gore and James Johnson were well placed to capitalize on the new arrangements.  Bill Clinton and Tony Blair have both become much wealthier after leaving office than old style liberals like Harry Truman ever could.

The story also undercuts what little is left of the credibility and the moral authority of the American establishment.  What is especially shocking in this story is that the higher up and more powerful people are usually the most venal and corrupt.  Low level researchers and bureaucrats are constantly raising questions and preparing devastating reports that expose the flawed premises behind Fannie Mae’s policies.  They are being constantly slapped down by the well connected and the well paid.  The American establishment does not have the necessary moral strength and intellectual acuity to run the affairs of this country; Tea Party believers will find much in this book that confirms their worst fears.

Republicans of course have a few financial scandals of their own that Democrats can take out and rattle.  But because Fanniegate offers a clear storyline, identifiable villains linked to specific disasters that have hit tens of millions of Americans in the pocketbook, and is overwhelming a story of Democratic abuses of Democratic ideas, it is potentially a game changing event.  It is also an issue that a GOP candidate for the nomination can use to break away from the field; it is an issue a contender could ride all the way to the White House.

Paul Krugman once told me that he thought that Enron would have a greater impact on American politics than 9/11.  He was wrong about that scandal, but if the GOP plays its cards right, Fanniegate could push this country into a new political era.

- WALTER RUSSELL MEAD, Editor-at-Large of The American Interest magasine, Progressive, Yale University Professor, recognised as one of the leading authorities on American foreign policy, writes for several journals, magazines and newspapers such as Foreign Affairs, The New Yorker, The Washington Post, and The Wall Street Journal, registered Democrat, and Barack Obama voter and supporter, 7 June 2011

Taxes Are Not At An-All Time Low

InTheMajority writes:  "So taxes are at al all-time low"

"All-time low" means the lowest in history.  Your statement is patently absurd. 

Are taxes lower today than they were in 1900? 

Is the top marginal Federal income tax rate lower today than it was in 1925 or 1989? 

Are payroll taxes lower in 2011 than they were in 1937?

Are actual tax receipts lower today than they were in 1980?

Are property taxes lower today than they were in 1960? 

Weren't taxes lower prior to the 16th Amendment before anyone paid income taxes? 

Weren't taxes lower in 1950 when tax revenues as a percentage of GDP were 14.81% than in 2009 when they were 14.91%? 

Were taxes lower when property taxes, communication taxes and fees, cable taxes and fees, licencing taxes and fees, severance taxes and fees, etc., were lower or non-existent?

Wilson: America's First Fascist President

 
Which American president invented the very first propaganda ministry in the West?

Wilson. Committee on Public Information led by journalist George Creel and Edward Bernays, whose books and essays were collected by Joseph Goebbels.

Which American president has his own version of the Gestapo?

Wilson. American Protective League.

Which American President urged Congress to pass laws that forbade Americans from criticising their own government in a time of war and made it a crime for citizens to “utter, print, write or publish any disloyal, profane, scurrilous, or abusive language” about the government or the military," and signed them into law?

Wilson.

Which American president created a board to control all industry in service to the state?

Wilson. He charged Bernard Baruch with running the War Industries Board, which would serve as a precursor to the corporatist policies Mussolini and Hitler. Grosvenor Clarkson, a member and later historian of the WIB, would characterize the WIB as follows: “It was an industrial dictatorship without parallel–a dictatorship by force of necessity and common consent which step by step at least encompassed the Nation and united it into a coordinated and mobile whole.” He would also later say that the war was “a story of the conversion of a hundred million combatively individualistic people into a vast cooperative effort in which the good of the unit was sacrificed to the good of the whole.”

Which American president segregated the military and the Federal government?

Wilson.

Which American president locked up anti-war protesters, suffragettes, homosexuals, etc.?

Wilson.

Which American President sent Robert Goldstein to prison for 10 years for making a movie, The Spirit of '76, that depicted the British in the Revolutionary War in a negative light and was ultimately responsible for him dying in a Nazi concentration camp years later?

Wilson

Which American president interred Americans of German descent?

Wilson.

Which American president actively promoted forced sterilisations?

Wilson.

Which American president screened "Birth of a Nation" in the White House?

Wilson.  He called it "history shot with electricity."

