Summary of Efforts to Secure Support for Land Value Taxation at
Fannie Mae
Edward J. Dodson
[Reprinted from GroundSwell, May-June, 2011]
Orignally written in May, 2006 and updated in
July 2010, this is a summary of my efforts to secure support
from David Maxwell, Chairman of Fannie Mae, for restructuring of
how government raises its revenue, and what occurred after Ed
Dodson joined the staff of Fannie Mae in 1984.] As the year 1984
was coming to an end, so was my employment with Provident
National Bank in Philadelphia, where I had worked for seven
years in the Mortgage Lending group. From 1982 on I managed the
department. However, in mid-1984 Provident National Bank merged
with Pittsburgh National Bank (PNB Financial), and a decision
was made to close down Provident's mortgage lending activities,
transferring the department's responsibilities to a subsidiary
of PNC Financial. Once the transfer of the department's
operations was completed, I began my search for a new position
elsewhere in the industry.
|
By 1984 I was also deeply committed to the reforms in how government
raises its revenue that were at the heart of the political and social
activism of Henry George at the end of the 19th century. During
1980-81 I had completed the program on political economy offered at
the Henry George School of Social Science hi Philadelphia,
Pennsylvania, and had joined the school's faculty as a volunteer
instructor. From that point on, I brought the "Georgist"
perspective into my professional life, began to write regularly on the
subject and attempted to generate interest in the subject among my
housing finance colleagues.
In November of 1984 I happened to view an episode of the television
program "Adam Smith's Money World." His guest that day was
David Maxwell, the then Chairman of the Board of the Federal National
Mortgage Association, headquartered in the District of Columbia.
On November 12, 1984,1 wrote the following letter to George Goodman,
the journalist who created the modern persona of 'Adam Smith' for his
writing on economic matters.
"The first opportunity I had to experience your
video efforts was the documentary you narrated several years ago
dealing with O.P.E.C. Your new program, is a delightful continuation
of the same high quality and a welcome addition to PBS.
"The intent of this letter is to convince you that your recent
program on housing requires further treatment. In my view, neither
George Sternlieb nor David Maxwell offered much insight into the
underlying causes of the so-called "affordability gap"
experienced by those families seeking homeownership. To say that
high interest rates and the escalating price of housing are the
causes of declining affordability mistakes effect for cause. The
price of housing, the price of money and the level of family income
are affected by market and political dynamics. These are the causes.
Our task is to identify those which adversely affect the
affordability equation and propose solutions (if our societal goal
is to maximize the affordability of housing).
"David Maxwell alluded to the primary variable of housing
affordability; the price varies materially from location to
location. As an economic analyst you might recognize the more
descriptive term, "site value." Underlying the housing
market is the fact that the supply of sites is by its nature local,
while the supply of financing, materials, labor and buyers has
greater uniformity nationwide. Moreover, specific government
interference in the local market for sites may enhance, constrain or
otherwise impact total supply (e.g., the availability of publicly
funded roads, sewer and water facilities, schools, hospitals, etc.).
As some economists* have pointed out, the uniqueness of each site
makes its price much closer to a monopoly price independent of its
use.
"A close look at what has happened to each factor cost leads
to appropriate policy directions. The real wage of construction
workers has not increased very much during the last decade
(particularly when all taxes paid at the local, state and federal
levels are considered). The cost of housing materials went through
the roof in the mid-1970s but has abated considerably because of
productivity increases and the substitution of energy sources (a
process further enhanced by the deep recession still existing in the
developing nations, who have been forced to export raw materials and
other commodities - resulting in a buyer's market for the
industrialized nations). No such relationship exists between the
world economy and localized land markets. Over this same period site
acquisition costs to developers have increased dramatically, in
large measure producing housing price increases to the consumer
wherever employment in that local economy has been relatively stable
or growing.
"Why, then, isn't the market for sites competitive? Why does
this market not react to the forces of supply and demand?
"The original Adam Smith analyzed the dynamics at work,
borrowing from his French colleagues Quesnay and Turgot. Today's
economists have operated with blinders on, I must conclude, to not
recognize the connections between inflation and site "rent."
