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.