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Government Policy, Housing, and the Origins of Securitization, 1780 - 1968


In 1968 the Johnson Administration transformed Fannie Mae, the federal agency responsible for supporting the nation's secondary mortgage market, into a privately owned but federally supported company called a Government Sponsored Entity. The Administration also implemented a policy that promoted mortgage-backed securities (MBS), a financial technology that would revolutionize global finance thirty years later. This dissertation investigates the origins of those policies. Drawing from original archival research and the secondary literature on housing and credit in the U.S., I show that a long history of government officials acting like agents in U.S. housing and credit markets contributed to the rise of the securitization market in the U.S. at the end of the twentieth century.

The dissertation first describes the deeply rooted historical forces that affected the 1968 mortgage finance reforms. These forces include: a set of contradictions in the field of housing that began in the revolutionary period; government officials' tendency to use indirect policy tools, like federal credit aid programs, to manage housing and credit markets, and; since the 1930s, the use of increasingly complex debt instruments to manipulate the federal budget. Having outlined these forces, and discussed how they came to a head in the midst of the 1960s, I next investigate the mechanisms through which the Johnson Administration came to choose to spin-off Fannie Mae and promote the MBS market. I find that contentious budget politics were especially important in directing the policy. I conclude that in the 1960s these policies were adopted because (i) they promised to help solve long-standing problems in the housing market without spending scarce government dollars, and (ii) because they helped President Johnson manage a budget deficit already extended due to the combination of the Vietnam War and the Great Society programs.

This dissertation joins to a growing body of scholarship that challenges the notion that the American state is weak and its markets laissez-faire. Building on this literature, I argue that (i) federal credit programs are an important but often-overlooked point of federal intervention into the economy, and that (ii) the structure of federal budget politics is one important reason why federal intervention in the economy often remains indirect and complex. Through this case study, I argue that a sprawling and fragmented political structure, combined with the use of indirect policy tools, are important reasons why U.S. government programs tend to be easily misrecognized or overlooked.

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