As a consequence, our entire system of taxation is designed to
penalize productivity and favor speculation in what are mistakenly
identified as "capital gains" in land values.
"Absent transfer payments labor must take action - produce -
to obtain wealth. Physical capital must also be used as a factor of
production if its owners hope to obtain wealth. That portion of
production returned to the holder of land was, on the other hand,
identified by Smith (and, more specifically, by Ricardo) as an
extraction -- what today we would think of as a redistribution of
wealth from the producers to the nonproducer.
"At the local level, infrequent and politicized assessments of
real estate penalize capital and encourage holding of vacant or
underutilized sites. As damaging is the practice of applying one
rate of taxation to both capital and site values. With low carrying
costs associated with land holding, the owner can wait and wait
until surrounding growth (more often than not government funded)
fuels an escalation in the amount which can be extracted for the use
of that site. Heavy speculative activity can bring development to a
standstill (which has been the outcome in Atlantic City). The answer
has been around for a long, long time -- and is a proposal I have
come to appreciate for its simplicity.
"At the most obvious level, our municipal governments can
adopt a restructuring of their property tax systems to gradually
transfer the burden of taxation off of capital and onto land values.
The idea was, as you are probably aware, popularized by the 19th
century economic reformer Henry George - and later by the likes of
Tolstoi, and Winston Churchill. A few economists have supported this
measure over the decades, one of whom (Mason Gaffney of the
University of California, Riverside) was largely responsible for
turning me into an advocate. I cannot help dreaming of the
supply-side impact of tax reform grounded hi this measure. Just
maybe the production incentives would prove a sufficient stimulus to
housing and other construction to permit a reduction in other taxes
on business and on individual income.
"Reform is also needed in the federal tax code to distinguish
gain on the sale of land from other individual and business income.
Permitting the rise in land values to be exempt from annual taxation
and then given preferential treatment as "capital gains"
seems the height of folly under a supposedly capitalist system.
"This letter, hopefully more of a challenge to the
conventional wisdom than ordinarily presented, has been written
because of my growing conviction mat our political and economic
system is threatened by these structural flaws. The end result can
only be a greater concentration of wealth hi our country and a
further deterioration of democratic values. As a participant in the
real estate market I have seen the above processes at work first
-band. Something must be done before it is too late; only public
discussion and awareness will, I conclude, lead to peaceful and
evolutionary change. Ihopeyou agree.
"Sincerely, Edward J. Dodson, Senior Mortgage Officer
"* Suggested sources would include Harry Gunnison Brown,
Arthur Becker, C. Lowell Harris, Mason Gaffney and Dick Netzer."
Within a few weeks, I received a response from George J.W. Goodman,
which created an opportunity for an exchange with David Maxwell.
"Thanks for your letter of November 12, which just
reached me. I appreciate your remarks on site value, and I will keep
your letter handy so I can find the references. I am not sure just
how complex we can get without losing an evening audience, but we
are probing to find where the limits are.
"I've taken the liberty of passing your letter on to David
Maxwell. He is a very intelligent executive, and I think his
comments were aimed at a broad common denominator.
"I do appreciate the time you took to write to me, and I am
certain we will return to housing at a future date.
"With best wishes, George J.W. Goodman"
To my great surprise, a letter soon followed from David Maxwell dated
December 7, 1984 - a letter that contained some rather interesting
information I hoped could serve as the basis for enlisting Mr. Maxwell
as an ally in the campaign for meaningful tax reform.
"Jerry Goodman (Adam Smith) was good enough to send
me a copy of your letter to him of November 12. You may be surprised
to learn that I thoroughly agree with you about the taxation of raw
land.
"In fact, I wrote my third-year paper at Harvard Law School on
Henry George, using the experience of Arden, Delaware as a
case-study of a place which had put his theories into practice.
"I think this whole matter is important to pursue, but I doubt
that it would have been possible to cover it properly in the brief
time available on "Money World."
"Sincerely, David 0. Maxwell, Chairman of the Board and Chief
Executive Officer, Federal National Mortgage Assn."
Subsequently I wrote David Maxwell:
"Thank you for your letter of December 7. I am
encouraged to learn of your views supporting Henry George's 100 year
old proposal. All that is now required is to convince our
legislators and colleagues in the housing sector that this revision
to our tax system must be implemented.
