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Washington, DC - House Financial Services Committee Chairman Barney Frank (D-MA), today released the following statement in response to a letter sent by Ranking Member Spencer Bachus (R-AL) along with other Republicans to the Justice Department regarding the role of the GSEs in the financial crisis:
“In an unusual event, even by this year’s standards, House Republicans appear to be demanding a criminal investigation of their failure to legislate. In the letter to Attorney General Mukasey, House Republicans cite among other things the fact that no legislation was adopted “for years” to reform the GSEs. The record is very clear: the Republicans controlled Congress from 1995 – 2006, and that is the period in which the absence of regulation into which they want a criminal investigation occurred. As the accompanying excerpt from a National Journal interview makes clear, it was not until the Democrats took over in 2007 that a bill that conformed to the views of those who believed regulation was necessary was adopted. As the interview makes clear, there were efforts to pass a bill. There was a Senate bill in 2004 and a House bill in 2005, but it was noted that they could not get it to the floor.
“According to the release, regulatory legislation was thwarted by Democrats but in fact, no regulation came to the Senate floor during the years of Republican rule and only one bill passed the Republican House – and that bill had majority Democratic support.
“The Republican demand that their legislative record of non-action be investigated appears to be the political equivalent of the note left to the police by serial offenders: stop me before I do not legislate again.”
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National Journal Magazine
LOBBYING & LAW
The Fight For Fannie and Freddie Oversight
For a decade, FM Policy Focus raised warnings about Fannie Mae and Freddie Mac.
Saturday, Oct. 18, 2008
By Bara Vaida
In 1999, the mortgage insurance industry and other companies in the financial services sector formed FM Watch to push Congress to enact stronger oversight of Fannie Mae and Freddie Mac.
The group, which changed its name in 2003 to FM Policy Focus, faced formidable lobbying opponents in Fannie and Freddie. Over the past decade, the two government-sponsored enterprises, as Fannie and Freddie were known, spent $167 million on federal lobbying, according to the nonpartisan Center for Responsive Politics.
In July, FM Policy Focus closed its doors after Congress passed legislation creating a regulator to oversee the two GSEs. Just two months later, the Bush administration took Fannie and Freddie into receivership as Wall Street spiraled downward in a financial crisis. That brought Fannie and Freddie back into the headlines because of their involvement with home-mortgage financing.
BGR Holding was among a half-dozen law and lobbying firms hired by FM Policy Focus -- which spent about $30 million on federal lobbying over the past 10 years. BGR Holding received $4.7 million of those fees. Previously, Lanny Griffith, CEO of BGR Holding, was an aide to President George H.W. Bush, and Dan Murphy, principal at the firm, was a chief of staff at the Housing and Urban Development Department from 2001 to '02.
Following are edited excerpts from an October 6 interview of Griffith and Murphy by National Journal Staff Correspondent Bara Vaida.
NJ: How did you get involved with FM Policy Focus?
Griffith: Back in 1999, we were approached by mortgage-insurance com-panies, their association, and some other large financial institutions. Mike House [a partner at the law and lobbying firm Hogan & Hartson, who eventually ran the coalition] was involved in this, and he and I had a great relationship. He called me because he wanted me to run the coalition. I did say I would be glad to meet with the [FM Watch] founders. After we met with them, we said we thought Mike House would be a good person to run the coalition and we'd like to be their lead Republican lobbyist.
NJ: Fannie and Freddie were offering a lot of money to firms to keep them from working for their opponents. What made you decide to work for FM Policy Focus?
Griffith: After we talked to the new group that became FM Policy Focus, I had a visit from one of the top people at Fannie Mae [a former Fannie Mae senior vice president]. He showed up here in my office unannounced and said he wanted to see me. So I sat down with him. He told me he was there to offer me a very generous contract if we would stop working for this fledgling group. He offered us quite a bit of money for four straight years and a no-cut contract, and we never would have to do any work -- just not work for FM Policy Focus. I was outraged and indignant that they would think that I would do it, and that I would just talk to FM Policy Focus founders in confidence and then turn around and work for the other side. It was a question of integrity. It probably made us that much more eager to work for FM Policy Focus.
NJ: Many policy makers dismissed FM Policy Focus's positions. Why was it so hard to make your case?
