In 2010, a wonderful documentary called Inside Job done by Charles Ferguson was screened at the Cannes Film Festival. Generally well received by critics, it told the story of our modern financial crisis. It was, in short, about corruption: of the financial services sector, lobbyists, and Washington politicians. It convincingly laid a case against Wall Street and the unmentionable chaos it caused. Eliot Spitzer, Barney Frank, and other such politicians railed against the deregulation of the Reagan and Clinton years. In hindsight, their case is certainly convincing. Later, the Frank-Dodd bill was born. (Only to be later picked apart like a two-year old’s chocolate chip granola bar, I might add.)
Hindsight, though, is often unforgiving; in 2008 it was found that Spitzer, the Democratic New York Governor, had patronized a prostitution service. He resigned shortly thereafter. And now, after reading a candid new book by NYT columnist Gretchen Morgenson and Joshua Rosner called Reckless Endangerment, it would seem that Mr. Frank himself isn’t above the corruption of financial regulators and major bank executives that he so vehemently condemns in Inside Job.
The problem, then, isn’t the corruption of a few powerful men; it is that the leaders of this nation and its major institutions are fundamentally “self-dealing” at best and corrupt at worst. Wall Street, K Street, Democrats, Republicans.
Considering the nature of the role of Wall Street in this crisis and the appalling amount of corruption there, it is understandable that the targets of Inside Job were generally conservatives, and more specifically the Bachmann type of conservatives who fight to keep the government out of immoral banking conduct. Yet, in Reckless Endangerment, Morgenson isn’t out to get anyone, and that is part of what makes her book so important. She chronicles the reign of one Jim Johnson, who was denied a spot on the Obama campaign after it was found that he accepted some sweet housing deals while CEO of Fannie Mae.
It turns out, though, that Johnson was involved in much more. Johnson, who had been the campaign manager of Walter Mondale’s failed presidential bid, had risen to prominence in the Democratic Party at the time of he became CEO of Fannie Mae in 1991. He had also been a board member of many “prestigious” banking firms. Morgenson claims that it was one of Johnson’s dreams to be named the Secretary of the Treasury. Here are her own words: “He was especially adept at manipulating lawmakers, eviscerating regulators, and leaving taxpayers with the bill.”
It turns out that Johnson was keeping millions of dollars for himself and major shareholders within the company, thus exploiting Fannie Mae’s low interest rates (the Federal Government implicitly backed all of FM’s debt, although this was never admitted). During all of this, Johnson ran soft ads peddling affordable home ownership to those who clearly couldn’t afford it. In short, what was ran, to the public’s view, as a campaign to help the poor was actually a way for Johnson to amass wealth, W. Street-style. Particularly maddening—much like watching the recent ads claiming that Goldman Sachs is saving the world.
Johnson and Co. fought tooth and nail to stay in business, not so much by convincing the public but rather by convincing the few who mattered. It turns out, not surprisingly, that money can get a lot done in Washington these days. Whenever Fannie Mae was in particular danger, Barney Frank would come to its rescue, and combined with the ruthlessness of Johnson, managed to stay in business. A very bad idea, says the financial crisis from 2008. It was later found that Frank had accepted quite a few gifts in turn for his efforts.
In Inside Job and Reckless, there is a message that seems to say that rigid ideology can be a dangerous thing. Morgenson, in fact, is no less merciful to those in the GOP establishment than she is to Johnson. This is especially true where the ratings agencies are concerned. On Wall Street, the situation was largely reversed: conservatives fought de-regulation as if their paychecks depended on it.
Diarmaid MacCulloch, in a book about the history of Christianity, writes, “There is no surer basis for fanaticism than bad history, which is invariably history oversimplified.” Fanaticism is seen on both the left and the right in their attempts to protect clearly immoral institutions and actions, and this is bred in part from an oversimplified view of history.
Maybe in the future we will get a politican who understands nuance. It certainly won’t happen this election with the GOP talking heads (to whom principles are but fads), but in the future we may have a President with Obama’s oratory skill that can actually get the job done.