A Fannie Freddie debate primer

Here's what you need to know when John McCain starts talking about the mortgage mess

Published October 7, 2008 11:03PM (EDT)

As we hurtle towards tonight's debate, we don't know whether John McCain will launch the character-based attacks that he and his running mate have been spewing from the campaign trail this week. We don't know how many times he will pledge to cut spending or bring "reform" to Washington. We don't whether he'll try to be all smiley and jokey this time around, or whether he will once again barely be able to contain his rage at the enormous walloping he is currently receiving from Barack Obama.

But I will lay high odds that we can count on, with near total certainty, John McCain making an attempt to blame the current financial crisis on Fannie Mae and Freddie Mac, as he touts his own record as a critic of the two giant mortgage-loan agencies.

Let the record show that on May 25, 2006 John McCain spoke out on the Senate floor about the need for the two government-sponsored enterprises to be "reformed without delay" and that he was a co-sponsor of a Senate bill that would have tightened regulation on Fannie and Freddie. That is indisputable.

However, as the Daily Kos diarist heartland eric details in a convincing roundup of Fannie/Freddie McCain related links, McCain was not an original sponsor of the bill, first introduced to the Senate in 2005. His outburst of criticism and decision to join on as a co-sponsor came two days after federal regulators released a widely publicized report ripping Fannie and Freddie to shreds.

So it's not as if he came riding into the Senate on a white charger, blowing a trumpet, sounding a warning that no one else had heeded. Dissatisfaction with Fannie and Freddie was already widespread. In 2005, bills designed to increase regulation on Fannie and Freddie were introduced in both the House and the Senate -- both controlled at the time by Republican majorities. The House actually managed to pass its version of the bill with a large 330-90 majority. The Senate? Its bill, although similar to the House's version, died in committee.

The New York Times reported on Oct. 6 that Democrats vigorously opposed the Senate bill, calling it "fundamentally flawed," but I haven't found, so far, any specific Obama reference to Fannie and Freddie at the time. Still, let the record show that the Republican Party, which controlled the White House, the Senate and the House of Representatives in 2005, was unable to pass legislation reforming how Fannie and Freddie were regulated.

Mike Oxley, the House Republican who chaired the House Financial Services Committee in 2005, blamed the White House for sabotaging his bill.

The Financial Times:

The House bill, the 2005 Federal Housing Finance Reform Act, would have created a stronger regulator with new powers to increase capital at Fannie and Freddie, to limit their portfolios and to deal with the possibility of receivership.

Mr Oxley reached out to Barney Frank, then the ranking Democrat on the committee and now its chairman, to secure support on the other side of the aisle. But after winning bipartisan support in the House, where the bill passed by 331 to 90 votes, the legislation lacked a champion in the Senate and faced hostility from the Bush administration.

Adamant that the only solution to the problems posed by Fannie and Freddie was their privatization, the White House attacked the bill. Mr Greenspan also weighed in, saying that the House legislation was worse than no bill at all.

On Sept. 18, shortly after the bankruptcy of Lehman Brothers and the bailout of AIG, McCain began making Fannie and Freddie the centerpiece of his stump speech. On Sept. 19, he declared that "Two years ago, I called for reform of this corruption at Fannie Mae and Freddie Mac. Congress did nothing. The Administration did nothing. Senator Obama did nothing, and actually profited from this system of abuse and scandal. While Fannie and Freddie were working to keep Congress away from their house of cards, Senator Obama was taking their money. He got more, in fact, than any other member of Congress, except for the Democratic chairmen of the committee that oversees them."

Obama's campaign contributions came from individual employees of Fannie and Freddie. How that matches up with the disclosure that McCain's campaign manager, Rick Davis, and his Senate chief of staff were both on the Fannie payroll can be left to partisans to argue over.

But as for the far more ridiculous right-wing assertion that government pressure to encourage low-income and minority homeownership is the root cause of the financial crisis, I will follow the lead of Time's Justin Fox and outsource the pleasure of rebuttal to Daniel Gross, who delivered a very fine rant on the topic in today's Slate.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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