Who is James Johnson?
Friday, June 17, 2011
Who Is James Johnson?
By: David Brooks, New York Times , Op-Ed Columnist
Most political scandals involve people who are not really
enmeshed in the Washington establishment - people like
Representative Anthony Weiner or Representative William Jefferson.
Most scandals involve spectacularly bad behavior - like posting
pictures of your private parts on the Web or hiding $90,000 in cash
in your freezer.
But the most devastating scandal in recent history involved
dozens of the most respected members of the Washington
establishment. Their behavior was not out of the ordinary by any
means.
For that reason, the Fannie Mae scandal is 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 Fannie Mae scandal has gotten relatively little media
attention because many of the participants are still powerful,
admired and well connected. But Gretchen Morgenson, a Times
colleague, and the financial analyst Joshua Rosner have rectified
that, writing "Reckless Endangerment," a brave book that exposes
the affair in clear and gripping form.
The story centers around James Johnson, a Democratic sage with a
raft of prestigious connections. Appointed as chief executive of
Fannie Mae in 1991, Johnson started an aggressive effort to expand
homeownership.
Back then, Fannie Mae could raise money at low interest rates
because the federal government implicitly guaranteed its debt. In
1995, according to the Congressional Budget Office, this implied
guarantee netted the agency $7 billion. Instead of using that money
to help buyers, Johnson and other executives kept $2.1 billion for
themselves and their shareholders. They used it to further the
cause - expanding their clout, their salaries and their bonuses.
They did the things that every special-interest group does to
advance its interests.
Fannie Mae co-opted relevant activist groups, handing out money
to Acorn, the Congressional Black Caucus, the Congressional
Hispanic Caucus and other groups that it might need on its
side.
Fannie ginned up Astroturf lobbying campaigns. In 2000, for
example, a bill was introduced that threatened Fannie's special
status. The Coalition for Homeownership was formed and letters
poured into Congressional offices opposing the bill. Many
signatories of the letter had no idea their names had been
used.
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.
Morgenson and Rosner write with barely suppressed rage, as if
great crimes are being committed. But there are no crimes. This is
how Washington works. Only two of the characters in this tale come
off as egregiously immoral. Johnson made $100 million while
supposedly helping the poor. Representative Barney Frank, whose
partner at the time worked for Fannie, was arrogantly dismissive
when anybody raised doubts about the stability of the whole
arrangement.
Most of the people were simply doing what reputable figures do
in service to a supposedly good cause. Johnson roped in some of the
most respected establishment names: Bill Daley, Tom Donilan, Joseph
Stiglitz, Dianne Feinstein, Kit Bond, Franklin Raines, Larry
Summers, Robert Zoellick, Ken Starr and so on.
Of course, it all came undone. Underneath, Fannie was a cancer
that helped spread risky behavior and low standards across the
housing industry. We all know what happened next.
The scandal has sent the message that the leadership class is
fundamentally self-dealing. Leaders on the center-right and
center-left are always trying to create public-private partnerships
to spark socially productive activity. But the biggest
public-private partnership to date led to shameless self-enrichment
and disastrous results.
It has sent the message that we have hit the moment of
demosclerosis. Washington is home to a vertiginous tangle of
industry associations, activist groups, think tanks and
communications shops. These forces have overwhelmed the government
that was originally conceived by the founders.
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.
People may not like Michele Bachmann, but when they finish
"Reckless Endangerment" they will understand why there is a market
for politicians like her. They'll realize that if the existing
leadership class doesn't redefine "normal" behavior, some pungent
and colorful movement will sweep in and do it for them.