"As you may know, Pennsylvania is the one state where cities
of substantial size are Constitutionally permitted to apply a higher
property tax rate to assessed land values than to improvements.
There are now seven cities using this technique, and a recent film
documentary on their experience has been produced by Walt Rybeck,
who heads the Center for Public Dialogue hi Kensington, Maryland.
"Up to now, efforts to stimulate public discussion of this
proposal have been carried on by a small handful of people dedicated
to the ideas Henry George offered hi his writings. I have become
convinced of not only the merits but of the necessity to replace the
existing property tax with the land value tax. Those of us directly
involved in the housing sector must come together on this issue if
necessary legislative changes are to occur.
"I would like to suggest a roundtable discussion, inviting
Walt Rybeck to participate and use his film as a focus for the
discussion. Perhaps Mr. Goodman would be interested in attending.
"Sincerely, Edward J. Dodson, Senior Mortgage Officer"
On June 25, 1986, I wrote George J.W. Goodman in New York:
"Your Adam Smith's Money World program this past
week on the housing market was quite good; however, as you may
recall from previous correspondence, my feeling is that the
discussion fails to penetrate beyond effects. Shouldn't we attempt
to analyze causes?
"Perhaps you saw the enclosed column by Michael Kinsley in the
Wall Street Journal. I am now writing for an English quarterly
called Land & Liberty and took the lead from Kinsley to write on
the impact to our social structure of the upward pressure on housing
prices.
"Getting back to your program, while there is nothing wrong
with George Sternlieb he is not the only expert on housing nor are
his views universally accepted. Your audience might obtain an
equally persuasive but very different perspective from either Dick
Netzer at N.Y.U. or Michael Sumerquest of the National Homebuilders
Association. Both of these economists understand very well the
nature of taxation and of the land market.
"Sincerely, Edward J. Dodson "
On January 20, 1987, I wrote David O. Maxwell, Chairman, Federal
National Mortgage Association, in Washington, DC: "For the last
six or seven years, I have been working closely with a number of
individuals and groups across the nation (and elsewhere) who believe
the tax structure in almost every country is a major cause of economic
instability. It was at my suggestion mat you were contacted in late
October by Walter Rybeck of the Center for Public Dialogue, who
solicited your public support for a restructuring of the property tax
toward the system of "site value" taxation proposed by Henry
George.
"You may recall that we exchanged correspondence several years
ago on this issue, on which you expressed both an awareness and a
sympathetic posture. At that time I was senior mortgage officer with
Provident National Bank in Philadelphia and represented the bank in
its involvement with various public and private housing interest
groups. Site value taxation appeared to offer communities a powerful
yet largely ignored tool for generating noninflationary economic
growth. Although I left The Provident at the end of 1984 I have
continued to dedicate a considerable amount of time and energy on
behalf of this reform. My activities along these lines have been less
visible, however, because my career experienced a change in focus.
"As you may recall, The Provident merged with Pittsburgh
National Bank to form PNC Financial Corp. in 1984. At mid-year we
began a transfer of all residential mortgage activities to our new
sister organization, The Kissell Company. There was nothing the bank
could offer me that had the potential to satisfy my commitment to the
housing sector; thus, toward the end of 1984 I contacted a number of
industry friends to let them know I would be available. And then I
thought of Fannie Mae and decided to explore what opportunities might
be available within the Northeast Regional Office. Shortly thereafter,
I came to Fannie Mae in Quality Control as an Assistant Supervisor and
have been Supervisor for about a year and a half.
"What we do is important and rewarding work, although a
considerable amount of time is often required before we see tangible
results. The same is true of the effort to convince the public (and
our elected officials) of the folly in penalizing those who work and
produce for a living while allowing those who speculate in land to
cause havoc with our economic wellbeing. I am hopeful that you also
see the seriousness of mis problem. If so, and if you reach a decision
to work in some way with those of us already active, I hope you will
call on me to help.
