Sarah L. Quinn - American Bonds: How Credit Markets Shaped a Nation

AMERICAN BONDS

Princeton Studies in American Politics
Historical, International, and Comparative Perspectives

Ira Katznelson, Eric Schickler, Martin Shefter,
and Theda Skocpol, Series Editors

American Bonds

How Credit Markets
Shaped a Nation

Sarah L. Quinn

PRINCETON UNIVERSITY PRESS

PRINCETON AND OXFORD

Copyright 2019 by Princeton University Press

Published by Princeton University Press

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Library of Congress Control Number: 2019930955

ISBN 978-0-691-15675-0

British Library Cataloging-in-Publication Data is available

Editorial: Meagan Levinson and Jacqueline Delaney

Production Editorial: Mark Bellis

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Jacket Credit: Settlement on the Prairie, early American engraving, 1884 / iStock

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Publicity: Nathalie Levine and Julia Hall

Copyeditor: Sarah Vogelsong

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Printed in the United States of America

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CONTENTS

ILLUSTRATIONS

ACKNOWLEDGMENTS

This project began as an attempt to understand why government officials played such a large role in the creation of the modern mortgage securitization market. Given that most people think of cutting-edge financial development as something done by private entrepreneurs, I wanted to know why policymakers had been so central in the early days of the industry. Some digging in the archives revealed a bitter political fight over a government plan to use an early form of securitization to manipulate the federal budget. Through a series of twists and turns that I will discuss in , these contentious budget politics eventually triggered both the spin-off of Fannie Mae and federal support for a revitalized system of private securitization.

In the process of solving one problem, I had stumbled onto an even bigger one: Why was the federal government experimenting with securitization in the 1950s and 1960s? And how could it be that in the late 1960s the federal government held over $30 billion in loans and guaranteed another $70 billion, which formed the pool of assets that it was selling off? Nothing about those facts fit with my existing understanding of a staid, boring postwar federal government. It was becoming clear to me that the forces behind the governments use of securitization were older, more political, and more expansive than I initially understood. To fully grasp what happened meant reaching back even further. What began as an investigation of securitization in the 1960s now became a deeper dive into the co-evolution of securitization and federal allocative credit programs since the founding of the nation. This deeper dive was a much larger project and took a much longer time to complete. In the years that followed, I accrued a great many debts.

The research was funded by the Institute for New Economic Thinking, the Kauffman Foundation, the University of Washington, and the Michigan Society of Fellows. Parts of were published in the American Journal of Sociology. I thank Sherman Maisel for sharing his papers, and John Padgett for sharing his personal collection of postwar housing materials. At the Lyndon B. Johnson Presidential Library, archivist Allen Fisher was a generous and expert guide to the files. I am also grateful to Eric Schwartz for shepherding the project through publication at Princeton University Press, Eric Crahan for guiding it through the review process, and Meagan Levinson for bringing it home.

A team of research assistants helped make the analyses that follow possible. Reed Klein helped tremendously in the preparation of the manuscript. Mark Igra researched the bond houses of the 1920s and the changing debt limits of the 1960s. Among other things, Emily Ruppel assisted with research of the school loan programs. Other students took turns tracking down articles, digitizing documents, and checking and compiling federal budget reports on the credit programs, work that is still ongoing: Pragya Kc, Nicole Hathaway, Jake Lemberg, Amy McCormick, Brooke Lee Wieser, Sripriya Navalpakam, Cindy Gudino, Kalyah Bojang, James Maltman, Xinguang Fan, Alexis Yezbick, Alyssa Ahmad, Ellen Kortesoja, Patrick Choi, Alexis Chouery, and Lynette Shaw, who oversaw these efforts for some of this time. Julia Hon, Ayanna Meyers, Kari Hensley, and Elana Messer all provided much-needed assistance with the manuscript at different stages. The book is clearer and crisper thanks to Sarah Vogelsongs copyedits of the pages that follow.

I am grateful to those people who took the time to listen and share comments at the following events at conferences, workshops, and colloquia: the SCOPES workshop at the University of Washington; the SCANCOR and Economic Sociology Workshop at Stanford; and talks and colloquia at the University of Michigan Society of Fellows, Northwestern Universitys Sociology Department, the University of Washingtons Department of Geography, the Center for Comparative Research at Yale University, Harvard Business Schools Organizational Behavior Group, the University of Washington at Bothells School of Business, and the University of Pennsylvanias Department of Sociology. Parts of this work were also presented at the Relational Work Conference at UC Davis; the Social Studies of Finance Seminar; the All-University of California Group in Economic History Conference; the Progressive Politics of Financial Regulation Conference at the Allard School of Law; the University of Michigans Economic Sociology Workshop and Interdisciplinary Committee on Organizational Studies; the Financial Innovation, Diffusion and Institutionalization: The Case of Securitization conference; and sessions at the American Sociological Association and Social Science History Association. I thank particpants at each for their questions and comments.

Work on this project began at the University of California Berkeley under the guidance of Neil Fligstein and Heather Haveman in the Sociology Department. Their reputations speak for themselves. From the start this work also benefited from the insights of Dwight Jaffee, who helped track down key -players and uncover old rumors; he was crucial to the development of this book. Marion Fourcade also provided invaluable guidance and inspiration to the end. For sharing their insights on drafts and in conversations, I thank Fred Block, Bruce Carruthers, Gerald Davis, John Hall, Greta Krippner, Richard Lachmann, John Padgett, Monica Prasad, Mark Rose, Herman Schwartz, Michael Schwartz, Aaron Shaw, and Kiyoteru Tsutsui. A special thanks to members of writers groups who made sure the chapters of this book ended up better than they started: Nick Wilson, Damon Mayrl, Laura Mangels, Kristen Jafflin, Siri Colom, Brian Lande, Greggor Mattson, Alice Goffman, and Cristobal Young. Lynne Gerber and Ariel Gilbert Knight deserve special recognition for the sheer volume of pages they read over the years.

Colleagues at the University of Washington provided invaluable feedback and support. I thank Steve Pfaff, Edgar Kiser, Alexes Harris, Kate Stovel, Jerry Herting, Nathalie Williams, Aimee Dechter, and Megan Finn. At the Michigan Society of Fellows, I was helped greatly by Don Lopez and Linda Turner. Many other fellow travelers through Berkeley, Michigan, and Washington provided much-needed advice and encouragement: Rachel Best, Sophie Van Ronsele, Holice Kil, Brian Lande, Jennifer Randles, Stephanie Mudge, Bryan Sykes, Hana Brown, Lily Cox-Richards, Clare Croft, Roger Grant, and Sara McClelland.