McCain: Get rid of Fannie Mae and Freddie Mac

posted at 6:30 pm on July 24, 2008 by Ed Morrissey

John McCain got another newspaper to accept his op-ed writings today, this time in Florida and on the subject of the Fannie Mae/Freddie Mac bailout.  He writes that he reluctantly agrees that Congress has to ensure that the two don’t cause an economic collapse, but that any such plan has to envision the end of any ties to the government — and he’s particularly incensed about their lobbying efforts while those ties exist.  And McCain reminds people that he warned about the potential for this failure two years ago:

Fannie and Freddie buy home loans from lending institutions and reissue them as marketable securities — creating a liquid market for mortgage debt that lowers borrowing costs for prospective homeowners. The two institutions have easy access to borrow at low interest rates because they were originally government agencies and continue to be viewed as being backed by the government. The irony is that by bailing them out, Congress is about to make that perception a reality, even though government backing is no longer needed for their original mission. There are lots of banks, savings and loans, and other financial institutions that can do this job.

Fannie and Freddie are the poster children for a lack of transparency and accountability. Fannie Mae employees deliberately manipulated financial reports to trigger bonuses for senior executives. Freddie Mac manipulated its earnings by $5-billion. They’ve misled us about their accounting, and now they are endangering financial markets. More than two years ago, I said: “If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose.” Fannie and Freddie’s lobbyists succeeded; Congress failed to act. They’ve stayed in business, grown, and profited mightily by showering money on lobbyists and favors on the Washington establishment. Now the bill has come due.

What should be done? We are stuck with the reality that they have grown so large that we must support Fannie Mae and Freddie Mac through the current rough spell. But if a dime of taxpayer money ends up being directly invested, the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists. And taxpayers should be first in line for any repayments.

Even with those terms, sticking Main Street Americans with Wall Street’s bill is a shame on Washington. If elected, I’ll continue my crusade for the right reform of the institutions: making them go away. I will get real regulation that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.

The Washington Post recently published a piece on just how extensive those lobbying efforts went.   They have deep ties within both parties, and unsurprisingly, within both campaigns:

Rick Davis, McCain’s campaign manager, was president of the Homeownership Alliance, which advocates the expansion of homeownership through low-interest mortgages funded by Fannie and Freddie. Arthur B. Culvahouse Jr., who is heading McCain’s vice presidential vetting panel, was a lobbyist for Fannie Mae. Mark Buse, a longtime McCain aide, lobbied for Freddie Mac before returning to McCain’s Senate staff.

And the list of Republican Fannie and Freddie lobbyists includes some of its most notable rogues — including Tony Rudy, Edwin Buckham, Kevin Ring and David H. Safavian, all of whom were linked to the Jack Abramoff lobbying scandal — as well as some of its leading power brokers, from Reagan White House chief of staff Kenneth M. Duberstein to uberlobbyists Vin Weber and Tom Korologos. Alberto R. Cardenas, one of McCain’s top fundraisers, has lobbied for Fannie Mae, as have former Montana governor Marc Racicot and tax-cut advocate Grover Norquist.

Obama also has ties to the firms. James A. Johnson, the former head of his vice presidential vetting panel, was a chief executive of Fannie Mae, as was Franklin D. Raines, who said this week that he has been consulting with the campaign on housing issues. Maria Echaveste, a top Clinton White House official whose husband, Christopher Edley Jr., is a close Obama friend and adviser, has lobbied for Freddie Mac, and former commerce secretary William M. Daley, a top Obama backer, was an in-house lobbyist.

Other Democratic luminaries who have advocated for the mortgage giants include strategist Steven Elmendorf, Rep. Doris Matsui (Calif.), former Al Gore aide Ronald A. Klain, former Clinton aide Steve Ricchetti and former congressman Harold E. Ford Jr. (Tenn.), now the head of the Democratic Leadership Council. Jamie Gorelick, a deputy attorney general in the Clinton administration, was also vice chairman of Fannie Mae.

That payroll has cost Fannie and Freddie nearly $200 million in lobbying and campaign contributions over the past decade, according to lobbying reports and Federal Election Commission disclosures. It has also won them plenty of protection from calls for greater regulation, less federal protection, and even nationalization.

That certainly explains the lack of enthusiasm on Capitol Hill to make government completely independent of both Fannie Mae and Freddie Mac, and it underscores how difficult it will be for either Obama or McCain to make the necessary changes.  McCain’s prescription looks and sounds the best, but will either party want to cut itself off from the hundreds of millions of dollars that these behemoths spend in protecting their turf?

If Congress sticks us with the bill, McCain’s proposal should be the benchmark for conditions on the bailout.  Better not to do it at all — but if it’s necessary, then neither company should be allowed to spend any money on lobbyists, and all executive perks should be canceled.  Until the taxpayers get their money back, the two firms should be prohibited from any lobbying activity at all, and after stability returns to the market, the government should wipe their hands of both Fannie Mae and Freddie Mac.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

He should demand a 16 month timetable.

