The Campaign Ads Don't Quite Write Themselves

At first blush, the latest financial crisis involving mortgage giants Fannie Mae and Freddie Mac makes a tantalizing target for the Democrats in this election year. It evokes fat-cat special interests, the specter of bailouts helping million-dollar executives, and yet another potential threat to the ordinary homeowner.

But it’s not so simple, say many analysts. An overly aggressive Democratic attack risks accusations that the party is undermining attempts to rescue the financial system. Barack Obama and John McCain both serve in the Senate and may ultimately have to cast a vote on the mortgage rescue plan.

Plus, the problems that led to the rapid dive in the stock of the two government-sponsored companies transcend any single administration and involve both Congress and the White House.

“Congress and the executive branch both will be assessed by the American people,” said former Republican Rep. James Leach, who served as chairman of the House Financial Services Committee and now heads the Institute of Politics at Harvard University’s Kennedy School of Government. “It’s happening on the watch of the Republican executive and the Democratic Congress, and both have to respond.”

The issue undoubtedly “adds to the general mood of distress,” said the New America Foundation’s Michael Lind. And that hurts the Bush administration and, by implication, McCain.

But, he said, “it’s not like Enron. There’s no single villain to pin this on. ... Everyone loved” the jump in homeownership attributable in part to mortgages backed by Fannie Mae and Freddie Mac.

“You can compare it to a financial 9/11. There was a truce after 9/11,” he said. “There was a bipartisan truce. It seems to me you’ll see this now” as Congress takes up proposals to rescue the two companies.

Democratic campaign veteran Jeff Eller, president of Public Strategies Inc., agreed up to a point. Personally, he said, he would not “do a spot” on Fannie Mae or Freddie Mac if he were managing a campaign this year.

Rather, “I would use them to reinforce [the notion of] the status-quo nation, to link McCain back to Bush.” “But there’s a cautionary note,” he said. “There is a terrible line you’ve got to walk between being a candidate and then being responsible for what you do.” McCain and Obama are “both still United States senators and have to be cautious about what they do from a policy standpoint. A pure Democratic message would caution against a bailout, but the policy side would say be cautious, because it might be the best thing for the country.”

The risks were underscored Monday by the comments of Sen. Chris Dodd (D-Conn.), a former presidential candidate who used the occasion to bash the administration’s “failure to prevent bad lending practices” with a call for enactment of bipartisan cooperation on both the housing bill, pending before the Senate, and the Fannie Mae-Freddie Mac rescue.

Also on Monday, Rep. Jeb Hensarling (Texas), chairman of the Republican Study Committee, circulated a letter asking House Speaker Nancy Pelosi (D-Calif.) and House Financial Services Chairman Barney Frank (D-Mass.) to move the administration’s rescue proposal through the regular committee process because it would put taxpayers on the hook.

“Such proposals raise many concerns about the proper role of government in dealing with these two private sector companies, and deserve careful consideration before enactment,” the letter said.

Leach tried for years to revamp Fannie Mae and Freddie Mac to prevent the sort of difficulties they now confront. He failed in the face of Fannie Mae’s powerful lobbying machine, under the leadership, for a time, of James Johnson. Johnson headed Fannie Mae from 1991 to 1998 and recently stepped downas an Obama adviser amid allegations that he got favored treatment for personal loans after leaving the company.

The latest trouble, Leach said, “is a reflection of how difficult the times are. ... It’s a reflection of decisions” such as tax cuts, loose fiscal policy and “inadequate regulation” in Washington.

But, he added, “the disaster of Katrina was, in and of itself, not bad for the administration. How it was handled was, and so how the government responds” now is critical.