"Sincerely, Edward J. Dodson" On February 1, 1988, as
Supervisor - Quality Control Northeastern Regional Office, 1 emailed
David O. Maxwell, Chairman and C.E.O. and Roger E. Birk, President and
C.O.O.
Subject: Recommendations for a new policy agenda for our
industry consistent with our concerns for finding solutions to
economic and social problems.
"I am sure I am not alone hi welcoming the leadership role you
have taken in search of solutions to the many problems related to
the housing needs of American families. Mr. Birk, in your recent
remarks to the Home Builders you declared with conviction that "we
had better not settle for 'Band-Aid' solutions." I could not
agree more and have myself been working with a number of public
interest groups to effect positive changes in our legislative and
regulatory environment. As I read your recent presentations, we
apparently share similar concerns over the problems facing our
society; namely,
"Housing affbrdability for all American families,
including newly-formed households, the elderly and those now
homeless;
"Stability of economic expansion and job creation, without
inflationary side-effects;
"A gradual reduction not just of the Federal deficit but of
the national debt as a whole;
"Improved international competitiveness generated by strides
in industrial productivity and structural changes in the
management of American business; and
"An end to the wildly fluctuating currency exchange rates
that threaten international trade and increase the demand for
so-called "protections' against unfair competition in our
domestic markets.
"My concerns over these issues involve (as I am sure do yours)
not only those appropriate to being part of the management team of
our company but also the responsibilities of citizenship and family.
For many people involved in activities that are militarily-oriented
or produce harmful environmental side-effects, the pursuit of
business success and profitability put them hi direct conflict with
personal feelings relating to societal responsibilities. Thankfully,
our contribution to the nation is one of which we can all be very
proud. Mr. Maxwell, as you may recall from past correspondence from
me, I have expressed my own belief that it is the structure of our
system of taxation that is a fundamental cause of many of the above
problems and see this as an appropriate arena in which to exert
influence by expressing bom corporate and individual concerns.
"As a citizen, what is also important to me is that great
injustices have been perpetuated by our systems of law and taxation
as they relate to 'property'. Unfortunately, despite the continued
existence of a large (and growing) segment of our population
consigned to a permanent state of impoverishment, despite frequent
periods of serious inflation and economic contraction, and despite
ineffective attempts to apply fiscal and monetary adjustments - we
shy away from focusing hi on fundamental questions of how our
society is structured and do not ask whether there is something
inherent hi our system that must be removed if we are to achieve
real positive change. Not enough of us are willing to make the
effort to examine what we are doing based equally on principle and
practical result, so I hope you will permit me to raise a number of
philosophical issues not normally discussed where policy initiatives
are concerned.
"The intent of this writing permits only a brief digression
into the nature of our relationship with one another - as
individuals, as citizens of the same society and as members of one
species. The reasoning I draw on is not mine but comes in part from
the philosopher and educator Mortimer Adler, whose book The Common
Sense of Politics should be required reading by every American.
Adler traces the philosophical origins of our form of government to
the writings of John Locke and the concept of 'sovereignty of the
individual' over oneself and one's 'property'. From Locke we
received the 'natural rights' doctrine and a concept of liberty
defined as 'freedom constrained by justice'; actions violating the
liberty of another fall, then, into a realm Locke identified by the
term 'license', the nature of which made such actions legitimately
subject to societal control. As members of the same species, adds
Adler, is there any question that we have the same inherent human
rights? Accept that we do, and the next question is what those
rights are.
"At this point, the discussion of rights, liberty and license
requires bringing in the ideas of another philosopher with whom you,
Mr. Maxwell, are somewhat familiar. I am referring to the nineteenth
century writer, Henry George, who accepted the Locke/Adler logic for
treating all humans as fundamentally equal and deduced therefrom
specific rights we each possess. In doing so, George supported
Locke's theory of property in one's labor and the products of one's
labor, a definition consistent with liberty. What could be more just
than that one should rightfully own oneself and one's products.
Which raises the most important and unresolved socio-political issue
hi history: Who has a right to own nature, which is the source of
all production but is not itself produced by man?
"The ownership of nature falls not within the labor basis for
property but in Locke's realm of license, as a form of privilege.
What we have largely ignored in our thinking about the justness in
our laws is that tides to nature and to claims on the economic value
of nature exist only within the political framework of a society.
