Earlier tonight I caught people on CNN talking about the possibility of a bank run on Monday when IndyMac re-opens after what I guess was already a bank run. (Want to see an old-style bank run? Check out 51:45 on this video.) Apparently it would not be a good idea for people to rush out and try to withdraw their money; the commentators agreed that this needs to be made clear to the public. I suppose political leaders could use their platform to address this, but it hardly seems like the kind of thing a President, for instance, would want to get involved in.
The political battle lines were drawn by 2000, when a senior Clinton administration official called on Congress to take steps that might have diminished the companies’ special status. Treasury Undersecretary Gary Gensler also urged that regulators be given more power to set capital requirements for Fannie Mae and Freddie Mac.
The companies fought back.
“We think that the statements evidence a contempt for the nation’s housing and mortgage markets,” Freddie Mac spokeswoman Sharon J. McHale said at the time.
Even after Freddie Mac was shown to have manipulated earnings, Congress remained deadlocked over legislation to create a stronger regulator. Opposing one such bill in 2004, Sen. Charles E. Schumer (D-N.Y.) argued that a hostile regulator could use the proposed powers to choke the companies.
When a federal regulator accused Fannie Mae of cooking its books to increase bonuses, lawmakers lined up to denounce the regulator. Rep. William L. Clay Jr. (D-Mo.) said a House panel had no business holding a hearing on the matter — “unless this is truly a witch hunt.” Fannie Mae was later found to have overstated profits by $6.3 billion.
Former representative Richard H. Baker (R-La.), who chaired a subcommittee that oversaw the companies, struggled for years to rein them in and tried to show they were being managed for the enrichment of their executives. When Baker obtained data on Fannie Mae pay, a lawyer for the company threatened him with personal liability if he made it public, Baker recounted last week.
Critics of the two firms included former Reagan administration official Peter Wallison, who crusaded against them at the American Enterprise Institute, and a coalition of financial companies whose interests often conflicted with those of Fannie Mae and Freddie Mac. The Bush administration pushed a similar agenda.
“The simple truth is that there is no need for our financial markets to be exposed to this risk,” Emil W. Henry, Jr., an assistant Treasury secretary, said in 2006.
On the other side, a top lobbyist for Freddie Mac held more than 75 fundraisers for members of the House Financial Services Committee in an 18-month period several years ago, raising nearly $3 million, according to records brought to light in a federal investigation. The lobbyist’s fundraising dinners typically featured the committee’s Republican chairman at the time, Michael G. Oxley of Ohio.
Those and other activities led to a record $3.8 million fine against Freddie Mac in 2006 for allegedly[*] violating federal election law.
In an internal memo in 2004, Fannie Mae executive Daniel H. Mudd affirmed what the company’s critics had long contended: In the political arena, “we always won” and “we took no prisoners.”
“We used to, by virtue of our peculiarity, be able to write, or have written, rules that worked for us,” wrote Mudd, now the company’s chief executive.
*This appears to be one of those mysterious usages of “alleged.” Quick searches suggest that this was a settlement in which it was agreed that the allegations will continue to be called allegations.