WASHINGTON – Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.
In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb. DCI's chief executive is Doug Goodyear, whom John McCain's campaign later hired to manage the GOP convention in September.
Freddie Mac's payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel's bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.
In the midst of DCI's yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.
"If effective regulatory reform legislation ... is not enacted this year, 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," the senators wrote in a letter that proved prescient.
So, Republicans in the Senate saw the shipwreck that was coming, and wanted to do something about it -- they were going to regulate Freddie Mac and Fannie Mae, and trim them. And, what would have been the effect? Less probability that these two would go under, and less taxpayer exposure if they did?
Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side.
In the end, there was not enough Republican support for Hagel's bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died at the end of the 109th Congress.
Naturally, Democrats were opposed to trimming this quasi-governmental program, and they were opposed to limiting taxpayer exposure.
However, the Republicans are not off the hook! Skipping down....
Before 2004, Fannie Mae and Freddie Mac were Democratic strongholds. After 2004, Republicans ran their political operations. McLoughlin, who joined Freddie Mac in 2004 as chief of staff, has given $32,250 to Republican candidates over the years, including $2,800 to McCain, and has given none to Democrats, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics.
It's just that, while the Democrats were all against regulation of these quasi-governmental giants, so were some Republicans.
On Friday night, Hagel's chief of staff, Mike Buttry, said Hagel's legislation "was the last best chance to bring greater oversight and tighter regulation to Freddie and Fannie, and they used every means they could to defeat Sen. Hagel's legislation every step of the way."
"It is outrageous that a congressionally chartered government-sponsored enterprise would lobby against a member of Congress's bill that would strengthen the regulation and oversight of that institution," Buttry said in a statement. "America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie."
The result: "a congressionally chartered government-sponsored enterprise" (GSE) was playing fast and loose. Having a smaller fraction of reserves, they could make more money when times were good; if their system collapses, they don't care, because they could send the bill back to Congress, regardless of the fact that there was no explicit government guarantee of capital, because the Washington elite would not want to allow this GSE to fail.
So, Congress picks up the tab -- on the giant credit card we have given them.
1) There needs to be a criminal investigation of all of this.
2) The Constitution does not authorize the Federal Government to get involved in the mortgage market; these "government sponsored enterprises" are unconstitutional, and this economic disaster demonstrates why.
Last month, the concerns of the 26 Republican senators who signed Hagel's bill became a reality when the government seized control of Freddie Mac and Fannie Mae amid their near financial collapse. Federal prosecutors are investigating accounting, disclosure and corporate governance issues at both companies, which own or guarantee more than $5 trillion in mortgages, roughly equivalent to half of the national debt.
Democrats did not like the harshest provision, which would have given a new regulator a mandate to shrink Freddie Mac and Fannie Mae by forcing them to sell off part of their portfolios. That approach, the Democrats feared, would cut into the ability of low- and moderate-income families to buy houses.
That's a chunk of change -- all because the socialist elite Democrats want taxpayers to underwrite loans for people who can't really afford them.
It's an economic train-wreck; Senator McCain will do nothing to slow this down, and Senator Obama will do everything to speed this up.