And, throughout history, an overriding human motivation has been to
secure and retain privilege within the legal framework;
unfortunately, as our legal and tax systems have taken on greater
and greater complexity, the underlying injustices have become
obscured. The economic value attached to licenses, whether titles to
nature or monopolies against competition, or merely processes to
ensure minimum qualifications of certain practitioners of a trade,
are societally-created and not individually-produced. From this
fact, Henry George stated that justice required two actions on the
part of legitimate government:
"To collect the economic value of titleholdings
and licenses for use in providing for necessary public services
(distributing, if available, any excess back to all citizens on a
pro rata basis as a sort of public dividend); and
"Protecting legitimate private property (i.e., production)
from confiscation by either private groups or the government
itself. In this sense, taxation of wages or of capital or produced
goods is a form of confiscation and should be held to an absolute
minimum.
"It is generally acknowledged that wealth is becoming more and
more concentrated in our own society and throughout much of the
world. Armed with a flawed understanding of Keynesian demand
management theory, our economic planners and political
representatives embarked on a spending spree designed to minimize
poverty in America without having to look too far into its causes.
As we have learned, the welfare state is an expensive proposition
that has enormous negative side-effects. Today, our concerns have
shifted to the production side of the equation in the form of
'supply-side' initiatives. So long as there was little international
competition for American businesses, our social welfare legislation
achieved somewhat of a leveling by means of transfer payments. Now
that real economic growth has slowed and government expenditures are
out of control, however, public resistance to higher and higher
taxes has given us two options: finally move toward collecting
unearned income derived from titleholdings and licenses; or, finance
current expenditures (largely by borrowing from the unearned income
received by those who hold such titles and licenses), to be repaid
by taxing future production. I would add that policies of monetary
intervention have added fuel to the fire by building in an inflation
premium into the price of goods and services.
"The indictment I have set down for your consideration is one
that is not widely appreciated or accepted. For example, while a
large number of economists specializing in problems of the less
developed countries recognize monopoly privileges as the cause of
maldistribution of wealth and a primary reason for political
upheaval, they do not see any correlation between these
circumstances and the structural unemployment characteristic of the
bottom socio-economic group within the American population. It was
interesting to me that hi the Senate a few years back when the aid
package to El Sal-vadore was being debated, and opponents were
demanding land redistribution as a condition for approval, Jessie
Helms suggested that if having 5% of the families owning 95% of the
land called for land redistribution hi El Salvadore, then the same
was true for our own country, where the concentration is just about
the same and becoming more so.
"As American policymakers are beginning to understand, the
globalization of technology and, hence, production capabilities, now
seriously limits unilateral policy changes. Every action taken is
counterbalanced by all other players in the marketplace. The
resulting challenges to our overall standard of living are reflected
in the vast numbers of personal and business bankruptcies, the
demise of family farms and the millions of homeless across this
country. Again, the connection between these facts and the inherent
structural flaws in our system are not widely appreciated.
"An area where this is evident is in the policy changes
recommended by the IMF and other agencies working to restructure the
debt of the LDCs. It was, by and large, the formation of O.P.E.C.,
one of history's most effective monopoly-driven transfers of
accumulated financial reserves, and the resulting 'stagflation' hi
the industrialized West that sent the international lenders to the
LDCs, desperate to find a home for the *hot potato1 of reserves
O.P.E.C. could not spend on massive development projects of their
own. By the time we in the West adjusted the CPI, had increased 300%
and the LDCs were experiencing domestic inflation rates of 50 -
1,000% while their development projects never reached the stage of
production planned on to offset the costs with export revenues. The
IMFs answer? Cut domestic spending and shift production to export of
raw materials and cash crops. With such intense pressures on so many
countries to export, the global marketplace became a buyer's market,
made even more so because of the dwindling number of potential
buyers.
"Then, in 1981, the influence of the supply-siders provided a
powerful short-run shot in the arm to American consumption. At the
same tune that food and materials costs were falling, lower marginal
tax rates and other tax reduction measures brought increases in the
disposable income of many American families. By late 1983 (accolades
to former Chairman Volcker notwithstanding) deep stagflation in much
of the world worked its magic and inflation appeared to be beaten in
the United States, in Japan and to a lesser extent in Europe.
