First Causes
By William C. Whitbeck
Ladies and gentlemen, boys and girls behold the three-ring circus of a presidential election that is about to begin. And note that every pundit in sight is predicting that the condition of economy will be in the spotlight. It will be a repeat, they say, of James Carville’s famous 1992 dictum, but squared: “It’s the stupid economy, stupid!”
Here, the President is a more than a little vulnerable. Despite trillions in bailouts, stimulus programs, and a variety of other pump-priming maneuvers and machinations, unemployment figures remain depressingly high, consumer confidence is depressingly low, and the prospects for a so-called “double dip” recession are sufficiently scary that the stock market has gone into something of a swoon over the last six weeks.
Chief among the responses by the President’s people has been a simple refrain. Look, they say, the Bush Administration is responsible for this mess and we are only trying to clean it up. The President resorted to an analogy - you wouldn’t turn over the keys of a car to those who caused it to run into the ditch - but his meaning is clear: the blame lies with his predecessor and his party.
Now, it is certainly true that the main, but not the only, cause of the Great Recession was the financial meltdown of 2008. And that meltdown indisputably occurred on President George W. Bush’s watch.
But that does not end the argument. Assigning responsibility for the most serious financial crisis since the Depression is no easy task. Gretchen Morgensen, a Pulitzer prize-winning business reporter and columnist for the New York Times, and Joshua Rosner attempt to do just that in their new book Reckless Endangerment.
The book bristles with a cold anger and the rogue’s gallery of miscreants that the authors paint is a very large one. It includes mendacious members of Congress, inept government officials of various culpabilities, conniving Wall Street impresarios, predatory Main Street lenders, and a supporting cast of thieves, swindlers, con men, phonies, lax regulators, and various enablers, kowtowers, and wannabes. There are very few heroes.
The authors’ basic premise is that the dream of home ownership for most Americans turned into a horrible nightmare that precipitated the 2008 financial meltdown.
Two men were central to this process. The first is well known. He is William Clinton, the 42nd President of the United States who in November of 1994 proclaimed that most Americans should own their own homes not only for economic, tangible reasons but also for emotional, intangible reasons that “go to the heart of what it means to harbor, to nourish, to expand the American Dream.”
Such a sentiment was itself unexceptional. Presidents going back to Abraham Lincoln and a raft of lesser politicians, from conservative to liberal, had said much the same thing. But President Clinton took the concept one step further. He launched the National Partners in Homeownership, an entity that Morgensen and Rosner describe as “a private-public cooperative with one goal: raising the numbers of homeowners across America.”
The main actor in this partnership was the venerable Federal National Mortgage Association, known universally as Fannie Mae. Fannie Mae was, again in the authors’ words, “[T]he huge and powerful mortgage finance company set up in 1938 to make it easier for borrowers to buy homes in Depression-ravaged America.” And in charge of Fannie Mae was the other central figure in the drama, one far less famous. He was James A. Johnson, Fannie Mae’s chief executive.
As we all now know, the hugely profitable but also hugely risky undertaking that President Clinton announced and James Johnson implemented turned into a giant, multi-faceted disaster within ten years. Wall Street giants like Bear Sterns and Lehman Brothers disappeared, while other firms were bought out or bailed out. Fannie Mae required billions of dollars in taxpayer backing in order to survive. Credit across the United States went into a deep freeze that has not yet fully thawed. Millions of Americans defaulted on their mortgages and lost their homes. The world economy tanked and millions more were without jobs.
But President Clinton went into retirement enjoying general approval for his handling of economic matters. And James A. Johnson left Fannie Mae many times a millionaire because of the salary, bonuses, and stock options he received during his tenure. Neither President Clinton nor Mr. Johnson appears, at least publicly, to be overly remorseful about their central roles in the subsequent financial debacle.
Well, they should be. Similarly, President Obama and his people should be careful about assigning total responsibility for our current economic problems to the Bush Administration. In fact, many of the first causes for the Great Recession extend well back into the 1990s.
One further observation. I have been a lawyer, a government official, a businessman, and now a judge for almost 45 years. Out of this collective experience, there is one thing that I can guarantee with absolute certainty: when there are very large sums of money in play, there will be those who will knowingly and willfully violate the law in order to grab some of that money.
Trillions of dollars were in play in the decade-long run-up to the financial meltdown. And yet, there have been precious few prosecutions, much less convictions, for the crimes that were undoubtedly committed. The main actors have walked away, many of them rich beyond our imagining. Where, one might legitimately ask, has the Obama Justice Department been in the nearly three years since those fateful days of 2008? Perhaps this is a question that should also arise during the next 15 months of the greatest show on earth.
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