Economic Armegeddon Ahead?


“Nation Goes on Its Merry Way to Ruin” (WSJ) by Pam Luecke, the Donald W. Reynolds professor of business journalism at Washington and Lee University in Lexington, Va., provides her take on Gretchen Morgenson’s and Joshua Rosner’s “Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led To Economic Armegeddon.”

The authors are furious that the American economy was “almost wrecked by a crowd of self-interested, politically influential and arrogant people who have not been held accountable for their actions. … We are disturbed that so many who contributed to the mess are still in positions of power or have risen to an even higher rank.”

In addition to fingering the usual suspects, Ms. Luecke writes, the single person that the authors hold most responsible is James A. Johnson, head of Fannie Mae, who had previously escaped scrutiny. Johnson, who made $21 million in 1998 alone, was the “anonymous architect of the public-private homeownership drive that almost destroyed the economy in 2008′.He was especially adept at manipulating lawmakers, eviscerating regulators and leaving taxpayers with the bill,” according to the book.

Particularly noteworthy, says Ms. Luecke, is the book’s portrayal of “the unsung government analysts, public lawyers and private researchers who dared to question policy decisions and stand up to the formidable ‘housers,’ as the true believers in government subsidies for home ownership are called.”

These people who did not have money or electoral offices at stake were vilified, by those who did, according to the article. Luecke cites an example in the book of a Congressional Budget Office researcher, who, in 1995, referring to the government’s multi-billion dollar subsidy to Fannie Mae and Freddie Mac (as well as the fact that one-third of these benefits never reached borrowers), had the audacious temerity to suggest that “Congress may want to revisit the special relationship.” “Unable to assail the merits of his analysis, outraged Fannie Mae executives resorted to ad hominem attacks, calling budget office officials ‘digit-heads’ and ‘economic pencil brains,'” Ms. Luecke writes.

One of the doubters was Mr. Rosner himself. In 2001, he warned about the potential for economic ruin as American consumers took on more and more home debt. Washington regulators met his 30-page paper “with a dismissive silence,” according to the article.

Unfortunately, the authors point out, there is no happy ending in sight. The problems have not been corrected because Congress failed to pass corrective legislation in the Dodd-Frank financial reform act, and another economic Armageddon “most certainly” will happen again, according to Morgenson and Rosner.