Conservation measures, domestic production, falling international
demand and North Sea drilling tipped the balance against O.P.E.C.
"Regional economies based on 'exports' of energy materials and
agricultural products lost their markets to rock bottom priced LDC
exports, and we ended up with Houston and the demise of small-town,
rural American communities. The metropolitan areas of the Northeast
and elsewhere, however, had achieved diversification in their
economies that enabled them to avoid the misery of other sections of
the country and the global community. The buying binge men extended
(and continues to extend) to real estate, as global liquidity drove
interest rates back down to low double digits and then single digit
figures. Economic laws governing the interplay of the factors of
production (i.e., land, labor and capital) took over, and landowners
- who possessed the factor most fixed in supply - gradually were
able to capitalize a sizable portion of the employed workforce's
'windfall' in purchasing power into higher and higher land prices.
To be sure, many ordinary homeowners profited by this same market
dynamic, especially if they took their retirement incomes and
unearned gain from the sale of the land underlying their hone and
moved to an area of the country where land values had remained
stable or declined. The immediate victims have been those on fixed
incomes who were renters and not homeowners, or those who were just
entering the housing market and in a stage of new family formation,
or those who suffered long term unemployment and could no longer
afford to either relocate or even rent housing.
"Ideally, the measures needed to start the dominoes falling in
a positive direction must be built around the two policy
prescriptions cited from Henry George's proposals of a century ago.
There is a fledgling attempt by a handful of Representatives in the
House to develop a bill that would seek to capture at least part of
the value of the nation's land and natural resources. Ironically,
some estimates of the potential annual rental value of public lands
suggests mat if market values were collected (and spending remained
stable) we would not have a Federal budget deficit at all. This is
because government policies have virtually given away this source of
public revenue to special private interests.
"As I believe you are aware, Mr. Maxwell, the primary
direction involving government policy thus far has, however, been at
the municipal level and a restructuring of the property tax to
achieve a gradual exemption of all improvements from taxation,
leaving the assessed value of sites as the source of revenue
generated. Led by the cities of Pittsburgh, Scranton and Harrisburg,
the Commonwealth of Pennsylvania has moved the furthest in this
direction of any state in the nation; enabling legislation to do
likewise is under consideration in at least a half dozen other
states.
"For the last six years I have worked with a group here in
Philadelphia seeking support for similar legislation, and one member
of City Council is currently pushing for legislation to exempt all
property improvements from the real estate tax in one step. At the
moment, the mayor is noncommittal but is supposedly studying the
effects of this proposed measure. < ' "As I hope this
necessarily long analysis has shown, the causes of so many of our
socio-economic problems are to be traced to the same sources. Under
present socio-political arrangements there is a built-in degree of
coercion that prevents markets from smoothly operating and from
being self-correcting. Starting with the property tax, we need to
focus our attention on changing not simply the rates of taxation but
the sources as well; in doing so, I suggest we would achieve both
greater justice in the distribution of wealth ownership and greater
economic efficiency. I understand that I cannot ask you to accept my
analysis at face value; however, I do hope you will think about the
issues raised as you work with both public and other private groups
for changes that are more than "Band-Aid" solutions. There
are a number of economists and other policy experts around the
country who have contributed very valuable research data that
support much of the economics I have discussed; the philosophical
arguments must meet our own tests of reason and logic. Certainly, I
stand ready to serve as a resource in whatever capacity you might
find useful should you find any practical merit in pursuing the
measures herein presented as part of our company's overall agenda
for policy changes. Thank you.
On February 16, 1988, I was emailed by David Maxwell, Subject: Policy
Recommendations
"Thank you for your erudite and convincing memo of
February 1. I share your belief that policy recommendations must be
undergirded by a firm philosophical base and I can assure you that
your ideas will certainly carry much weight as we continue to
consider the issues and problems facing America and the world."
