A Road Map to Economic Armageddon

[Donnachaidh]

http://www.truthdig.com/arts_culture/item/a_road_map_to_economic_armageddon_20110602/?ln

In “Reckless Endangerment,” Gretchen Morgenson and Joshua Rosner argue that cozy connections between government and the financial industry were the primary cause of the financial crisis. While many economists—including this reviewer—have argued that government actions caused the crisis, Morgenson and Rosner use their investigative skills to dig down and explain why those actions were taken. The book focuses on two government agencies, Fannie Mae and the Federal Reserve.

The mutual support system is better explained and documented in the case of Fannie, the government-sponsored enterprise that supported the home mortgage market by buying mortgages and packaging them into marketable securities, which it then guaranteed and sold to investors.

The book gives examples of Fannie’s executives—Jim Johnson, chief executive from 1991 to 1998, is singled out most—using excess profits to support government officials in a variety of ways, with plenty left over for large bonuses. They got jobs for friends and relatives of elected officials, including Rep. Barney Frank (D-Mass.), who is tagged as “a perpetual protector of Fannie.” They made campaign contributions and charitable donations to co-opt groups such as the community action organization ACORN, which “had been agitating for tighter regulations on Fannie Mae.” They persuaded executive branch officials—such as then-Deputy Treasury Secretary Larry Summers—to ask their staffs to rewrite reports critical of Fannie.

Fannie’s lobbying efforts were resisted by some government officials, who are the heroes of the book. Congressional Budget Office Director June O’Neill is praised for refusing to stop the release of a 1995 study by CBO staffer Marvin Phaup showing that federal support increased Fannie’s profits by $2 billion. Another hero is “none other than John W. Snow, the Treasury secretary,” who in 2003 “urged the creation of a new federal agency to regulate and supervise the financial activities of the government-sponsored enterprises.” (From 1995 to 2001, I was on the CBO’s Panel of Economic Advisers but was not involved in the CBO study. From 2001 to 2005, I was undersecretary of the Treasury for international affairs, and Fannie Mae issues were not part of the international division.)

More at the link --

[The Doctor.]

1. "Keep Doing What We're Doing"?

Seems that'll do it.

[femrap]

2. And nothing has really changed....

there is more and bigger Armageddon on the way...