Reckless Endangerment paraphrases AEI "research" used to promote The Big Lie.
Here's a quick quiz to test your knowledge of The Big Lie. Identify which of the two passages below was written by a resident "scholar," at The American Enterprise Institute, and which was lifted from a bestselling book co-written by a New York Times reporter:
Excerpt A:
Regulators were relaxing rules, Fannie and Freddie were inflating their portfolios, homebuilders and subprime lenders were flexing their muscles too. To meet the goals Fannie and Freddie had to buy riskier mortgages, such as those defined as subprime…Many of those loans wound up in Fannie's and Freddie's portfolios. By 2008, some $1.6 trillion of toxic mortgages, or almost half that were written, were purchased or guaranteed by Fannie and Freddie.
Excerpt B:
For Fannie and Freddie to maintain lucrative implicit (now explicit) government guarantees on their debts, they had to commit growing resources to risky subprime loans (Calomiris 2008, Wallison and Calomiris 2009). Fannie and Freddie ended up holding $1.6 trillion in exposures to those toxic mortgages, half the total of non-FHA outstanding amounts of toxic mortgages (Pinto 2008)."
Here's an extra hint, from The New York Review of Books:
[I]t might especially surprise the inexpert reader to know that the GSEs did not own almost half of the “toxic mortgages” written by private companies, a remarkable exaggeration on the part of the authors. As usual, no source for the estimate is given, but it is likely based on the analysis of [Ed] Pinto, who was a former Fannie official and is a colleague of [Peter] Wallison’s at the American Enterprise Institute.
OK, you probably got it. Excerpt A, the one with no attribution whatsoever, the one that was published in May 2011, was lifted from page 117 of Reckless Endangerment by Gretchen Morgenson and Joshua Rosner. The passage that looks remarkably similar, the one that gives some attribution so that readers might glean how the author came up with that cockamamie number of $1.6 trillion in "toxic" mortgages, was written by Charles Calomiris of Columbia University in September 2009.
By referring to Morgenson/Rosner's $1.6 trillion "toxic mortgages" number as "a remarkable exaggeration," the authors of the article in the New York Review of Books show a penchant for remarkable understatement, as they did when they wrote that the $1.6 trillion number is "very likely" based on the work of Ed Pinto.
Peter Wallison, the chief proponent of The Big Lie, according to Joe Nocera, Barry Ritholtz, Jonathan Alter, Paul Krugman, Kevin Drum and William K. Black, claims that his thesis is vindicated by Morgenson and Rosner's book.
It's easy to see why. Jeff Madrick and Frank Partnoy, who wrote the NYRB piece, say:
The book boldly and passionately asserts that the risk-taking of Fannie Mae and Freddie Mac was a major element in causing the housing bubble. In particular, the authors blame the crisis on the goals set by the Clinton administration in the early 1990s to make lending “affordable” to more middle- and low-income home buyers...
This bold claim, however, is not substantiated by persuasive analysis or by any hard evidence in the book.
Of course, the source of the "evidence," is the elephant in the room that almost no one wants to talk about.
This is why Nocera's column was so important and, perhaps, courageous. Out of deference to Morgenson, who is admired by many progressives, there has been a reluctance by those financial media to go after The Big Lie and The Big Liars. So far, no one has asked Morgenson or Rosner to explain how they arrived at the $1.6 trillion number or how they can justify it. (Nor has anyone asked the authors if they have had any affiliation with AEI.) Which is why Wallison can persist in falsely claiming that the book, which simply parrots AEI research, represents some kind of independent reporting that meets the standards of The New York Times.