Murphy: The bottom line is, Fannie and Freddie had a bumper sticker and FM Policy Focus had a white paper. They could say, "We are for homeownership," and FM Policy Focus had to explain mortgage-backed securities and why Fannie and Freddie weren't what they said they were. And we had to explain how it works when someone buys their house and mortgages are sold to Fannie and Freddie, and then they turn around and bundle them into mortgage-back securities and sell them to Wall Street, and on and on. And all they had to say is, "We are for homeownership. Are you against that?"
NJ: Was anyone in Washington willing to listen?
Griffith: In 2003, President Bush came out with a very bold proposal saying we have a problem here with Fannie and Freddie and we need to do something. And before that, you have to give some credit to people like [then-Rep.] Richard Baker [R-La.], who was chair of the House Financial Services Subcommittee [on Capital Markets Insurance and Government-Sponsored Enterprises.] And then there was [House Financial Services Committee] Chairman [James] Leach [R-Iowa], who said, "Yes, you are right. We do have a big problem." That was probably 1999 or 2000. He left as chairman in 2000.
NJ: Were any Democrats on the Hill willing to listen?
Griffith: In 2002, Representative Chris Shays [R-Conn.] and Representative Ed Markey [D-Mass.] both pushed for SEC regulation of Fannie and Freddie, and that was a very courageous thing for them to do. At that point Fannie and Freddie were the only two companies that were publicly traded and didn't have to disclose all their financials to the public. At the last minute, Fannie and Freddie voluntarily agreed to register their securities with the SEC. It was a huge milestone in starting to understand their problems, because when, in quarter after quarter, Fannie and Freddie couldn't file financial statements and missed deadline after deadline, then it started to raise a lot of questions about there being something seriously wrong there.
Murphy: I think the early heroes in this were Richard Baker and [Clinton administration Treasury Assistant Secretary for Financial Markets] Gary Gensler, who sounded the alarm and was quickly knocked down. You also have to give a lot of credit to Republican Senators Elizabeth Dole [North Carolina] Chuck Hagel [Nebraska], John Sununu [New Hampshire], and Mel Martinez [Florida].
NJ: Any other Democrats?
Griffith: Well, [Rep.] Barney Frank [of Massachusetts]. The Senate Banking Committee produced a very good bill in 2004. It was S. 190 and never got to the Senate floor. Then the House introduced a bill, which it passed, but we couldn't get a bill to the floor of the Senate. Then after the 2006 election when everyone thought FM Policy Focus's issues would be tough sledding with Democrats in the majority, Barney Frank, as the new chairman of the House Financial Services Committee, stepped up and said, "I am convinced we need to do something." He sat down with Treasury Secretary Hank Paulson and frankly upset people in the Senate and Republicans in the House. But they came up with a bill that was excellent, and it was the bill that largely became law.
NJ: Who among policy makers deserves the blame for what happened?
Murphy: In our business, we don't like to dole out the blame.
NJ: Given that we are looking at an overhaul of financial regulations next year and potentially of Fannie and Freddie as well, will FM Policy Focus return?
Griffith: One drama is over and a sequel is coming. We'll have phone calls with people after this interview with you. We feel it every day. People are looking at what does this all mean and where do we go from here? Collectively we have 25 years and a lot of scars. This isn't a sharp learning curve for us because we have spent so much time on this from a regulatory, administration, congressional, and Wall Street viewpoint.
NJ: Can the model of Fannie and Freddie that existed before, a private company backed by the government, still work when they come out of receivership?
Murphy: I don't see a time where Fannie and Freddie don't exist. I do foresee that Fannie and Freddie will exist in a much smaller fashion. I don't think they'll ever again be as powerful in the mortgage market or certainly in the lobbying world.
Griffith: I am certain that no one has decided. They may look more like Sallie Mae [a company that provides student loans and gets government funding], that is, less of a public corporation. There will be people that will say we should privatize it. There are those that say we had a very robust secondary market without a Fannie and Freddie. If anything, my guess is that they'll never go back to having two behemoths that are funding the secondary mortgage market. I mean, you already have other entities out there. This will either be spread out among a number of different players or it will take a fairly different look, but the role of having a secondary market that provides liquidity for home mortgages is a good thing.
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