Pity the Billionaire: The Hard-Times Swindle and the Unlikely Comeback of the Right
By Thomas Frank
(Metropolitan Books/Henry Holt & Co., 225 pages, $25)
Thomas Frank, who for a time filled the Al Hunt token-liberal slot at the Wall Street Journal, now writes the Easy Chair column for Harper’s magazine, a task previously reserved for genuine American men of letters, among them William Dean Howells, Bernard DeVoto, and the irascible Lewis Lapham (not related to Silas), strongly opinionated and ideologically wrong-headed, but an authentic man of letters, nevertheless.
Is Frank, a writer of strong political feelings but modest output and talent, fit to carry their water? Not on the evidence presented in this book, a semi-coherent critique of capitalism and a somewhat disjointed effort to explain how right-wing politicos and free market proponents have teamed up with corporate moneymen to delude ordinary Americans and create phenomena like Tea Parties.
He loathes the whole idea of free markets. “Now, there is nothing really novel about the idea that free markets are the very essence of freedom. What is new is the glorification of this idea at the precise moment when free market theory has proven itself to be the philosophy of ruination and fraud.”
Nor does he have any sympathy for those middle Americans who run small businesses, and what they represent. He sarcastically dismisses, with something like contempt, the idea that they’re our most important job providers, and mocks such assertions made in a decades-old Ronald Reagan speech:
“Oh,” writes Frank, “they’re the salt of the earth. The roots of the grass, the dreamers of the dream, the vox of the populi, the common man in all his righteousness.”
An odd outburst, especially from a man who apparently grew up in a normal middle-class home in Kansas. But no matter. That’s a matter for the psychologists.
In his 2004 best-seller, What’s the Matter with Kansas, Frank made a splash among liberals looking for proof that what seemed to be an ascendant conservatism was just a bad dream, by arguing that clever conservative leaders had manipulated American working people and middle class voters from voting their interests by distracting them with issues like abortion and affirmative action, which he apparently believes mean nothing at all.
Then came the crisis of 2008, the election of Barack Obama, Democratic victories in both houses, with capitalists and champions of free enterprise on the run, and big government, just as in the FDR years, about which Frank lovingly writes, was once again in the driver’s seat, “with the part of Franklin Roosevelt played by the newly elected Barack Obama.” Happy days were here again.
However, with the congressional elections of 2010, it seemed that the great unwashed were blaming excessive governmental intrusion for the country’s great malaise, instead of placing it on capitalists and free marketers. Writes Frank: “The revival of the right is as extraordinary as it would be if the public had demanded dozens of new nuclear power plants in the days after the Three Mile Island disaster; if we had reacted to Watergate by making Richard Nixon a national Hero.”
How to explain it? This conservative revival, Frank tells us, was really the result of a “hard-times swindle,” with pitchmen for the right-wing political-financial complex this time round encouraging frightened Americans, too stupid to understand how they were being manipulated, into blowing liberal and liberal-sympathizing members of Congress of both parties out of their comfortable sinecures.
Who are these pitchmen? Oddly, of all the villains available, he singles out as chief spokesman Glenn Beck who “would become the voice of American discontent” (a voice seldom heard these days, and of questionable reach to begin with). Beck scampers through this book like a deranged leprechaun, pitching a wacko gospel of free enterprise to the yokels.
And as the intellectual pitchperson, Frank nominates Ayn Rand, whose philosophy of objectivism, he seems to believe, animates American conservatism, and is sufficiently important to warrant, in this short book, a full-fledged deconstruction of Atlas Shrugged.
That job had been done decades before, better and more intelligently, and with the blessing of Bill Buckley, by Whittaker Chambers in National Review. The Chambers review effectively insured that Ayn Rand, despite a small band of disciples that included Alan Greenspan, would never become a significant influence in the conservative movement. But then, Frank steers away from any discussion of the mainstream conservatism, limiting the discussion to easily demolished caricatures like Beck, nameless Tea Party protesters, and obscure bloggers, never mentioning any major conservative figures. (He does refer to TAS twice, but only in passing.)
