When President Bill Clinton took office, Fannie and Freddie were viewed as “key” to Clinton’s plans to expand home ownership. The Washington Post reports: “The result was a period of unrestrained growth for the companies. … The companies increasingly were seen as the engine of the housing boom.”
As Fannie and Freddie grew, conservatives repeatedly warned that their size posed a systemic risk to the financial system. As Sarah Palin put it, thanks to the implicit federal guarantee of their debt, Fannie and Freddie had become too big and too expensive to the taxpayers.
But Fannie and Freddie did not want to be exposed so they turned to Democrat friends for protection. James Johnson who was an advisor to Walter Mondale and is now a campaign advisor to Barack Obama, fought all efforts to reform of Freddie and Fannie. Clinton administration OMB director Franklin Raines joined the effort and tried to reassure critics that when he was Fannie Mae CEO in 1999: “We manage(d) our political risk with the same intensity that we manage our credit and interest rate risks.”
To this day Fannie and Freddie’s lobbying power over Democrats continues to be strong and it’s no secret why that is the case. According to the Center for Responsive Politics, the top three recipients of campaign donations from Freddie and Fannie’s PACs and employees are all Democrats. From 1989 through today, Sen. Chris Dodd received $165,400, Barack Obama $126,349, and John Kerry $111,000. The Washington Post in their article concluded: “Blessed with the advantages of a government agency and a private company at the same time, Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them.”
But the most unfortunate thing about all this is the failure of the news media, and even McCain’s own campaign, to inform the public that John McCain was one the very few in government to actually forecast the current financial situation unless Fannie Mae and Freddie Mac were overhauled and corrected and the fact that McCain attempted to fix Fannie Mae and Freddie Mac in 2005 is ignored.
McCain addressed the subject on May 25, 2006, when speaking in support of the Federal Housing Enterprise Regulatory Reform Act of 2005 which was introduced to deal with the problems at Fannie Mae and Freddie Mac (via Beltway Snark):
Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were illusions deliberately and systematically created by the company’s senior management, which resulted in a $10.6 billion accounting scandal. The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac. The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform. For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac-known as Government-sponsored entities or GSEs-and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay. I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation.
Rightside News
9/22/8
Magnolia Tribune
