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.Brooks' warning about the "center-right and center-left", which are the political inclinations he feels most strongly, reminds me of G.K. Chesterton's conclusion to Heretics:
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...
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.
I know that there are current in the modern world many vague objections to having an abstract belief... A common hesitation in our day touching the use of extreme convictions is a sort of notion that extreme convictions, specially upon cosmic matters, have been responsible [for] bigotry. But... in real life the people who are most bigoted are the people who have no convictions at all. The economists of the Manchester school who disagree with Socialism take Socialism seriously. It is the young man on Bond Street, who does not know what socialism means, much less whether he agrees with it, who is quite certain that these socialist fellows are making a fuss about nothing...While the crimes detailed by Brooks and the dangers detailed by Chesterton are not the same, they are symmetric. In both cases, those who were generally well-accepted pose the most danger. Great fiscal crimes are committed not by those whose clear-eyed fanaticism leads them to excess in pursuit of an ideal: those are normally checked by the balances of republican government. Rather, the great fiscal crimes and abuses of public funds are centrist, pragmatist ideas, ideas that are inoffensive to everyone: homeownership, American auto manufacture, and fighting terrorism. Nobody is against these things, so everyone is willing to make a deal - a quid pro quo to support more money for Fannie Mae, more money for General Motors, or more money for Homeland Security.
Bigotry may be roughly defined as the anger of men who have no opinions... Bigotry may be called the frenzy of the indifferent... In this degree it was not the people who cared who ever persecuted; the people who cared were not sufficiently numerous. It was the people who did not care who filled the world with fire and oppression. It was the hands of the indifferent that lit the faggots; it was the hands of the indifferent that turned the rack... Bigotry in the main has always been the the pervading omnipotence of those who do not care crushing out those who care in darkness and blood...
There are people, however, who dig somewhat deeper than this into the possible evils of dogma. It is felt by many that strong philosophical conviction, while it does not produce that sluggish and fundamentally frivolous condition which we call bigotry, does produce a certain concentration, exaggeration, and moral impatience, which we may agree to call fanaticism. They say, in brief, that ideas are dangerous things...
Ideas are [indeed] dangerous, but the man to whom they are least dangerous is the man of ideas. He is acquainted with ideas, and moves among them like a lion-tamer. Ideas are dangerous, but the man to whom they are most dangerous is the man of no ideas... It is a common error... to suggest that that financiers and business men are a danger to the empire because they are so sordid or so materialistic. The truth is that financiers and business men are a danger to the empire because they can be so sentimental about any sentiment, and idealistic about any ideal, any ideal that they find lying about.
Both Brooks and Chesterton suggest that the only ones immune from this disease of moderation are the extreme. Brooks concludes:
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.