Freddie Mac's Secret Plan To Kill Reform

(AP)  Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

In the cross hairs of the campaign carried out by DCI of Washington were Republican senators and a regulatory overhaul bill sponsored by Sen. Chuck Hagel, R-Neb.

DCI's chief executive is Doug Goodyear, whom John McCain's campaign later hired to manage the GOP convention in September.

Freddie Mac's payments to DCI began shortly after the Senate Banking, Housing and Urban Affairs Committee sent Hagel's bill to the then GOP-run Senate on July 28, 2005. All GOP members of the committee supported it; all Democrats opposed it.

In the midst of DCI's yearlong effort, Hagel and 25 other Republican senators pleaded unsuccessfully with Senate Majority Leader Bill Frist, R-Tenn., to allow a vote.

"If effective regulatory reform legislation ... is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole," the senators wrote in a letter that proved prescient.

Unknown to the senators, DCI was undermining support for the bill in a campaign targeting 17 Republican senators in 13 states, according to documents obtained by The Associated Press. The states and the senators targeted changed over time, but always stayed on the Republican side.

In the end, there was not enough Republican support for Hagel's bill to warrant bringing it up for a vote because Democrats also opposed it and the votes of some would be needed for passage. The measure died at the end of the 109th Congress.

McCain, R-Ariz., was not a target of the DCI campaign. He signed Hagel's letter and three weeks later signed on as a co-sponsor of the bill.

By the time McCain did so, however, DCI's effort had gone on for nine months and was on its way toward killing the bill.

In recent days, McCain has said Freddie Mac and Fannie Mae were "one of the real catalysts, really the match that lit this fire" of the global credit crisis. McCain has accused Democratic presidential candidate Barack Obama of taking advice from former executives of Fannie Mae and Freddie Mac, and failing to see that the companies were heading for a meltdown.

McCain's campaign manager, Rick Davis, or his lobbying firm has taken more than $2 million from Fannie Mae and Freddie Mac dating to 2000. In December, Freddie Mac contributed $250,000 to last month's GOP convention.

Obama has received $120,349 in political donations from employees of Freddie Mac and Fannie Mae; McCain $21,550.

(AP Photo)

Then-Senate Majority Leader Bill Frist, R-Tenn. (left), refused to allow a vote on a regulatory overhaul bill sponsored by fellow Republican Sen. Chuck Hagel of Nebraska.

The Republican senators targeted by DCI began hearing from prominent constituents and financial contributors, all urging the defeat of Hagel's bill because it might harm the housing boom. The effort generated newspaper articles and radio and TV appearances by participants who spoke out against the measure.

Inside Freddie Mac headquarters in 2005, the few dozen people who knew what DCI was doing referred to the initiative as "the stealth lobbying campaign," according to three people familiar with the drive.

They spoke only on condition of anonymity, saying they fear retaliation if their names were disclosed.

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Click here to read excerpts from Freddie Mac's lobbying strategy.

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Freddie Mac executive Hollis McLoughlin oversaw DCI's drive, according to the three people.

"Hollis's goal was not to have any Freddie Mac fingerprints on this project and DCI became the hidden hand behind the effort," one of the three people told the AP.

Before 2004, Fannie Mae and Freddie Mac were Democratic strongholds. After 2004, Republicans ran their political operations. McLoughlin, who joined Freddie Mac in 2004 as chief of staff, has given $32,250 to Republican candidates over the years, including $2,800 to McCain, and has given none to Democrats, according to the Center for Responsive Politics, a nonpartisan group that tracks money in politics.

On Friday night, Hagel's chief of staff, Mike Buttry, said Hagel's legislation "was the last best chance to bring greater oversight and tighter regulation to Freddie and Fannie, and they used every means they could to defeat Sen. Hagel's legislation every step of the way."

"It is outrageous that a congressionally chartered, government-sponsored enterprise would lobby against a member of Congress's bill that would strengthen the regulation and oversight of that institution," Buttry said in a statement. "America has paid an extremely high price for the reckless, and possibly criminal, actions of the leadership at Freddie and Fannie."

Nine of the 17 targeted Republican senators did not sign Hagel's letter: Sens. Mitch McConnell of Kentucky, Christopher "Kit" Bond and Jim Talent of Missouri, Conrad Burns of Montana, Mike DeWine of Ohio, Lamar Alexander of Tennessee, Olympia Snowe of Maine, Lincoln Chafee of Rhode Island and George Allen of Virginia. Aside from the nine, 20 other Republican senators did not sign Hagel's letter.

