The Gingrich flap is a reminder of the dollar-fueled Washington-based influence-peddling that contributed to the housing collapse and our economic misery to this day. While Fannie Mae and Freddie Mac merrily degraded the nation's underwriting standards and made a fortune from it, they bought off or bulldozed anyone inclined to stop them. If Gingrich is truly turning over a new leaf in his suddenly resurgent bid for the White House, he might express some regret about how he allowed brackish overflow from one of the foulest tributaries of the Beltway Swamp to spill into his bank account.
Gingrich profited from one of the greatest and most damaging Washington scandals of our time. The whole sorry tale is recounted in detail in Gretchen Morgenson and Joshua Rosner's maddening book Reckless Endangerment. Fannie Mae realized in the early 1990s that it was in the Washington business as much as the mortgage business; it had to preserve at all costs its government backstop to keep its advantage over other financial institutions. It hired the Washington fixer James Johnson as its CEO, and he perfected the model that allowed Fannie and Freddie to run amok.
He hitched Fannie to the fashionable cause of affordable housing knowing that it provided a handy shield against criticism. When anyone pointed out its reckless profiteering, Fannie could reply that it was only bringing the American Dream to poor households, in keeping with the wishes of Congress. Fannie hired a phalanx of lobbyists and even paid lobbyists simply not to work against it. It used its shrewdly selected directors to enhance its influence. It showered political supporters with contributions. It paid for outside experts. One bank lobbyist opposed to Fannie is quoted by Morgenson and Rosner complaining: "I tried to find academics that would do research on these issues, and Fannie had bought off all the academics in housing. I had people say to me, 'Are you going to give me stipends for the next 20 years like Fannie will?'"
Only Tom Wolfe could do full justice to the combination of saccharine sentiments and gross personal enrichment at the root of the housing mess. As Fannie and Freddie kept their regulators and critics at bay, their risky lending practices rippled throughout the mortgage market. When the bust came, taxpayers ponied up more than a hundred billion dollars, in exactly the bailout Fannie and Freddie denied would ever happen. After everything, the two firms still backstop almost nine in 10 new mortgages.
The entire noxious episode explains why people are so desperate for Washington outsiders. Newt Gingrich channels that impulse masterfully, but he knows too well whereof he speaks. When the more respectable 21st century equivalent of the Watergate burglars came to him with their black bags, Gingrich took his cut.