G.Will on “Reckless Endangerment” —newbook on financial crisis

So hideous…

The louder they talked about the disadvantaged, the more money they made. And the more the financial system tottered.

In 1994, Bill Clinton proposed increasing homeownership through a “partnership” between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized…

 “Special care should be taken to ensure that standards are appropriate to the economic culture of urban, lower-
income, and nontraditional consumers.” “Lack of credit history should not be seen as a negative factor.” Government having decided to dictate behavior that markets discouraged, the traditional relationship between borrowers and lenders was revised. Lenders promoted reckless borrowing, knowing they could off load risk to purchasers of bundled loans, and especially to Fannie Mae…

in 1998, when Fannie Mae’s lending hit $1 trillion, its top officials began manipulating the company’s results to generate bonuses for themselves. That year Johnson’s $1.9 million bonus brought his compensation to $21 million. In nine years, Johnson received $100 million.  Fannie Mae’s political machine dispensed campaign contributions, gave jobs to friends and relatives of legislators, hired armies of lobbyists (even paying lobbyists not to lobby against it), paid academics who wrote papers validating the homeownership mania, and spread “charitable” contributions to housing advocates across the congressional map.

By 2003, the government was involved in financing almost half — $3.4 trillion — of the home-loan market. Not coincidentally, by the summer of 2005, almost 40 percent of new subprime loans were for amounts larger than the value of the properties.

“Reckless Endangerment” is a study of contemporary Washington, where showing “compassion” with other people’s money pays off in the currency of political power, and currency.

http://www.washingtonpost.com/opinions/burning-down-the-house/2011/06/30/AGeRSGuH_story.html

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