Texas Rainmaker on July 24, 2008 at 6:37 PM

I say go deep with the Terminator plan and pay the top management minimum wage till they get this straight.

bbz123 on July 24, 2008 at 6:37 PM

But if a dime of taxpayer money ends up being directly invested, the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated.

These guys are getting plenty of taxpayer dimes indirectly, which to me is the same thing.

Those steps he listed are fine, but he also needs to add in an orange jumpsuit frog-walk.

reaganaut on July 24, 2008 at 6:40 PM

Yay! I sank the ship! Give me a big fat hairy multi-million dollar bonus!
Notice how the liberals, who bitch like crazy about oil exec salaries, are relatively silent about Fannie/Freddie?

whitetop on July 24, 2008 at 7:03 PM

McCain: Get rid of Fannie Mae and Freddie Mac

Be kind of like closing the barn door after the horse got out and is half way to the next county.

MB4 on July 24, 2008 at 7:04 PM

Well, that’s odd.
A McCain policy that I sort of agree with.

Lets see….. That makes 3.

LegendHasIt on July 24, 2008 at 7:05 PM

No federally-sponsored corporation should have an opulent headquarters like Fannie Mae’s. Something’s wrong with the picture.

Cicero43 on July 24, 2008 at 7:46 PM

He should demand a 16 month timetable.

Texas Rainmaker on July 24, 2008 at 6:37 PM

HA! Well played, sir (or ma’am).

Rhinoboy on July 24, 2008 at 7:51 PM

That it now looks like the Treasury will be replacing GSE debt with Treasuries devalues the Treasuries. It exposes how much of a fraud the whole damn mess is. What goes into determining the value of the Treasuries? It is the ability of the govt to tax it’s citizens, but if American citizens can’t even pay their own debts, how will they pay their taxes and how will the additional govt debt that was issued to replace all the defaults be serviced?

MB4 on July 24, 2008 at 7:54 PM

This should be a wake-up call for all of those seeking government run healthcare but sadly, it probably won’t.

brtex on July 24, 2008 at 7:54 PM

Ed, you’re too mild about this.

I was alerted to the inherent corruption of Fannie and Freddie many years ago (sorry I don’t remember the context–maybe one of my economics professors). My opinion is that they should be completely disbanded and that there should be no less than triple-digit conviction and jailtime sentences for higher-ups. These organizations are kleptocracies that eventually end up benefitting both D’s and R’s, but promote big-governmentism most of all.

urbancenturion on July 24, 2008 at 8:12 PM

Imagine, a congress supported financial institution being corrupt…what are the odds of it being; inefficient, corrupt, and costly…say 100%?

right2bright on July 24, 2008 at 8:16 PM

“If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose.” Fannie and Freddie’s lobbyists succeeded; Congress failed to act. They’ve stayed in business, grown, and profited mightily by showering money on lobbyists and favors on the Washington establishment. Now the bill has come due. But if a dime of taxpayer money ends up being directly invested, the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists. And taxpayers should be first in line for any repayments.

Amen! Why do any of the people in the C-suite of these two organizations have jobs?

Terri on July 24, 2008 at 8:51 PM

Wow! I think JMac has this about right! Why can’t the government simply arrange an asset sale and close the whole charade down?

jl on July 24, 2008 at 9:43 PM

Just wondering…what would happen if they failed?

Obviously trust in the market would fail, would the US dollar be able to ride through that?

Just wondering.

F15Mech on July 24, 2008 at 9:52 PM

The whole thing is worse than many imagine…

Fannie and Freddie were created for one reason, to take the RISK out of Loan companies lending practices.

They buy loans, supposedly so money will be pumped back into the system faster, so it can be reloaned faster than the amount of time it takes for the loan to mature. Problem is that loan companies KEEP the loans from the higher earning (ie less risky) clients, while selling poor loans to Fannie and Freddie.

Its a government sponsered bail out for the system, which has been in place for YEARS… and the inherent structural problems are only now being seen due to the economic downturn, and lack of oversite on the loan industry from BOTH parties.

Whole thing is inerently flawed, just like Social Security.

Romeo13 on July 24, 2008 at 11:50 PM

I agree with McCain.

I also agree with earlier comments about the Democrats being remarkably silent when it comes to all that dough they rake in and have, particularly in relationship F.M./F.M.

S on July 25, 2008 at 12:12 AM

Hey I’m in the real estate business and the last thing I need is the companies that buy all the loans on the secondary market going belly up.

It’s already hard enough trying to survive the market with the subprime implosion and the media scaring the crap out of everyone to stay away from real estate industry.

Corey Wayne on July 25, 2008 at 8:53 AM

no doubt Corey. if you take fannie and freddie out of the picture, who will provide liquidity to the markets? bear stearns? indy mac? countrywide? i’ve got a list of 267 other banks who have gone toes up in the past year. save fannie and freddie or ’29 will seem like a family picnic.

DrW on July 25, 2008 at 10:34 AM

First of all, rule of thumb #1

If anybody gives you an estimate (on how much is going to cost the government), it is way underblown.

Sir Napsalot on July 25, 2008 at 3:07 PM