Although I had some hope that the last exchange between David Maxwell
and me would result in an invitation to present my ideas to our team
of government relations people and others in the company, this did not
occur. As an organization, Fannie Mae was not yet focused on meeting
the affordable housing needs of minorities and lower income
households. David Maxwell's priority was bringing Fannie Mae back to
profitability after years of continuous losses. Mr. Maxwell retired
from Fannie Mae in 1991, succeeded by James A. Johnson. It was
Johnson's vision that created the company's Housing & Community
Development group, to which I moved in 1995 as a market analyst and
business manager. With each year that passed, the company established
new field offices for the purpose of better meeting the affordable
housing objectives established and to participate, where feasible, hi
revitalization of distressed communities.
Along the way my position responsibilities expanded to include work
on program development. One year a proposal I submitted to the
corporate development team was selected as the best idea submitted,
after which I was invited to have lunch with our Vice-Chairman, Larry
Small. Over the course of about two hours, our conversation covered a
wide range of subjects. I took the opportunity to introduce him to
Henry George's proposals and how the adoption of these changes would
go a long way to stabilize housing markets. He listened attentively.
He asked good questions and expressed agreement with much of what I
had to say. Yet, as with David Maxwell and Roger Birk, there was never
any follow-up.
By this time, Franklin Raines had succeeded Jim Johnson as Chairman
and C.E.O. of Fannie Mae. Under his leadership, the role of our
Housing & Community Development group continued to expand. The
company began to establish a presence hi cities all across the United
States by creating "Partnership Offices" charged with
developing innovative financing structures to expand the supply of
affordable housing units. As has been extensively reported in the
press, this was also a period of dramatic expansion in the use of new
investment strategies and vehicles -- hedging operations, strip
securities, derivatives, long-term stand-by commitments, and others.
The regulatory environment was also changing, with the introduction of
requirements on financial institutions that certain assets be revalued
periodically to reflect changes hi market value and other more
stringent accounting rules issued by the Federal Accounting Standards
Board.
With consequences still developing, Fannie Mac's accounting practices
were challenged by its regulator, and Franklin Raines was forced to
leave Fannie Mae. Months earlier, I happened to see Mr. Raines
interviewed on television. He was asked by the program host what would
make him feel that his work at Fannie Mae and in the housing sector
had been successful. He responded that he would feel satisfied if in
the distribution of wealth and income in the United States, minorities
experienced the same proportion of wealthy, middle income and low
income households as the White majority. Our division was scheduled to
have a strategy meeting hi Washington, D.C. a few weeks later. To
focus the attention of my colleagues on the issue of poverty hi
America - even if only for a brief moment - I decided to make a gift
to everyone participating of Henry George's book, Social Problems. At
the opening of the meeting, I asked for a few minutes before the
group, recounted what Frank Raines had said during his interview, and
told them I was firmly convinced that if the ideas contained hi Henry
George's book were made the law of the land that the problem of
poverty could be greatly reduced and eventually eliminated from our
society. My colleagues enthusiastically applauded, thanked me for the
gift, and more than a few said they would read the book as soon as
they could make tune to do so.
Over the remaining months before my retirement, I heard from a few of
my colleagues that Henry George's book had given them much to think
about. They were all facing an uncertain future.
I continue to engage with many of my former colleagues through the
online "Community Development Banking" discussion group,
which has been in existence now for around fifteen years. Shortly
after my retirement from Fannie Mae, I prepared a detailed analysis of
the coming economic downturn ("The 2010 Economic Depression"),
followed by an examination of the origins and causes of the financial
melt-down hi the United States ("Death by Debt Strangulation").
I offered these studies to my former colleagues and several hundred
requests followed. Since 2005 I have regularly updated the
presentation on the financial crisis and continue to receive
expressions of interest and thanks.
I sometimes wonder what good all of the above efforts have achieved.
None of the individuals I worked with over the last three decades has
stepped forward to work alongside us hi the Georgist cause. There have
been moments of great expectation that then dissipated. The key to
what motivates any person to embrace and then commit themselves to an
idea or set of ideals is a real puzzle. I do not consider myself to be
extraordinary hi any way. So, why is it that I see so clearly the
fundamental importance of the systemic changes we fight for while
others do not? Of one thing I am certain: I am not likely to ever
learn the answer to this question.
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