Assessing a Century of Mortgage Market Interventions.

• Author: McKinley, Vern

The Dead Pledge: The Origins of the Mortgage Market and Federal Bailouts, 1913-1939

By Judge Glock

304 pp.; Columbia University Press, 2021

An objective review of the U.S. mortgage market finds government intervention on top of government intervention on top of government intervention. The result? The two government-sponsored secondary mortgage giants, Fannie Mae and Freddie Mac, have been in full government conservatorship for 13 years, with no exit to full privatization in sight. Under COVID, forbearance on mortgage payments for millions of loans across a range of government mortgage programs has been imposed on lenders for over a year. Ultra-low interest rates promoted by the Federal Reserve have contributed to a spike in home values, pricing many potential buyers out of the market. The Federal Reserve is also buying mortgages at a clip of $40 billion a month.

The genesis of this ongoing version of Washington "Keystone Cops," with a perpetual cycle of distortive interventions, followed by bubbles, followed by crashes and bailouts, extends back to the early days of the 20th century. Judge Glock, a scholar at the Cicero Institute, has undertaken painstaking research into the legislative and policy history of mortgage and related agricultural land policy in his well-timed first book, The Dead Pledge.

"Privilege" morphs into "balance"/ Glock begins his historical review by explaining that the Democratic Party of Andrew Jackson stood hard and fast against legislative privilege for politically powerful groups. "In Jackson's view," Glock writes, "the central desideratum of government was to provide equal protection of the laws to all and to abjure special privileges to any.... The president had a special duty to protect the public from the grasping pleas of special interests." To that end, Jackson vetoed the re-chartering of the Second Bank of the United States in 1832, which was "the grant of a special privilege by the government to one group of men ... [and his veto] protected 'the humble members of society--the farmers, mechanics, and laborers.'"

But by the Progressive Era, the Democratic Party had abandoned this stance and instead advocated granting privileges to special interests that were deemed deserving. Glock explains the rationalization for the change:

Certain interest groups and intellectuals began to claim that the old idea of equal protection would still leave some groups behind. They advocated that the government act as a force intervening directly for the benefit of certain classes in order to "balance" different economic sectors. Stagnant agriculture and booming industry especially needed to be brought into some new...