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Why do conservatives question the good intentions of liberals?

For the past four decades, liberals have pilloried conservatives as greedy, heartless bastards whenever they dared to question any well-intentioned government social justice or welfare initiative.

The reason we do it, of course, is because government programs have a proven track record of waste, fraud, and corruption.  And this is universally true, regardless of how much the authors of the programs wanted to help people.

Case in point: the revolting transformation of Fannie Mae by its former CEO James Johnson, who took a financially sound, decades-old investment handling company created to ease the risks associated with mortgage loans made to first time home buyers, and turned it into a "political animal" that was up to its corporate eyeballs in corruption, political demagoguery, and shady accounting practices.  Johnson's leadership paved the way for the implosion of Fannie Mae under the equally corrupt Franklin Raines.  Johnson had previously been a campaign manager for Walter Mondale and also held high level positions in both the Kerry and Obama campaigns.  It was his clout as a Democratic party power player that gave him the ability to manipulate the Federal government in such an appalling fashion.

Recently, NPR's Fresh Air spoke with Gretchen Morgenson of The New York Times, who spent years covering Wall Street and the recent mortgage meltdown.  Here are a few of her remarks, during the interview:

So Fannie Mae was on very solid footing in the early '90s, when James Johnson took over, and according to people who worked there at the time and worked with him, it became a completely political animal at that time.

It became all about preserving the government backing, preserving the -essentially the subsidies that the government was providing Fannie Mae and making sure that those sort of - that sort of special treatment or special relationship with the government never went away.

... I sort of characterize Jim Johnson as corporate America's founding father of regulation manipulation. And what that sort of means is, I mean this is a person who really, really wrote the blueprint for how to neutralize your regulator, how to manipulate Congress to get your way and, you know, essentially how to destroy your critics.

... Now, their regulator at that time was very weak. It was HUD, the Housing and Urban Development, and essentially what Johnson did, which was really amazing at the time, was to help write legislation in 1991 and '92 which became the Safety and Soundness Act that was designed to prevent Fannie Mae and Freddie Mac from calling on taxpayers in a time of failure.

He helped write the legislation in two critical ways: one, to make sure that his company did not have to maintain high levels of capital cushion - i.e., he did not have to set aside a lot of money for a rainy day if losses were to come across.

That meant that earnings were juiced. That meant his pay was increased. So that was a crucial thing that he did that wound up in the legislation. Fannie Mae's capital requirements were far lower than other banks.

The other thing that he did, and according to people who worked with him was very instrumental in, was making sure that Congress sort of was his overseer, not HUD, and so he kept HUD sort of under the thumb of Congress, where he knew he had a lot of friends.

... One of the really big beneficiaries, albeit indirectly, was Congressman Barney Frank of Massachusetts. Back in 1991, when Congress was writing the legislation that would, you know, enhance or improve the oversight of Fannie Mae, or so they thought, Frank actually called up the company and asked them to hire his companion, who had just gotten an MBA from the Amos Tuck School of Business.

Of course the company was happy to provide a job for his companion and rolled out the red carpet in a series of interviews with a variety of executives, and it ultimately did hire the man. And he stayed there for I believe seven years.

So that was an example of the kind of thing that Fannie Mae would do. Now, when I asked Mr. Frank about this, I asked him, did it have any impact on his approach to the company. You know, was it a conflict? Did he feel that it had been a conflicted, put him in a conflicted spot? And he said absolutely not, that he didn't really remember being interested or having much to do with the 1992 legislation.

But the record shows that he was very aggressive and really tough on those who were testifying in Congress about reining in Fannie Mae and Freddie Mac. He was very aggressive to, for instance, the head of the Congressional Budget Office at that time, who was trying to call for increased capital requirements and to call for a focus on safety and soundness at Fannie Mae, that Frank really took him apart in testimony.

There's a lot more in the interview, including Johnson's cozy personal relationship with disgraced former Countrywide CEO Angelo Mozilo.  Johnson was personally responsible for legitimizing Countrywide's extremely risky subprime loans, by bundling them through Fannie Mae and then selling them to investment houses as safe, government-backed securities.

And did you notice that one of Johnson's first major power plays was helping to author the Congressional legislation that was supposed to regulate Fannie Mae?  You will recall that JP Morgan, Goldman Sachs, and other mega banks pushed hard in favor of the recent Dodd-Frank (yes, Barney Frank strikes again) financial "reform" bill, and that Congressional insiders confessed that lobbyists for the mega banks had largely written the preliminary drafts of the bill.  How comforting.

Although I am a fierce defender of free markets, I have often criticized the relationship between the Treasury, the Federal Reserve, and the mega banks, which has concentrated a disproportionate amount of wealth in the hands of a precious few incredibly powerful individuals.  Congressmen like Barney Frank and big-time political operators like James Johnson understood this corrupt system as well, but instead of using their talents to ensure an equitable, stable distribution of power and wealth among all banks and private enterprises (which is what Democrats are always supposed to be doing, isn't it?) they eagerly became a part of that system and actually managed to make it worse.

And any time Congressional Republicans or other government accountability groups dared to question Fannie Mae or the subprime mortgage scam, Barney Frank, Maxine Waters, and other Congressional Democrats wrapped themselves in the American flag, extolled the virtues of home ownership, and praised Fannie Mae for the ever-increasing number of minority borrowers whose loans were being underwritten.  Implicit in these praises was the idea that any criticism of such a noble undertaking could only be the result of greed or racism. 

