This week the Obama administration released three different plans to end or vastly shrink the role of the government in the mortgage market through the government sponsored enterprises Fannie Mae and Freddie Mac. One can only imagine these plans being proposed under the current circumstances where the two mortgage giants have had their lobbying and campaign contribution operations suspended by the government after they were taken over in 2008.
Since 1998 Fannie and Freddie combined to spend over $172 million on lobbying in Washington and $16.6 million in campaign contributions to lawmakers and presidential candidates, according to data from the Center for Responsive Politics. These numbers, when combined, would make the duo the seventh biggest spender on lobbying and near the top fifty in campaign contributions over this period.
Repeated attempts to reform Fannie and Freddie were beaten back during this period as Fannie and Freddie poured campaign contributions into the coffers of members of the House Financial Services Committee and other relevant lawmakers while hiring key political figures as board members and lobbyists.
The policies proposed now by both the Obama administration and the House Republicans to end Fannie and Freddie are not just an outgrowth of the financial situation of the two companies that were put into government conservatorship. They are a product of the lack of lobbying from the former mortgage giants along with the total collapse of other mortgage companies like Countrywide Financial.
Last week, Barry Ritholtz questioned why the bailed-out banks were allowed to continue their lobbying and campaign contributions despite their continued survival made possible thanks to the government money injected into and loaned to them from both Treasury and the Federal Reserve. Ritholtz’ post makes it clear that the decision on whether or not to eliminate the lobbying operations of bailed out organizations, banks of GSEs, determines the outcome of the ensuing reforms:
When the GSEs were put into conservatorship by Hank Paulson, several steps were immediately effected: The CEOs and much of the senior management were fired. One of the very next steps put into place was a total ban on all political activities, including — most especially — lobbying. Common stockholders were placed last in line for any claims, with preferred shareholders right behind them.
Compare that to the rescues of Citigroup, Bank of America, Merrill Lynch, and the rest of the bankers wrecking crew. The vast majority of senior management and board members who created and oversaw their own implosions are still in place. A report on Corporate Governance by Professor Emma Coleman Jordan of the Georgetown University Law found that 92% of senior bank execs were still working in their same jobs.
But worse of all, at any insolvent banking institution not named Fannie or Freddie, none of the POLITICAL ACTIVITIES, CAMPAIGN DONATIONS OR LOBBYING ACTIVITIES were halted. It was business as usual on capital hill, for the bankrupt banks and their highly paid shills.
When we look at the shortcomings of Dodd-Frank, or the weaknesses of the FCIC (Underfunded, short on time, lacking prosecutorial zeal), it traces back to this decision.