John McCain’s campaign is under fire for his campaign manager’s
ties to Freddie Mac. Rick Davis’s lobbying firm, it turns out, was
still receiving monthly payments until very recently, despite
previous assurances that the relationship had ended three years
ago.
Meanwhile, McCain is running television ads tying Sen. Barack
Obama to Franklin Raines, the CEO of Fannie Mae who was forced out
for misstating the company’s earnings. Obama vigorously protests
that Raines isn’t really one of his advisers, though Raines had
previously said that he advised the campaign.
But McCain doesn’t need to focus on Raines. Obama selected
another Fannie Mae CEO, James A. Johnson, to head his vice
presidential search. Johnson had been executive assistant to Vice
President Walter Mondale and a lobbyist before his nine years at
Fannie Mae. Fannie Mae’s regulator, the Office of Federal Housing
Enterprise Oversight, found that Fannie Mae had misrepresented its
expenses during his tenure, allowing him and other officers to
receive larger bonuses than warranted. After revelations that
Johnson had received loans directly from Angelo Mozilo, the CEO of
Countrywide Financial, he resigned his position with the Obama
campaign. (Given his experience, Johnson could probably have helped
Obama choose a better vice president than the gaffe-prone fabulist
Joe Biden.)
Obama is also the second-biggest recipient of campaign
contributions from Fannie Mae and Freddie Mac, behind only Senate
Banking Committee chairman Christopher Dodd. What’s remarkable is
that the calculation by the Center for Responsive Politics covers
20 years, from 1989 to 2008, and yet Obama is at the top of the
list after only one Senate campaign and four years in office.
What all this really indicates is how deeply Fannie and Freddie
have been enmeshed in Washington politics. They hire top lobbyists
from both parties, give lavishly to members of Congress from both
parties, and generously subsidize lots of influential think tanks
and charities in the Washington area.
Robert Zoellick, who was a top aide to James A. Baker III in the
Reagan and Bush I administrations, handled Fannie Mae’s lobbying
before joining the second Bush administration as U.S. Trade
Representative and president of the World Bank. Jamie Gorelick was
deputy to Attorney General Janet Reno in the Clinton
administration, then joined Fannie Mae as vice chair during
Clinton’s second term. John Buckley, nephew of conservative icons
William F. Buckley Jr. and James L. Buckley and press secretary for
the Bob Dole and Jack Kemp campaigns, spent 10 years as head of
communications for Fannie Mae.
Just a few months ago Fannie hired Lorraine Voles, former
communications director for Vice President Al Gore and Sen. Hillary
Rodham Clinton, to work in its communications shop alongside
Charles Greener, former spokesman for the Republican National
Committee.
According to the Associated Press, Fannie and Freddie have spent
$170 million on lobbying in the past decade and have given more
than $16 million to members of Congress, as well as some $10
million in soft money donations to Republican and Democratic
committees. “Fannie Mae’s 51-member lobbying stable, according to
its most recent disclosure, includes former Reps. Tom Downey,
D-N.Y., and Ray McGrath, R-N.Y.; Steve Elmendorf, a Democratic
political strategist and former congressional aide; and Donald
Fierce, a longtime GOP operative. Freddie Mac’s list of 91
lobbyists includes former Reps. Vin Weber, R-Minn., and Susan
Molinari, R-N.Y.”
Many more aides to Ronald Reagan, Bill Clinton, Al Gore, Newt
Gingrich, and senior members of Congress have worked for Fannie Mae
or served as well-compensated members of the Board of
Directors.
Is it any wonder that for years Fannie and Freddie were able to
fight off any attempts to restrict their size, their scope, or the
huge salaries they paid their officers?
Over the years Fannie, Freddie, and their friends in Washington
were able to block proposals to privatize the two huge
government-sponsored enterprises or to eliminate the federal
guarantee of their debts. In the past decade they frustrated
efforts to impose such reforms as requiring them to submit to
regulations of the Securities and Exchange Commission; to adopt
financial accounting standards; to follow bank standards for
capital requirements; and to shrink their portfolios of assets from
risky levels. The Bush administration pressed to strengthen the
regulator of Fannie and Freddie, but Congress wasn’t
interested.
Plenty of people warned that Fannie and Freddie were ticking
time bombs, including Federal Reserve Chairman Alan Greenspan and
Treasury Secretary Lawrence Summers. Yet as Alex Pollock of the
American Enterprise Institute noted in 2005, “In spite of the
opportunity presented by their acutely embarrassing accounting
scandals costing many billions of dollars and the missteps that
caused both of their top managements to be forced out, legislative
action may end up stalemated. By contrast, the Enron and WorldCom
scandals rapidly resulted in the harsh Sarbanes-Oxley Act.”
There have been complaints about the “federal takeover” of
Fannie and Freddie, but in truth they were deeply embedded in the
federal government already. They had the best of both
worlds—lavish private-sector salaries and taxpayer
guarantees to squeeze out their competitors—until
their house of cards came crashing down. But ultimately all those
lobbyists did their job, and the taxpayers will deal with the
mess.
