Bethany McLean has done it again. Her Shaky Ground is another expression of concern about mostly silent issues that have the capacity to spawn economic catastrophes with adverse global consequences. Her concern for the lingering “conservatorship” status of Fannie Mae and Freddie Mac is a quick and worthy read, not only to understand the substantive issue per se, but also as a compelling call to remedy our national tendency to prefer reactive over proactive approaches to addressing major policy concerns.
As someone who has spent 50 years in higher education along with 40 years as an arbitrator I was struck over a decade ago by McLean’s ability to reduce complexity to simplicity by asking and informing the right question. Teaching is at its best when the methodology is Socratic and the resolution of conflict is best achieved by correctly framing the core issue and informing a dispute between parties or interests rooted , at best, with incomplete information or, at worst, with discounted information shrouded in ideology. The Fannie and Freddie issue beckons an independent call to frame and inform the issue and Bethany does so in Shaky Ground.
Why does it appear Bethany McLean is so preoccupied with topics she may know little about? As an academic, I am inclined to conclude she remains the intellectually curious student every teacher prizes. Her experience with Enron offers excellent evidence to show that Fortune assigned her to the story as a young writer because they assumed the easiest story to write is the story about success. Upon reflection and ironically, it is reasonable to assume her Enron discovery evolved mostly from her lack of understanding. It was McLean’s relative inexperience in the financial sector—a background formed mostly as an admittedly unique English and Mathematics collegiate major combined with a relatively short experiential learning opportunity with Goldman Sachs—that prompted her to ask Enron leadership the simple and seemingly innocent question most seasoned financial sector professionals would never think or have the courage to ask: “How exactly does Enron make its money?” When the response was silence, McLean wondered whether the story may be more about failure than success.
Bethany McLean’s work, Shaky Ground included, is an excellent example, especially for students, of how to merge poetry and prose—rhetoric and data—in the quest for understanding risk-laden situations in need of intervention before they cast devastating harm. However, her work is also worthy of attention by professionals, both financial practitioners and regulators. It is members of that audience who often find themselves so steeped in financial sector culture that reading McLean’s work offers a back to basics exercise in renewing one’s capacity to think and act analytically and critically in the same manner that a morning visit to the gym is a fundamental exercise in sustaining one’s physical fitness.
McLean’s disciplined manner of writing is especially important in this age of transforming and waning journalism—especially in regional and local markets where the economics and organizational disruption of the news sector is profound. But, her methodology is also important to the quest to address seemingly marginalized, but important national issues with global significance. Pause to think, in this October 2015 moment, how much our journalistic discourse is dominated throughout the day by reporting on what appears to be a celebrity-centric fascination with Presidential aspirants while the traditional and important role of investigative journalism—a role critical to the importance of shedding light on the darkness of power in public and private/national and global settings—appears to be waning or distilled to repetitive investigations in search of air time over truth.
Also, reflect upon how often we find ourselves looking back on harmful economic events admitting that “if we had only known…”. Surely, we saw the risks associated with sub-prime mortgage practices at least a decade before the 2008 economic debacle with the repeal of the Glass-Steagall Act, the emergence of little understood mortgage-related financial products, and the failure of credit agencies to adequately define risk. And, yet we did little until we had to and with all the harmful consequences such inaction caused and still causes. Sadly, the tragedy of September 11, 2001 offers ample evidence of the importance of investigative journalism when one considers Federal officials at the highest levels were seemingly surprised by the event as evidenced by the testimony of one official who said “…no one could have predicted that they would try to use an airplane as a missile” despite evidence of years of similar attempts in various parts of the world as well as the existence of training programs designed specifically to counter such offenses.
Bethany McLean’s ponderous and questioning style and signature are once again clear in Shaky Ground. She is faithful to what she claims to do by calling attention to her concern about the fragility of government-sponsored enterprises, aka GSE’s, when she says: “…I don’t think everyone should agree with me. But I do think everyone should care. What I have tried to do in this book is to lay out the facts in a way that I hope will help readers think about the issues and make up their own minds.” And, she succeeds.
Bethany does seem to stray a bit from her quest to call attention to the risk intensive mortgage market exacerbated by the GES model, when she suggests that one approach to eliminating the risk posed by mortgage GES’s is to find a way to eliminate our national preoccupation with home ownership. Ouch. The wisdom of home ownership as a government backed cornerstone of our economy is a vestige of FDR’s heroic initiatives to mend the Great Depression (though the economic multiplier effects of WWII are often overlooked) and it has come to be viewed as a fundamental social right in much the same way that Social Security has become and healthcare will become.
Yes, young people are more diverse with many impeded from entering the house-centric world of suburbia by the effects of lingering segregation and a shrinking middle class increasingly comprised of people of color and single women devoid of both the financial capacity and the communal welcoming suburbia should afford. And yes, young people are more mobile—in part because they are young and in part because, unlike their parents, they are not likely to have 40 year careers with the same firm in the same place, but are likely destined to become corporate nomads—even virtually. But, the price volatility of the rental market—especially in large urban areas, surely NYC—when combined with family-centric points in one’s life cycle is likely to sustain the importance of home ownership.
In her ponderous way, Bethany McLean does seem to tilt in the direction of thinking that Fannie and Freddie cannot be allowed to simply fade away, but have to be reformed—even perhaps with different branding—if home ownership and its economic spillover effects are to be sustained. In doing so she seems to be mimicking Fiddler on the Roof’s Tevye and his unending “on the one hand, on the other hand” interrogatories in search of the truth when it comes to a choice between family and tradition. If so, it sounds like Bethany McLean may have tripped over another unanswered question that she is yet to understand. Hopefully, we can stay tuned for her next book and the revelations, some still unresolved, it is likely to offer.
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Top reviews from other countries
weir jan
The future of Fannie and Freddie is being decided now.
Reviewed in Canada 🇨🇦 on January 24, 2020Amazon Customer
Mortgage business still slippery.
Reviewed in Canada 🇨🇦 on October 18, 2019
