Monday, April 15, 2013
Fateful History of Fannie Mae
The history of the Federal National Mortgage Association has been told many times but never as compelling and riveting as before than in a new book by author James R. Hagerty.
THE FATEFUL HISTORY OF FANNIE MAE reads almost like a soap opera or mythical tale, filled with rich characters, bizarre situations, and most of all, Mr. Hagerty's pointed commentary on all the events. He slowly unwinds the tale of how a tiny Roosevelt Administration program to help home buyers get mortgage financing during the height of the Great Depression morphed into a hybrid public/private behemoth starting the year 2006 with $1 trillion of debt guarantees it could not meet.
The point of this book is not so much to point blame and make recriminations but tell the tale of how ordinary bureaucrats and career politicians usually with the best of intentions made one fateful decision after another, decade after decade, until Fannie Mae could not longer function as a viable entity. In the end, FNMA was held together by the proverbial spit and bailing wire, accounting gimmicks and oversight neglect. Any straw would likely have broken its back, someday. But the greatest real estate bubble in history had just burst and Fannie was helpless to even save itself let alone the housing market it was created to support.
Along with its baby brother Freddie Mac, taxpayers got a $154 billion lesson on business failure.
This book is filled with many photographs of smiling Fannie Mae officials over the years which gives them and their actions a greater personality, a welcome departure from much of the dry accounts of these events which focus more on numbers and budget entries than the people who actually put them on the ledger.
The tone of this book in some ways reminds me of the classic A NIGHT TO REMEMBER by author Walter Lord, where everyone knows before starting Page One how the book is going to end but readers are drawn into the story by all the cruel ironies and ignored warnings of disaster looming on the horizon. In Lord's book, the ship is much like a stage and the passengers all doomed to share one grim night are like actors playing roles in the evolving drama, which is precisely why we remember the names of Captain Smith and J. Bruce Ismay so well today. There is no suspense how the story of the ship ends, but there is much suspense in how each of the characters in the story fells along the way.
There is this same sense of eerie foreboding in THE FATEFUL HISTORY OF FANNIE MAE as critics of the never ending expansion of FNMA from its birth keep raising the alarm...but few pay attention...and more and more Federal guarantees seem to bless the supposedly private publicly traded entity.
One of many such warnings in the book comes in this form. Miles Colean, an economist who worked for the mortgage lending industry, wrote a brief to the President of the United States saying government intervention in the U.S. housing market was "improvised in a progression of crises" and "lacked a recognized settled policy. He said "no limit to the expansion of Federal jurisdiction is discernible."
Colean wrote this brief to President Eisenhower in 1952.
What I really liked about this book is the author's colorful commentary on the people and their events. He likes bold adjectives and clever phrases which makes reading an account of what could be a boring subject extremely interesting. For example, when he describes the testimony of a Treasury official up on Capitol Hill as "bland comments" we understand the frustration of listening to such nonsense in the room but also the implications for taxpayers in the future. For decades, everyone knew Fannie and Freddie were like ships slowly sinking, not by huge gashes torn in their sides but slowly, a popped rivet there, a tiny stream of water here. For generations the pumps held back the inevitable but in the end gravity always wins.
There are many accounts of the Fannie Mae disaster and many worth reading. This book by James R. Hagerty is the most riveting I know. MUST READ.