Archaeology of a financial crisis (Part 1)

Back in the early 1990s my then writing partner, Bruce Duffy, and I were approached by Fannie Mae with the idea of ghosting a book for its CEO, Jim Johnson.

We were invited to Fannie Mae's plush offices on Wisconsin Avenue to meet with several members of the company's public relations department.

After they'd explained what they had in mind (which eventually became the 1996 book you see pictured above), my partner—who was, at that point, not terribly well schooled in the ways of the corporate world—blurted out: "I don't think we'd be interested in doing a book like that."

I gave him a kick under the conference table and tried to walk it back ("What Bruce actually meant was …"), but the damage had been done.

We didn't get a callback.

And, in point of fact, Bruce was just saying what both of us had been thinking: What a completely self-serving piece of corporate bullshit. Who would want to plunk down $25.00 to buy a Fannie Mae marketing brochure?

The book got written without us (from the looks of it, with the expert ghostwriting help of Democratic speechwriter and strategist Bob Shrum). And, of course, it had a quick trajectory from the New in Non-Fiction shelves to the remainder table. (I bought my copy from an Amazon reseller recently for $.01, or roughly the current value of a share of Fannie Mae.)

A blurb on the back cover of Showing America a New Way Home stands out for its effusive sycophancy. It comes from Angelo Mozilo, the recently disgraced CEO of Countrywide Financial, one of the big mortgage originators at the heart of the subprime mess: "Jim Johnson has been the most vocal and active leader in closing the shelter gap in repairing the important fabric that binds our great country."

Not surprisingly, the book also includes a plug for Mozilo as well, on page 121:

The most important single determinant of the viability of the mortgage for borderline applicants is not their capacity to pay, although that is properly and inevitably part of the equation. The single most important factor is their commitment to pay. That commitment can be hard to prove, and its intensity can be even harder to measure. Angelo Mozilla, the CEO of  Countrywide Home Loans and one of the mortgage industry's most farsighted leaders, has urged mortgage institutions to welcome and prize home buyers who say (and mean it), "we are so thrilled to own our home that we are horrified by the notion that we could lose it. We will make enormous sacrifices -- take additional jobs, ask members of our family to contribute to the mortgage, sacrifice in other areas, cutbacks in consumption and expenditures. But we will not fail." That, in the end, is the real definition of a good risk.  but if an applicant's financial situation is borderline, if the future market of the house the applicant wants to buy is threatened because it is in a troubled neighborhood or declining market, if there is uncertainty about the applicant's commitment to pay, then there is also a great risk of failure.

At Fannie Mae we are consciously using our enormous capacity and influence in the home mortgage system to help lenders hone their ability to calculate the likelihood of making a successful lung to those who have been or might be denied we are seeking, in concert with lenders and other institutions, to open a dialogue with every potential homebuyer who has some real likelihood of success in paying off a mortgage.

[Emphasis added.]

Obama adviser Johnson has lately been named as  a recipient of one of the many below-market loans that Angelo made to high-ranking government officials and well-connected figures in the private sector. (Other "friends of Angelo" included Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee; Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee; former Secretary of Housing and Urban Development Alphonso Jackson; former Secretary of Health and Human Services Donna Shalala; and former U.N. ambassador and assistant Secretary of State Richard Holbrooke.

Reading Showing America a New Way Home a dozen years later is an eye-opening experience. If you want to understand how we got into the whole subprime mess, I can't think of a better one cent investment.

And, pretty soon, that may be as much of an investment as any of us can afford.