Human nature is to be corrupt
Like all humans,[1] I am self-interested and tribal by nature,[2] and that is corrupting. So, with a dose of humility, I can freely admit that I am corrupt at home with my family and friends. I also get paid to be corrupt by my clients.
What exactly do I mean by all of that? Well, it just means I favor those people (my tribe) over others. I rarely act with a goal to be fair to everyone. My loyalty is to clients, friends, and family over strangers and the general public. I don’t think anyone finds that morally repugnant or anything other than normal as long as I behave within the limits of the law.[3] Besides, that’s pretty much how they operate too. Contrary to the more common understanding of “corruption”[4] in the political realm, we are not “abusing entrusted power” when we act in that fashion.[5]
Cooperation through capitalism
I did not learn to be self-interested at school or at home, nor did I become that way as a side effect to childhood vaccines.[6] No, it is human nature to be self-interested and corrupt, and we all come out the womb with that corrupting tribal programming.[7] We have to learn the value of getting along with others,[8] and it is this getting along through the shared power (the social compact) of liberal democratic capitalism that has resulted in the greatest reduction in poverty and human misery since the dawn of time.[9] I am grateful for the genius of our Constitution in how it brilliantly used human corruptibility against itself with the checks and balances of the 3 branches of government.[10] But we are in a time when the limits of that brilliance are being tested by self-interested corruption.
As with a decrepit overgrown barn, if you don’t continually sweep and clean out nature’s dirt and rot in civilization, nature will grow back and eventually consume the structure. And, by tolerating corruption by our leaders (by this, I do mean the abuse of entrusted power), we let nature consume what our social compact and Constitution seeks to sweep out.
Corruption normalized?
Here we are with corruption in our time. You can take your pick of corrupt examples from any side of the political aisle: from the shameless Presidential pardons and family member aggrandizement to tit for tat state gerrymandering wars to New York City’s mayoral candidates. Heck, back in February, Trump issued an Executive Order (one of many) ordering that the Justice Department pause enforcement of the Foreign Corrupt Practices Act (FCPA). I mean, if we are going to tolerate more corruption in the US, why would we tie our own hands abroad with FCPA, right?[11]
Corruption unconstitutional?
I have previously highlighted how determining when corruption (self-interest) is so dangerous that it needs to be made illegal is a matter of degree, but to use a simple example, everyone knows a $500 million airplane “gift” from a foreign government is a bribe. People may differ on how bad that bribe should be viewed (and it remains to be seen what the Qataris will get in return), but if you don’t know it to be a form of corruption, you might also appreciate convicted Illinois politician Mike Madigan who argued the state's bribery and official misconduct statutes were unconstitutional ahead of his corruption trial. Still, I mean, we did get a new Air Force 1 on the cheap, so there are tradeoffs with corruption and a certain amount of moral ambiguity.
Personally, however, my tolerance for the current state of government corruption was exceeded a long time ago. But, wherever you draw the line, it is hard to refute that normalization of corruption tends to rot government and society as a whole. Now, we may see that impact the mortgage business directly.
The Great American Mortgage Company
I recently commented on the tradeoffs between the GSEs market power and US housing finance liquidity and stability but their importance to most mortgage bankers’ business models and the broader housing market should not be underestimated. Fannie Mae and Freddie Mac (“Frick & Frack”[12] as far as FHFA Director Bill Pulte and the President seem concerned) unfortunately appear to be in the crosshairs of an abuse of entrusted power. In fact, despite the dangers of monopoly power, the combination of Fannie and Freddie may already be all but a fait accompli. Pulte seems to have already merged the two into one mortgage company by Twitter (X) decree. Pulte assigned them the new moniker of “The Great American Mortgage Company”. The newly renamed F&F appear in what looks remarkably like a Trump political ad available on Pulte’s Twitter feed.[13]
GAMC IPO?
Meanwhile, without offering any real details, both Pulte and the President have said there will be a GSE (or should I say GAMC?) initial public offering (IPO) later this year. Of course, along with other trade associations, the mortgage industry’s trade association (MBA) is doing everything in its power to be at the table[14] and make sure that whatever happens is an orderly process that maintains the government backstop on mortgage securities.[15]
I wish the MBA good luck with its objectives, but Congress has had 18 years (and counting) to develop a coherent federal housing finance policy and is still AWOL on the topic. Meanwhile, 2 years ago, I wrote about how an FHFA conservatorship without meaningful Congressional oversight means the GSEs can be used basically as the executive branch pleases.[16] Now, it seems clear that whatever happens to the GSEs will be via executive fiat and not through any deliberative democratic process. As with Bloomberg’s Matt Levine,[17] given the normalization of corruption we are seeing, however, I have my eye on how the Trump kids’ SPAC will figure in the GSEs future.
Litigation lottery tickets
Robbie Chrisman, meanwhile, highlights an important question about the GSE IPO in his recent thought leadership piece for the Chrisman Commentary. Chrisman points out that since the GSEs are already publicly traded it is notable that Trump and Pulte are referring to this as an “IPO” and not a “secondary offering”. Chrisman wonders whether an IPO structure means that, like shareholders in a bankruptcy or FDIC receivership, existing equity holders of the GSEs will be wiped out (notwithstanding 18 years of purgatory in GSE conservatorship). If that happens, the GSE common stock held by Billionaire Trump endorser Bill Ackman and others will become, as Chrisman calls it, a litigation lottery ticket.
