On page 1 of today’s Wall Street Journal (available on their subscriber site), there is a story about the lack of any congressional action in light of the recent accounting scandal at Freddie which led to the forced resignation of its top management. Fannie and Freddie are quasi-”privatized” corporations that enjoy a substantial government subsidy partly in the form of implied government guarantees for the securities that they issue and partly in the form of an an exemption from regulatory requirements that a similar private sector institution would have to comply with.
“It’s not surprising that the discussions to date have not gone in the direction of the charter, status or mission of the GSEs, because of the importance of the housing sector to the economy and the important role that the GSEs play,” says Fannie Mae spokeswoman Janice Daue.
Congressman Richard Baker has been a lone voice in congress calling for greater oversight of these behemoths. He has been largely stymied by the GSEs expertise in lobbying and the favored status of the housing sector in a country in which the majority of citizens are home owners.
Having created a housing bubble, no one in Washington wants it to burst during an election year.
It’s unlikely Congress will go much further. Heading toward an election year, President Bush and the Republicans who control the House and the Senate are desperate to keep the housing market humming. Legislation that cuts the companies’ government ties could undermine that market, at least temporarily, by making it more expensive for them to borrow -- costs that inevitably would be passed on to consumers via higher interest rates.
In lobbying members of Congress over the past several weeks, Fannie and Freddie have been hitting that point hard. During a recent members-only meeting of Republicans on Mr. Baker’s subcommittee, Rep. Robert Ney of Ohio -- one of the companies’ close allies -- warned that the housing sector needed to be protected at all costs. Mr. Baker said Treasury officials and others in the administration have sent similar messages.
The GSEs are so well connected and so good at lobbying congress that their position is pretty much unassailable at this point.
Freddie and Fannie in recent years have made big investments in political contributions and lobbying firepower, winning lots of friends on congressional oversight committees. Eleven Republicans on Mr. Baker’s subcommittee, including Mr. Ney, have benefited from fund-raisers hosted by Freddie Mac lobbyist Mitchell Delk at Galileo’s, an elegant downtown Washington restaurant. Freddie says it hasn’t sponsored those events.
Before Congress outlawed unregulated donations to political parties (known as soft money) Freddie Mac gave $4 million in the 2002 election cycle -- a big increase over previous cycles and more than any other public U.S. company. Republicans got a bit more than half. Fannie Mae also was a major soft money donor, though not as big. Freddie Mac spent about $9.8 million lobbying the government in 2002 and Fannie Mae spent about $7.6 million -- more than almost any other U.S. company.
Posted by Robert Blumen
