Book Review: Reckles$ Endangerment

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Morgenson, Gretchen and Joshua Rosner. Reckles$ endangerment : how outsized ambition, greed, and corruption led to economic armageddon. Henry Holt and Co., 2011.

Why read another book on the housing bubble and financial crisis that led to the recent recession? If you have read the numerous other books released in the past several years and are not familiar with name James Johnson, then that is a reason enough.

The other accounts have understated the role of Johnson, the Chief Executive of Fannie Mae from 1991-1998. Gretchen Morgenson, a New York Times reporter, and Joshua Rosner, an adviser to the financial industry, target Johnson as the architect of the private-public partnership to promote the home ownership drive.

Interestingly, Johnson and the other players in the book draw strikingly familiar parallels to Ayn Rand’s characters a half century ago. Rand demonstrated what can happen if unscrupulous characters in the private sector and the government form an alliance. Although Rand’s characters are fictional, unfortunately Reckless Endangerment’s are not.

According to the authors, “As head of Fannie Mae during the glory years, he taught many up-and-comers how to play the game and ensure the survival of their culture of self-interest (p.305).” As we know the culture of self-interest encompassed sub-prime mortgage lenders, investment banks, and politicians — all Johnson’s partners.

Countrywide Financial was the nation’s largest originator of toxic sub-prime loans. Under Johnson‘s watch at Fannie Mae, creative financial accounting led to huge management bonuses for which later Chairman Franklin Raines was prosecuted. While accumulating a fortune, Johnson used his government ties and manipulated lawmakers especially Barney Frank, subsequently leaving a hefty bill for taxpayers to pay.

These revelations should raise the questions, who provided oversight of Fannie Mae, and were these watchdogs held accountable? According to the authors, “Johnson’s most crucial win was making sure that Congress was the company’s overseer, not the Office of Federal Housing Enterprise Oversight, the regulator created in 1982 to watch over the company (p.12).” To accomplish this goal, Johnson and Fannie Mae spent tens of million of dollars in lobbying and political contributions.

So, what has happened to Johnson? After leaving Fannie Mae, Johnson joined Goldman Sachs’ Board of Directors making millions, and has served as Chairman of the Brookings Institution and the Kennedy Center for Performing Arts. Once pegged as Secretary of Treasury under Obama, Johnson’s questionable business practices dashed those hopes.

This book has the type of investigative reporting one would expect from a Pulitzer Prize winning journalist. For truly understanding the roots of the 2008 recession, reading Reckless Endangerment is not an option.

Guest reviewer Randall Mayes is a Duke Alumni, policy analyst, and author of Revolutions: Paving the Way for the Bioeconomy scheduled for release in spring 2012 with Logos Press.

© Reviewer: Randall Mayes & Ford Library – Fuqua School of Business.
All rights reserved.

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