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The Fannie-Freddie Feeding Frenzy

The Fannie-Freddie Feeding Frenzy

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When news broke this fall that former House speaker and current Republican presidential hopeful Newt Gingrich had received $1.6 million from the government-sponsored enterprise Freddie Mac, it was a mini-scandal. That $1.6 million is only the latest blip, however, when it comes to loan guarantors Fannie Mae and Freddie Mac buying political influence with powerful politicians and their friends.

For his part, Gingrich denied that he ever lobbied for the company. Rather, he insisted he had given advice as a 'historian.' Gingrich said he told the mortgage giant that its business model was 'insane.' Freddie Mac employees deny he ever said such a thing, and they offer evidence for their side of the story. In 2007 -- right before the housing bubble burst -- Gingrich praised the government-sponsored enterprises' business model. 'While we need to improve the regulations of the GSEs, I would be very cautious about fundamentally changing their role or the model itself,' he said in an interview posted on the archived version of Freddie Mac's website, in which he also celebrated the 'important contributions' of Freddie Mac and Fannie Mae to homeownership.

Gingrich was only passing through a revolving door that other Washington insiders had entered long before him. He left Congress in 1998, the same year that his former chief of staff Arne Christenson became Fannie Mae's senior vice president for regulatory policy. Christenson left in 2004 after complaining of the 'constant outside scrutiny' (read: congressional oversight) to which Fannie Mae was subjected. 'People want us to be a passive little company that just buys and sells loans,' he told Washingtonian magazine in August 2002. Fannie aspired to more -- a lot more. Born of the New Deal, it morphed into one of the world's biggest financial service companies, handling some $8 trillion annually.

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Its former CEO, Franklin Delano Raines, aspired to a lot more too. Raines was a longtime Democratic Party hand who became Fannie Mae’s vice chairman in 1991. The Harvard-trained Rhodes scholar left to become Bill Clinton's director of the Office of Management and Budget in 1996 and was touted as a potential running mate to Al Gore in 2000. He returned to Fannie in 1999, becoming “the first black man to head a Fortune 500 company,” according to Ebony magazine. The job was lucrative. He received over $90 million in compensation. But it came with some congressional oversight and that proved too much. Raines left Fannie in 2004 when it became embroiled in an accounting scandal.

Some Republicans had long questioned Fannie Mae's business practices, which included such perks as exemption from state and local corporate income taxes and a $2.2 billion conditional line of credit with the Treasury. It doesn't have to pay to register with the SEC the mortgage-backed securities it sells, and given the government guarantee of its debts, it could borrow money well below the market rate, a benefit worth at least $4 billion to Fannie Mae in 1995, according to a Congressional Budget Office analysis.

Those perks came at a price. Both Fannie and Freddie have been very successful at recruiting former politicians and their staffers. A list of their former executives and consultants who, or whose firms, received money from the two mortgage giants reads like a who's who of Washington elite. Starting with upper management, there's former White House aide Harold Ickes ($100,000+ from Freddie Mac); former Rep. Tom Downey (D-N.Y., $30,000+ from Freddie Mac); former Rep. Ray McGrath (R-N.Y., $30,000+ from Fannie Mae); former Sen. Alfonse D'Amato (R-N.Y., $240,000 from Freddie Mac); former Deputy Attorney General Jamie Gorelick ($26.4 million from 1997-2003 and $779,625 in bonuses from Fannie Mae); former Rep. Vin Weber (R-Minn., $360,000 from Freddie Mac); former Rep. Susan Molinari (R-N.Y., $300,000 from Fannie Mae); GOP operative Donald Fierce ($30,000+ from Fannie Mae); Democratic political strategist Steve Elmendorf ($30,000+ from Fannie Mae); former Secretary of Commerce and current Obama chief of staff William Daley ($30,000+ yearly from Fannie Mae); Michelle Engler, the wife of former Michigan Gov. John Engler ($30,000+ from Freddie Mac); Chicago Mayor Rahm Emanuel, a former Democratic congressman and Obama chief of staff ($320,000+ from Freddie Mac).

Former Republican Sen. Bob Bennett of Utah received the most campaign cash from Fannie Mae and Freddie Mac of any elected Republican ($107,999). Tim Stewart, his legislative assistant from 1999-2006, went to work for Fannie Mae's Utah office. In 2006, Bennett's chief of staff, Chip Yost, left to become a lobbyist -- for Fannie Mae. Indeed, Bennett's own son was hired by Fannie Mae. Only three politicians received more money than Bennett: Banking Committee Chairman Chris Dodd, presidential candidate Sen. Barack Obama, and former presidential candidate Sen. John Kerry. In just four short years, from 2004 to 2008, Fannie Mae lobbyists gave Barack Obama $123,000, according to the FEC.

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Related Topics: Freddie Mac, Fannie Mae