Read All The Devils Are Here: Unmasking the Men Who Bankrupted the World for Free Online

screw us,” grumbles Maloni. Fannie Mae fought back with a display of bare-knuckled politics and public threats that if it didn’t get its way, the cost of homeownership would certainly rise—an attitude that would characterize its approach to its critics for much of the next two decades.
    The battle was joined in the spring of 1987, when five investment banks—Salomon Brothers, First Boston, Merrill Lynch, Goldman Sachs, and Shearson Lehman—banded together “in an effort to persuade the government to bar [Fannie] from the newest and one of the most lucrative mortgage underwriting markets,” as the
New York Times
put it. The way Maxwell and Ranieri had dealt with the issue of whether Fannie should be allowed to issue REMIC securities prior to the passage of the law was by kicking the can: Fannie and Freddie were granted the ability to issue REMIC securities—but only temporarily. HUD was charged with the task of granting (or denying) Fannie Mae permanent approval, while the Federal Home Loan Bank Board had to make the same decision for Freddie Mac. The investment banks filed a hundred-page brief with HUD secretary Samuel Pierce, arguing that if HUD gave Fannie REMIC authority, they would “use their ability to borrow at lower costs to undercut the private sector,” as Tom Vartanian, the lawyer hired by the investment banks to press their cause, told the
New York Times
.
    It was a bitter fight. The big S&Ls, which also feared Fannie’s market power, sided with Wall Street. The head of research at the United StatesLeague of Savings Institutions, the lobbying organization for the S&Ls, told the
Times
that it cost Salomon two and a half times what it cost Fannie to issue a REMIC. Allowing Fannie to issue these securities, they complained, would force the private market out.
    Fannie, in what would become its response whenever it was challenged, wrapped itself in the mantle of homeownership. It argued that its low costs also lowered mortgage rates for consumers, and that forcing it out of the market would make homes more expensive. In a March 1987 speech to the Mortgage Bankers Association, Maxwell said that the attack on Fannie Mae was part of a campaign by Wall Street and the big thrifts to “restore inefficiency to the housing finance system in order to increase their profits through higher home mortgage rates.” He added, “They don’t seem to care if this would close the door on homeownership for thousands upon thousands of American families.”
    In the end, Pierce ruled that Fannie could issue up to $15 billion in REMICs over the following fifteen months. Vartanian’s clients trumpeted it as a victory, because the number wasn’t unlimited, but as he says today, “it was a short-term victory. We lived to fight another day, and we lived to lose another day.” Sure enough, by late 1988, Fannie had been granted “permanent and unlimited authority” to issue REMICs.
    How did Fannie Mae persuade Pierce to rule in its favor? Not by sweet-talking, that’s for sure; Maxwell had an iron fist inside that velvet glove of his. “We essentially gutted some of HUD’s control over us in a bill that passed the House housing subcommittee,” Maloni says today. In that bill HUD’s ability to approve new programs was revoked. HUD went to Fannie, and essentially pleaded for mercy. “In return for us asking the Congress to drop the provision, HUD approved Fannie as issuers,” says Maloni.
    Maloni also called Lou Nevins and told him that if Salomon didn’t back off, Fannie wouldn’t do business with the bank anymore. (Maxwell denies knowing about the call.) For all their conflicts, Salomon Brothers had been Fannie Mae’s banker, bringing its mortgage-backed deals to market and underwriting its debt offerings, making millions in fees as a result. This was a major threat. “It’s like the post office saying we won’t deliver your mail!” Nevins says. He remembers thinking to himself, “If they get away with this,