So what are we to take away from his analysis of the philosophy of Ayn Rand?
Here’s how he puts it: “For the master Spirits of our contemporary Right [it’s] straightforward sympathy for the billionaire plus tangled rationalizations for the death or humiliation of everyone else. The game is finally up for the whiners of the world, they exult. The first shall be first. Root hog, or die.”
Thus, in that unpleasant, and nearly unhinged paragraph, Frank comes as close as any place in this strange, disconnected book, in which he seems to war with unspecified demons, to summing up his message. But despite all the noise, he doesn’t seem able to provide—or interested in providing—a coherent analysis of the causes of the 2008 financial collapse.
A DIFFICULT ASSIGNMENT, to be sure. But as a starting point, most observers, left or right, agree that it was brought on by the inevitable bursting of the housing bubble. But why was there a housing bubble in the first place? What caused that housing crisis? Frank refers to it as “‘foreclosuregate,’ the revelation…that banks had cut all sorts of legal corners in order to hustle borrowers to default out of their houses as quickly as possible.”
That’s no doubt part of it. But many respected economists and commentators—none of whom are mentioned in Frank’s’ book—believe it was the direct result of government policies.
In The Housing Boom and Bust, for instance, the respected economist Thomas Sowell describes just how the scam worked. At some point it became apparent to politicians that increasing home ownership among low-income people—people with bad credit and no money for the conventional down payment—could create a whole new political constituency. This became the “underserved population,” to whom politicians like Barney Frank and Christopher Dodd set out to pander.
Governmental agencies reporting to Congress pressured lending institutions they regulated to loosen loan requirements and revise them downward. In effect, lending quotas were established, and if banks were reluctant to lower standards to serve “the underserved population,” they could find it difficult to compete against more cooperative institutions. And so the loans became increasingly risky; and as the new “underserved” homeowners were unable to make payments, the money ran out.
For Frank, however, these issues are inconsequential. Barney Frank’s involvement is mentioned in a note explaining how Glenn Beck apparently confused Fannie Mae and Freddie Mac with an insurance company. Christopher Dodd is mentioned in connection with the same company, and the complex and confusing Dodd-Frank financial reform bill, after the passage of which both Dodd and Frank left town, is referred to once in a long paragraph.
Nor are the roles of the government banks Freddie Mac and Fannie Mae examined here. Frank brushes aside any need to take criticism of them seriously, citing—again, in a note—the conclusion of the Financial Crisis Inquiry Commission, charged in 2009 with determining the causes of the collapse and issuing a report in early 2010, that loans guaranteed by Fannie and Freddie were “far less risky” than those issued by private lenders. And that’s pretty much what he has to say on the subject.
Interestingly, in the same note, he also tells us: “Full disclosure: My wife, Wendy Edelberg, worked for the Financial Crisis Inquiry Commission….” But it’s a little more than that. Frank’s wife, previously with the president’s Council of Economic Advisers and the Federal Reserve, and now an assistant director at the Congressional Budget Office, did a bit more than “work for” the commission. She was its executive director.
THE COMMISSION, whose 10 members reflected the composition of Congress in 2009 when it was formed—six Democrats, four Republicans—released its final report in early 2011, with the six Democrat members approving, three Republicans dissenting, and one member, Peter Wallison, a senior fellow at AEI, issuing an eloquent dissent (hard to believe that the spouse of the executive director seems not to be familiar with it), identifying governmental policies as the main cause of the collapse.
In May 2011, Wallison elaborated on his views in a strong and persuasive article in TAS.
The financial crisis, he argued, “would not have occurred if government housing policies had not fostered the creation of an unprecedented number of subprime and other risky loans immediately before the financial crisis began…it was the U.S. government’s housing policies—and nothing else—that were responsible for the 2008 financial crisis.”
