Today the Center for American Progress rolled out its proposal that we add “public directors” to the boards of companies that have been bailed out by the government. CAP scholar Emma Coleman Jordan argues that “public directors will provide a corrective to the boards of the financial institutions that helped cause the crisis.”
One has to wonder whether Ms. Jordan has ever heard of Fannie Mae and Freddie Mac. If she had, she might recall that a substantial number of the board members of Fannie and Freddie were so-called “public” members appointed by the President. Perhaps she can ask CAP adjunct scholar and former Fannie Mae executive Ellen Seidman to review the history of those companies for her.
Where’s the evidence that any of those Fannie/Freddie “public” directors, whether they were appointed by Republican or Democrat Presidents, ever once look out for the public interest? In fact all the evidence points to these public directors looking out for the interests of Fannie and Freddie, often lobbying Congress and the Administration on the behalf of these companies.
I suppose CAP would tell us that having the regulators pick the directors instead of the president would protect us from having those positions filled with political hacks. Ms. Jordan argues that “regulators should determine most of the details of the public directorships—after all, they have the most direct experience in trying to regulate private companies that have received public funds.” We tried that route as well. In contrast to Fannie/Freddie, each of the twelve Federal Home Loan Banks had to have a number of its directors appointed by its then regulator, the Federal Housing Finance Board. It was well known within the Beltway that these appointments were more often political hacks than not. For instance one long time director of the Federal Home Loan Bank of Pittsburgh was the son of a senior member of the US House Committee on Finance Services. Once again we’ve gone down this road, we know how this story ends.
If we are truly interested in protecting the taxpayer, we should, first, end the ability of the Federal Reserve to bailout companies, and second, as quickly as possible remove any government involvement in these companies. Having the government appoint board directors only further entangles the government into our financial system; and if Fannie and Freddie are a good guide, actually increases the chances of future bailouts.