McConnell's office said members of leadership do not sign letters to the leader. McConnell was majority whip at the time.

Eight of the targeted senators did sign it: Sens. Rick Santorum of Pennsylvania, Mike Crapo of Idaho, Jim Bunning of Kentucky, Larry Craig of Idaho, John Ensign of Nevada, Lindsey Graham of South Carolina, George Voinovich of Ohio and David Vitter of Louisiana. Santorum, Crapo and Bunning were on the Senate Banking, Housing and Urban Affairs Committee and had voted in favor of sending the bill to the full Senate.

On Thursday, Freddie Mac acknowledged that the company "did retain DCI to provide public affairs support at the state and local level." On Friday, DCI issued a four-sentence statement saying it complied with all applicable federal and state laws and regulations in representing Freddie Mac. Neither Freddie Mac nor DCI would say how much Goodyear's consulting firm was paid.

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[KPM1642]

Kudos to those who worked to make this change regardless of party. They were trying to do the right thing. Unfortunately doing the right thing for the American citizen is rarely the reason for any decision made in Washington. If the right decision is made it is usually the byproduct not the primary product of the decision.
Changing Washington goes way beyond party affiliation. Unfortunately the two parties and all the money they gather from various influential sources make it very difficult for the average American voice to be heard.
Imagine, how different America would be if both major American political parties disappeared.

[jawoytovich]

Mr. Raines, and a muti-million dollar golden parachute. All politians are guilty. We need term limits to make those who are suppose to help n ot be tempted by money. (Example) I have $1000 for anyone that will eat a gold fish? Who many takers? I thought so. Now put someone that would eat a goldfish for $1000 into the government and see what happens. Democrat or Republican. FYI, we know what we have with McCain, we are clueless about Obama.

[babooph]

It worked -the lobbyists got paid to bribe-the politicians took the $ -the crooks ran withe loot,all will get away with it !! {prisons are full of drug addicts with no connections"LIKE RUSH"& taxpayers pay for all-Socialism for the rich & crooked]

[eroosevelt08]

Cheney has become invisible. Where is he?

[Netterz]

The reason this bank crisis happened, with Bank of America leading the pack of wolves, is loans for billions for houses, cars, credit cards, personal loans, etc. to Illegal immigrants, with false papers, and there is no verification process for them, they take off, move, make up a new set of papers, and start the process all over again in a new town.

#2- ARM''s. They started families/people with a payment they could afford, then promised the rate increases would be minimal, over the time on the loan. Next yr, a small increase, maybe $30 more per month, that they could handle. The next yr or so, the entire amount of the payment, doubled, tripled, and forced the families out into the street.

[txgrouch2007]

the same idiots will be voted back into Congress by the very same people they failed. What does that say about us?
Posted by jjp735i at 12:19 PM : Oct 20, 2008

Anybody who votes for ANY incumbent is a traitor.

[txgrouch2007]

A past discussion that KILLS your whole argument with logic and reasonable intelligence.
Posted by grouchyjohn at 11:56 AM : Oct 20, 2008

What a grouch. :-)

[mcontreras4]

I applaud the efforts of the Republicans mentioned here in having the foresight to bring up this legislation, even if they were not successful.

[mcontreras4]

The important point in this story is that McCain was criticizing Obama for having contacts with Freddie and Fannie, and here he has been found to have hired the main lobbyist working against regulation, even after wrongdoing had been found. And has been hired by Freddie and Fannie UNTIL A MONTH AGO. This is another nail in the coffin.

[jjp735i]

"McCain''s campaign manager, Rick Davis, or his lobbying firm has taken more than $2 million from Fannie Mae and Freddie Mac dating to 2000. In December, Freddie Mac contributed $250,000 to last month''s GOP convention." "Obama has received $120,349 in political donations from employees of Freddie Mac and Fannie Mae; McCain $21,550"

I see people are posting what Obama received. What they are not writing about though is there is a difference between receiving money from Freddie Mac and employees of Freddie Mac. There is also a HUGE difference in the amount of money being given.

That said, both sides of Congress failed the people once again. They knew the problem was there. Some choose to ignore it while others received money from lobbyist. Yet the same idiots will be voted back into Congress by the very same people they failed. What does that say about us?