So much for the virtue of "government oversight."  Sadly though, this is not the only way that greedy individuals can manipulate the government for their own gain.  The progressives who run the City of San Francisco pride themselves as practitioners of social justice.  They have, over the years, devised a complex set of provisions and quotas designed to ensure that city contracts are fairly divided among vendors owned by racial minorities, women, and gays and lesbians.

But a recent audit turned up an embarrassing truth:  many of the special minority-owned businesses favored through city contracts are little more than third party front companies, who are ripping the city off for millions of dollars every year:

In one case, a Muni worker said the city paid $3,000 for a vehicle battery tray. Such parts can be found online for $12 to $300, depending on the type of vehicle. City officials said they couldn't verify that purchase, saying the trays are usually bought in bulk with the battery.

Other city purchasing policies, if followed, would mean paying about $240 for getting a copy of a key that actually cost a worker $1.35 to get done at a hardware store on his break, the employee said. Another city worker called the use of catalog pricing for supplies "Pentagon-style purchasing."

Markups from approved vendors range from 10 to 150 percent, employees said, with one calling the city's requirement that contractors provide health care benefits for domestic partners "the expensive white elephant standing in the middle of the room (that) no one wants to mention."

Some vendors are suspected of being little more than middlemen who comply with San Francisco's very specific requirements for contractors - like disclosing historic ties to slavery and providing domestic partner benefits, a provision known as 12B because of its chapter in the Administrative Code - then turn around and buy the products from companies that don't meet the restrictions, city officials acknowledge.

Surprise, surprise. 

Just to be clear, no one is suggesting that the government should stop efforts to guarantee that private and public entities conduct their affairs in a fair manner.  That is a primary function of government that both conservatives and liberals should agree on.  But when the government attempts to institutionalize fairness or justice, it creates a huge opportunity for fraud and corruption.  It is the responsibility of citizens to keep a watchful eye on these practices.  Anything less is completely irresponsible.  And, dare I say, unpatriotic.


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Comments (7)

Although I am a fi... (Below threshold)
James H:
Although I am a fierce defender of free markets, I have often criticized the relationship between the Treasury, the Federal Reserve, and the mega banks, which has concentrated a disproportionate amount of wealth in the hands of a precious few incredibly powerful individuals.

I see no dissonance here. A lot of people don't realize it, but there is a fair bit of distance between being pro-free market, supporting neutral regulation aimed at leveling the marketplace, and being pro-business, a stance that favors regulation that favors, well, businesses.

Johnson. Small and Raines r... (Below threshold)

Johnson. Small and Raines raped FNMA for their own personal and political gain. I watched it from a front row seat in a conference room in 1994. It was criminal. They took one of the most successful economic engines the government had, pushed it into a power dive for Bill Clinton and then parachuted to safety.

"... no one is suggesting... (Below threshold)
Les Nessman:

"... no one is suggesting that the government should stop efforts to guarantee that private and public entities conduct their affairs in a fair manner. That is a primary function of government that both conservatives and liberals should agree on. "

SHOULD agree on, but it's becoming more and more obvious that today's 'liberals' don't agree; because of this previous quote:
"...regardless of how much the authors of the programs wanted to help people."

More and more, the authors don't give a shit about 'helping people'; they are writing these programs to increase their own and their party's power and to harm small, Constitutional gov't ideals. I used to think that was crazy conspiracy-theory talk, but now...you can't tell me they don't know what they are doing.

Please note that you heard ... (Below threshold)
Bruce Henry:

Please note that you heard it first on NPR, from a writer for the New York Times.

Liberal media, indeed.

Why do we distrust the inte... (Below threshold)
Jim m:

Why do we distrust the intentioned off the left?

Because simply put, those good intentions are nothing more than window dressing to hide the fact that their motives are every bit as greedy and heartless a they accuse their enemies of being. The fact is that they are just projecting onto conservatives the very motives that they act upon. By vilifying the right they hope to distract from the ugly truth that they don't care about other people but only care about their own wealth and power

Not first Bruce. But when ... (Below threshold)

Not first Bruce. But when even NPR and the NYT get disgusted enough to cover it, it's gotten pretty bad.

"Although I am a fierce def... (Below threshold)

"Although I am a fierce defender of free markets, I have often criticized the relationship between the Treasury, the Federal Reserve, and the mega banks,...

I think you lost track of where you were going with this sentence. While I, along with others here, have a real problem with Ron Paul's libertarian orthodoxy, he is right on when it comes to aim of auditing and then breaking up the Fed. Unfortunately, your "although" makes it seem like you believe these institutions have something to do with the free market. Bwahahaha!

The three institutions you mentioned constitute the most sinister GSE on the face of the planet. What other industry has effective vertical control over the manufacture out of thin air its own revenue stream and world reserve currency? Does anybody here think the current Fed ZIRP policy is reflective of actual time value of money? Does anybody think the $1.5 trillion annual Treasury debt monetization (allowing the TBTF's to sit on their real estate exposure and play the stock/commodity markets) stimulates real growth and job creation?

Good God! We are now in the middle of a societal debt and currency debasement crisis which is no closer to being resolved than it was in 2008. Our total national debt is still growing faster than the real per capita economic product. And the gap is widening exponentially. It may still be possible to address the issue before it's too late, but few politicians - and the majority of the public - seem to want cuts in spending without dealing with entitlements!

Thus, in order to be a "defender of the free market," one cannot - I repeat, cannot - support the sinister machinations of the Fed-Treasury-TBTF banks financial cartel. Get informed. Learn to speak Austrian [school economic theory]. The politicians must be pressured into the creation of a Pecora Commission (1930s) or Resolution Trust Corporation which identifies fraud and corruption and puts the public and private sector offenders on trial. And the Holder Justice Dept? ... crickets...






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