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.


"It made heavy donations to, among others, the nonprofit..."

nonprofit is the new for-profit

A little confirmation bias in your description of the book? The description you gave makes it sound like all Fannie and Freddie but the Amazon editorial description is much broader and more inclusive.

Here is the Amazon product description:

"As soon as the financial crisis erupted, the finger-pointing began. Should the blame fall on Wall Street, Main Street, or Pennsylvania Avenue? On greedy traders, misguided regulators, sleazy subprime companies, cowardly legislators, or clueless home buyers?

According to Bethany McLean and Joe Nocera, two of America's most acclaimed business journalists, the real answer is all of the above-and more. Many devils helped bring hell to the economy. And the full story, in all of its complexity and detail, is like the legend of the blind men and the elephant. Almost everyone has missed the big picture. Almost no one has put all the pieces together.

All the Devils Are Here goes back several decades to weave the hidden history of the financial crisis in a way no previous book has done. It explores the motivations of everyone from famous CEOs, cabinet secretaries, and politicians to anonymous lenders, borrowers, analysts, and Wall Street traders. It delves into the powerful American mythology of homeownership. And it proves that the crisis ultimately wasn't about finance at all; it was about human nature.

Among the devils you'll meet in vivid detail:

• Angelo Mozilo, the CEO of Countrywide, who dreamed of spreading homeownership to the masses, only to succumb to the peer pressure-and the outsized profits-of the sleaziest subprime lending.

• Roland Arnall, a respected philanthropist and diplomat, who made his fortune building Ameriquest, a subprime lending empire that relied on blatantly deceptive lending practices.

• Hank Greenberg, who built AIG into a Rube Goldberg contraption with an undeserved triple-A rating, and who ran it so tightly that he was the only one who knew where all the bodies were buried.

• Stan O'Neal of Merrill Lynch, aloof and suspicious, who suffered from "Goldman envy" and drove a proud old firm into the ground by promoting cronies and pushing out his smartest lieutenants.

• Lloyd Blankfein, who helped turn Goldman Sachs from a culture that famously put clients first to one that made clients secondary to its own bottom line.

• Franklin Raines of Fannie Mae, who (like his predecessors) bullied regulators into submission and let his firm drift away from its original, noble mission.

• Brian Clarkson of Moody's, who aggressively pushed to increase his rating agency's market share and stock price, at the cost of its integrity.

• Alan Greenspan, the legendary maestro of the Federal Reserve, who ignored the evidence of a growing housing bubble and turned a blind eye to the lending practices that ultimately brought down Wall Street-and inflicted enormous pain on the country."

Hmmm... Fannie Mae's "original, noble mission"? Subprime lending as a primary culprit, but congress gets off for requiring banks to make money-losing loans in the first place (through the Community Reinvestment Act)? Alan Greenspan gets dinked for infamously failing to raise the alarm years AFTER he left the fed, but the actual head of the fed gets no notice? No mention at all of any of the federal regulatory agencies which were supposed to be keeping an eye on things?

Confirmation bias indeed...

Bill, did you miss the sentence "A highlight is the chapter on the GSEs and how tightly they wound themselves into the political process?"

I'm not sure how you read that in Alex's post and assume that he's saying that the GSEs are the only villains in the book. It quite certainly implies that there are other chapters, which are not about the GSEs.

John Thacker:

You are right, Alex implies there is more, but virtually the entire post is about Fannie and Freddie, so I think Bill's comment is a useful corrective.


I think it should be noted that Fannie had lots of economists on the payroll. Examples from 2002 and 2003 include Joseph Stiglitz and Peter Orszag and R. Glenn Hubbard.

Stiglitz: "Implications of the New Fannie Mae and Freddie Mac Risk-based Capital Standard," by Joseph E. Stiglitz, Jonathan M. Orszag and Peter R. Orszag. Fannie Mae Papers, Volume 1, Issue 2, March 2002.

Hubbard: "Evaluating Liquidity Risk Management at Fannie Mae," Fannie Mae Papers Vol II, Issue 5, Nov., 2003.

For more on this including links to the papers, see and comments on that post.

Is it merely a coincidence that when citing economists who have been paid by Fannie and Freddie, Russ Roberts, Charles Calomiris, David Henderson, and Alex Taborrak mention people like Volcker and Stiglitz but omit people like Hubbard?

Yes, it's to protect the casual readers, not because some folk can't keep themselves from ideological knee-jerks.

Yancey, Sure. In line with the typical ad hominem comments you make. I am not deterred by your comments, typical comments designed to stop discussion and intimidate discourse. Doesn't work, Yancey.


I am attempting to induce you slow down and actually read before you comment. You seriously pissed me off a couple of times before by not doing so, and were nearly impervious to multiple efforts of correction. And, then you go and do the exact same thing in this blog post, and when called on it, you seem to back track try to make it look like you were fixing something for the casual reader, but, were, in fact, the casual reader yourself who missed the key sentence the first time through in your partisan desire to find confirmation of your perceived "confirmation bias" in Alex's post.

Kling has been very explicit that he thinks "let's blame the CRA" is a stupid idea. He's said much more about insiders-versus-outsiders than left-versus-right.

But he worked at Freddie Mac, so he's obviously interested in the GSEs.

why do people insist on using the misnomer "affordable housing policies"? how is a policy that pumps up housing prices to unprecedented multiples of average incomes making houses more affordable?

A more honest name would be "maximizing indebtedness policies". The use of this dishonest description of policies is Orwellian. The policies were not made in order to benefit the masses, they were made to increase the wealth of the oligarch...and when it came time for bailouts Geithner himself told Tyler's posse that the REAL GOAL of the programs have been to help the banks...NOT those who are over their heads in debt....and TYLER ACTED LIKE THIS WAS GOOD!!


What you should have written was "Oops, I missed that the first time, John, but I do think it important to mention the book covers other details of the financial crisis and the lead up to it. My apologies to Alex for the snide comment I made in hastily misreading his post."

There is no dishonor in misreading things people write. I do it quite often, but if I am going to make a snide remark about some point someone made, I am always sure to double and triple check my interpretation. It is a recurring theme with you that you don't do this, and often can't even be bothered to double check yourself when having it drawn specifically to your attention. I would think double checking language this way would be second nature for a lawyer of all professions.

What's being glossed over is how the boiler room operators like Mozilo and Arnall and their political enablers like Bush continually exploited America's Cult of Diversity to justify trashing traditional credit standards, such as requiring down payments to fight racial inequality. Here, it is, 2010 and that story is still almost unknown because we remain such true believers in the Cult of Diversity.


But a major factor in demand for securitized produces were Fannie and Freddie who were buying sub prime paper to meet those goals.

This is such a great resource you are providing. I enjoy seeing sites that understand the value of providing a prime resource for free. I really loved reading your post. Thanks!

I was reading these comments, thinking I might learn something, when it seems "human nature" took over and turned the postings into a competition. I lost interest at that point.

I should accurately treat my situation and shouldn’t overrate myself. In the past, I regarded me as an excellent girl because I accomplished my master degree in an influencing university.

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