.....is how the Congressional Budget Office's 1995 detailed study of Fannie Mae and Freddie Mac's described the essence of their activities and whether they were value-for-money to the US Taxpayer. The findings were that as Government Sponsored Entities (GSE's) with an implicit government financial guarantee, they would be recipients of considerable financial benefits primarily much reduced borrowing costs. It was estimated that in 1995 alone this amounted to $7 billion which should by rights have been passed on to borrowers but in fact Fannie and Freddie kept $2.1 billion which was used to 'feather nest' the remuneration and benefits of the executives, and hurl $ largess at a wide range of Politicians and noted economic Academics to ensure that they continued to publicly endorse these GSE's as being of benefit to the nation. The tag 'Spongy Conduit' was entirely appropriate as of the $billions of benefits that were poured into Fannie and Freddie by virtue of it's privileged status, a whole lot somehow got sucked in and absorbed internally and didn't make it out through to the borrowers.
The CEO of Fannie James Johnson and his top four executives took home $ multi-million annual pay packages and were vested with tens of $millions of company stock, which elicited the CBO to conclude "Congress may want to revisit the special relationship that exists between the government and Fannie Mae and Freddie Mac." If only these prescient words had been heeded then it might well have saved the US taxpayer $153 billion, and still counting bailout in 2008. However, the widespread $ handouts to Politicians and their advisers ensured that the CBO report was largely ignored and Fannie and Freddie and their senior executives were able to keep their first class seats on 'the gravy train'. The consequential ramifications of the front-running, greed driven charge of these GSE's into the creation of the sub-prime abyss was, perhaps, the single-most lethal act which precipitated the 2008 Global Credit Crunch Crisis.
The authors, Gretchen Morgenson, and Joshua Rosner, a Pulitzer Prize winning business journalist and leading expert on housing and mortgage finance issues respectively, have meticulously crafted a really interesting and highly informative narrative of the 'front of stage' role played by Fannie and Freddie, which gives a most comprehensive insight into the disproportionate and at times critically misguided and self-serving influences exercised by James Johnson, and his colleagues.
The phrase 'Reckless Endangerment' describes a single or series of acts involving the engagement in conduct not amounting to an armed robbery but something that creates a substantial risk of a serious fiduciary loss to others. Certainly in the case of the sheer mayhem that resulted in the implosion of the sub-prime imbroglio, this became a reality and at a catastrophic cost to the US Taxpayer.
Morgenson and Rosner not only draw back the curtain on Fannie Mae but on it's enablers at Countrywide Financial, Goldman Sachs, the Federal Reserve, HUD, Congress, and the biggest players on Wall Street, revealing how greed, aggression and fear led countless officials to ignore the warning signs of the inevitable financial disaster. The authors are irked that the key players both individuals and corporations seemed to have got away with it. Whereas the Joe Public tax payer was bled almost dry, the likes of James Johnson and others are luxuriating in their federal enabled wealth, Fannie and Freddie have been shored up along with many entities on Wall Street, and little or no recourse has been taken against the politicians and regulators who buried their heads in the sand thus blotting out the warnings heaped frequently on them.
A classy book that is highly readable, and illuminating, but does leave the feeling that not too many lessons have been learned which is a bit of a downer.
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