In 1992, he writes, Congress mandated what were called “affordable housing loans” for Fannie Mae and Freddie Mac. The initial goals required that 30 percent of all loans Fannie and Freddie brought in each year had to be made to low-income borrowers. The Department of Housing and Urban Development (HUD) increased this requirement, reaching 55 percent in 2007. “HUD took Congress’s enactment of the affordable housing goals as an expression of a congressional policy to reduce underwriting standards so that low-income borrowers would have greater access to mortgage credit.”
This put Fannie and Freddie into competition with the Federal Housing Administration (FHA), an agency charged with providing credit to low-income borrowers, and with subprime lenders like Country-wide (Senator Dodd’s favorite mortgage company). Add all this to the requirements under the Community Readjustment Act of 1977 (CRA), making mortgages available to borrowers below 80 percent of the median income in their communities, and “the inevitable result was a significant deterioration in underwriting standards.”
As a result, by 2008, “19.2 million out of the total of 27 million subprime and other weak loans in the U.S. financial system could be traced directly or indirectly to U.S. governmental housing policies.”
In the end, because the Commission was intent on pushing through a politically palatable report as quickly as possible, he issued his dissent. The Commission’s management (including Frank’s spouse as executive director)—”particularly its chairman, Phillip Angelides [a long-time California Democratic politico]—would not allow the staff to pursue any theories other than those embodied in the standard left-wing narrative.”
The fix was quite obviously in, with a majority of the commissioners signing onto the report with no contrary evidence presented, just as is the case with Frank’s book. And then, writes Wallison, without waiting for the report to be released, “Congress passed and the president signed the Dodd-Frank Act (DFA), far-reaching and highly consequential regulatory legislation that….will have a strong adverse effect on U.S. economic growth in the future.” (As mentioned above, Frank mentions Dodd-Frank only once.)
By enacting the DFA, “fittingly named after Congress’s two key supporters of the government’s destructive housing policies,” Congress and the president “acted without seeking to understand the true causes of the wrenching events of 2008, perhaps following the precept of the President’s chief of staff [now the mayor of Chicago]—’Never let a good crisis go to waste.'”
In a sense, Frank’s book is very much like the Commission’s report, informed and structured by political and ideological partisanship, with no brief for the defense allowed to be entered in evidence. Nor would that evidence come just from the right. Frank might also have consulted the reporting done by the New York Times’ Gretchen Morgenson, for instance, who in her book Reckless Endangerment, written last year with Joshua Rosner, showed how Fannie Mae, working with a complicit Congress and groups like Acorn, in the name of providing minorities with mortgages, grew rich selling the financial scams that eventually burst the housing bubble and caused the financial crisis.
But none of that is discussed here. Elections are just months away, and in this confused environment it’s time for all partisans to come to the aid of the party.
IN THE BATTLE, AEI president Arthur Brooks, discussing the 2008 crisis, writes that “the Obama narrative” has been built on several claims: government was not responsible for the crisis; government knows how to fix it; the way to save the economy is through more governmental involvement; and only the rich will have to pay for it. This is the narrative that the Democrats will build on for November.
Will it sell? Although the evil Bush is gone now, his successor shows surprising signs of falling into the trap set by Frank’s clever capitalists. “‘I know that as a consequence of my fund-raising I became more like the wealthy donors I met,” Frank quotes the president, ominously.
Frank and a growing number of his colleagues on the excitable literary left fear that in dealing with the financial crisis, “Obama chose the path of Herbert Hoover…. Yes, Tarp aided regional banks here and there, but its obvious, overriding purpose was to get Wall Street off the hook for its disastrous mistakes, to stand the banks back up and get those bonuses flowing as in the old days.”
Poor Obama. When you court the loony left, you inevitably get saddled with dogmatic constituents who devour their own. And poor Frank. Having finally got this muddled book out of the way, no doubt much to the relief of his editor, he’s going to have to try to think his way through this year’s elections. And this time round, he’s going to have to do better than hang it all on Glenn Beck, the Tea Parties, and Ayn Rand
“Root hog, or die.”