All the Devils are Here

Lots of excellent material in McLean and Nocera's All the Devils are Here.  In addition to devils there are also a few skeletons: in 1990, for example, Fannie paid Paul Volcker to defend and endorse its low capital standards.

A highlight is the chapter on the GSEs and how tightly they wound themselves into the political process. 

Everything the GSEs did was behind the scenes.  But for Congress, it was the homeowners who mattered, since they were the constituents….Johnson solved this problem by establishing what Fannie Mae called partnership offices.  Officially, these were operations dedicated to finding opportunities to purchase mortgages…unofficially, they were the grassroots of a highly sophisticated political operation.  Fannie's first partnership office was in San Antonio, which just happened to be home to Representative Henry Gonzales, then the chairman of the House banking committee…

There was a certain formula to these offices.  They were staffed by someone close to power–the son of a senator, a governor's assistant, a former congressional staffer.  They held ribbon-cutting ceremonies, always with a politician present, to announce, for instance, that Fannie was going to put millions into a senior citizen center.  There were as many as two thousand ceremonies a year in partnership offices all over the country….

Fannie Mae also funneled money to politicians….Over the years, the foundation became one of the largest sources of charitable donations in the country.  It made heavy donations to, among others, the nonprofit arms of the Congressional Black Caucus and the Congressional Hispanic Caucus.

Fannie hired key insiders to plum jobs..[long list of names,AT]…"It was like the local Tammany Hall operation–a jobs program for ex-pols!" says one closer observer.

Fannie spent a staggering amount of money lobbying: $170 million in the decade ending 2006…

McLean and Nocera go on to document how this power meant reports alterted, investigations dropped and so forth.

We need more of this kind of historical public choice, history written with an eye to how power is wielded in the political sphere and how law is really made.  (For another example see my paper, The Separation of Commericial and Investment Banking: The Morgans vs. The Rockefellers.)

Addendum: Arnold Kling's review.