Corruption and Compliance
Normalizing corruption is not only dangerous to our government, it is a recipe for business failure, especially for heavily regulated businesses like mortgage lending. Eugene Soltes, Professor of Business Administration at Harvard Business School, who studies, among other things, risk management and compliance systems recently noted,
…., the workforce is reading the news and seeing the environment shift. Again, I'll point to corruption—they’re seeing a literal push away from enforcement. They see prominent individuals that are being pardoned and firms not facing the same sanctions and can draw the inference that that's not as serious an issue anymore. From a corporate leadership perspective, this requires a real conversation on risk appetite and the company’s mission and values. To the extent that you want employees to continue avoiding certain conduct, it will require leadership to make the case of why that is important to the company and its employees. I don’t think it can be taken for granted that certain kinds of misconduct will be naturally viewed as off limits by employees as was even quite recently.
Businesses that develop value, make good products you can hold, treat their employees well, and do things with integrity are generally the ones that succeed over the longer run. But in the short run, the grifters will grift. And a small portion of them, but probably an increasingly larger portion, will get away with it. That’s not a great long-term strategy though!
Compliance, QC, legal, and risk professionals will be challenged on the front lines of company leadership when they identify and seek to sweep out the rot in times when the broader culture normalizes corruption. [18]
[1] I have previously blasphemed the human race as all being “Cocaine Monkeys”, so I am prone to broad indictments of human imperfections.
[2] See my last Musings for an illustration of my tribalism with mortgage regulatory attorneys (and Peloton riders?).
[3] As an attorney, I am also bound by professional ethical constraints.
[4] Economic studies typically define corruption as the abuse of entrusted power for private gain.
[5] To be clear, it is not lost on me that RESPA’s anti-kickback provisions are essentially anti-corruption laws that I have made a living on.
[6] I’m pretty sure some cavemen were autistic too.
[7] As Hannah Arendt said, “Every generation, civilization is invaded by barbarians - we call them 'children'.”
[8] Romantics who believe in the Rousseauean “noble savage” concept should read some psychology research instead of wishful philosophy in support of utopian egalitarian agendas and being one’s authentic self.
[9] The second half of this recent Kevin Williamson missive sums it all up pretty well.
[10] Please read Jonah Goldberg’s book Suicide of the West, for a much more thorough discussion of human nature, how the miracle of capitalism raised people out of poverty, and how, if we continue to let corruption back into our lives, it may cost us our freedom and/or prosperity. Goldberg’s book had the greatest impact on my philosophical outlook of anything I have ever read (and it was a great read).
[11] And now, after multiple constitutionally unsupported deferrals of the Tik Tok ban, the White House now has a Tik Tok account?!!!
[12] Per Wikipedia, "Frick and Frack" has become an English slang term used to refer to two people so closely associated as to be indistinguishable. In my memory they were two barrel jumping ice skaters at the Ice Follies, …, or was it the Ice Capades?
[13] Forget the Federal Register, Pulte’s Twitter/X feed is where all important regulatory developments from FHFA can now be found.
[14] Including issuing press releases by MBA President Bob Broeksmit such as the following to support Director Pulte’s credit score initiatives (and fragile ego?): “Director William J. Pulte’s decisive leadership and bold action has accelerated what had previously been a multi-year process….”. [emphasis added without eye roll emoji]
[15] Specifically, MBA’s Advocacy email reports, “As plans evolve, MBA will continue its ongoing engagement efforts with the Administration and Congress to ensure critical regulatory and market structure/market conduct issues are addressed, including:
Preserving competition between at least two GSEs;
Ensuring FHFA has an obligation to maintain a level playing field with respect to pricing, pilots, product, and underwriting variances;
Preserving a bright line to ensure the GSEs do not compete with the primary market;
Robust bank-like capital; and,
Establishing a well-defined, paid-for federal backstop against the GSEs’ MBS, that could be tapped only after all private capital (MI, CRT and GSE capital) is exhausted.
[16] As noted below, the judicial branch will likely have to weigh in on scope of the FHFA and executive branch power in that regard at a later date. Mark Calabria, who reportedly has a pivotal role in all of this wrote a detailed “Working Paper” with his thoughts on the legal issues in 2015 with attorney Michael Krimminger when he was still at the CATO institute. It’s unclear how that applies 10 years later.
[17]Levine’s August 6, 2025 Money Stuff post reported on an amendment to the Trump SPAC’s prospectus but first noted Levine’s prior commentary about, “a new special purpose acquisition company backed by Eric Trump and Donald Trump Jr., whose draft prospectus explicitly disclosed that it will try to acquire a company “well-positioned to benefit from federal or state-level incentives, such as grants, tax credits, government contracts or preferential procurement programs.” Arguably any company run by the Trump sons, in 2025, is well-positioned to benefit from federal incentives? A year ago I would have said “but you are not supposed to say that explicitly in writing.” Now I would no longer say that! Go ahead! “We plan to use our father’s job as president to make ourselves rich,” yes, of course, why not.” Levine goes on to say, “The new prospectus doesn’t say, you know, “we will avoid buying any businesses that might raise the specter of a conflict of interest.” It’s just not so explicit now. I still think they’re going to merge with Fannie Mae.” Agreed.
[18] This is as good place as any to plug the MBA’s Compliance and Risk Management Conference in Washington, DC next month (September 28-30) where I will be speaking on 9/28 at a 1:00 pm RESPA session with my pal, RESPA goddess, and Norwegian fjord photographer, Loretta Salzano. Don’t eat the Norwegian licorice Loretta and bring us back some great photos.