Which American president, as Governor, appointed a eugenicist, who was later convicted of war crimes as one of the “Butchers of Buchenwald”?

Wilson

Which American president sought the Sedition Act and incarcerated tens of thousands of "dissidents"?

Wilson and this doesn't even take into account the infamous Palmer Raids, which occurred after the end of the war.

Which American President said this about education:  “We want one class of persons to have a liberal education and we want another class of persons, a very much larger class of necessity in every society, to forgo the privilege of a liberal education and fit themselves to perform specific difficult manual tasks"?

Wilson

Which American president said that his first recollection as a child was of hearing the "horrible" news that Abraham Lincoln had been elected President and would free the slaves?

Wilson

Which American president advocated progressive imperialism in order to subjugate lesser races?

Wilson

Which American president applauded the annexation of Puerto Rico and the Philippines saying, "they are children and we are men in these deep matters of government and justice"?

Wilson

Which American president regularly denounced what he called "the anti-imperialistic weepings and wailings that came out of Boston"?

Wilson

Which American president believed that giving blacks the vote was the "foundation of every evil in this country"?

Wilson

Which American president said, "while we are followers of Jefferson, there is one principle of Jefferson's which no longer can obtain in the practical politics of America.  You know that it was Jefferson who said that the best government is that which does as little governing as possible...BUT THAT TIME HAS PASSED.  AMERICA IS NOT NOW AND CANNOT IN THE FUTURE BE A PLACE FOR UNRESTRICTED INDIVIDUAL FREEDOM AND ENTERPRISE"?

Wilson

Which American president said, "segregation is not humiliating but a benefit, and ought to be so regarded by you gentlemen"?

Wilson

Which American President decried the "separation of powers” and “checks and balances” that are the foundation of American government and said, “Government does now whatever experience permits or the times demand"?

Wilson

Which American President said, “no doubt a lot of nonsense has been talked about the inalienable rights of the individual, and a great deal that was mere sentiment and pleasing speculation has been put forward as fundamental principle"?

Wilson

Which American President said, “the President is at liberty, both in law and conscience, to be as big a man as he can. His capacity will set the limit"?

Wilson

Which American President said, in 1913, “I do approve of the segregation that is being attempted in several of the departments.  I think if you were here on the ground you would see, as I seem to see, that it is distinctly to the advantage of the colored people themselves that they should be organized, so far as possible and convenient, in district bureaus where they will center their work"?

Wilson.

Which American President while Governor appointed American eugenicist, Dr Edwin Katzen-Ellenbogen, later called one of the “Butchers of Buchenwald” and convicted of war crimes in a trial at Dachau, as the Chief Eugenicist of New Jersey? 

Wilson.   After Wilson finally blessed America by dying from another massive stroke, Dr Katzen-Ellenbogen went on to bigger and better things becoming a founding member of the prestigious but pro-Nazi Eugenics Research Association headquartered at the Carnegie Institution.

Which American President signed bills banning miscegenation in the District of Columbia and segregating DC streetcars?

Wilson

Which American President appointed white southerners to his administration who introduced segregation into their previously unsegregated departments, including the postal service which was a major employer?

Wilson

Which American President said, "said that a “true leader” uses the masses of people like “tools" and wrote, “The competent leader of men cares little for the internal niceties of other people’s characters: he cares much–everything–for the external uses to which they may be put…. He supplies the power; others supply only the materials upon which that power operates…. It is the power which dictates, dominates; the materials yield. Men are as clay in the hands of the consummate leader"?

Wilson

In June 1917, which American President said, “Woe be to the man or group of men that seeks to stand in our way,” in response to counter protests to the fascist regime that he created upon entering WW I?

Wilson

Which American President has the worst civil rights record, according to, among others, Matthew Yglesias of Think Progress?

Wilson

Which American President has called the "Father of American Progressivism"?

Thomas Woodrow Wilson





Related:

How Progressives Killed Robert Goldstein Through Censorship, Police State Tactics, Unconstitutional Laws, & Railroading All The Way Into A Cattlecar On The Road To A Nazi Concentration Camp  



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Pic of the Day: Axe and His Bucket?

Not really.

A visitor tries on a metal mask, used as a torture device by the regime of Iraq's ousted leader Saddam Hussein, displayed at an exhibition gallery at the Martyrs Monument in Baghdad.