By Pete Yost - Associated Press Writer
October 20, 2008
WASHINGTON – 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.
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.
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.
Freddie Mac paid DCI $10,000 a month for each of the targeted
states, so the more states, the more money for DCI, according
to the three people familiar with the program. In addition,
Freddie Mac paid DCI a group retainer of $40,000 a month plus
$20,000 a month for each regional manager handling the project,
the three people said.
Last month, the concerns of the 26 Republican senators who
signed Hagel's bill became a reality when the government seized
control of Freddie Mac and Fannie Mae amid their near financial
collapse. Federal prosecutors are investigating accounting,
disclosure and corporate governance issues at both companies,
which own or guarantee more than $5 trillion in mortgages,
roughly equivalent to half of the national debt.
Freddie Mac was so pleased with DCI's work that it retained
the firm for other jobs, finally cutting DCI loose last month
after the government takeover, according to the three people
familiar with the situation.
Freddie Mac's problems began when Hagel's legislation won
approval from the Senate committee.
Democrats did not like the harshest provision, which would
have given a new regulator a mandate to shrink Freddie Mac
and Fannie Mae by forcing them to sell off part of their portfolios.
That approach, the Democrats feared, would cut into the ability
of low- and moderate-income families to buy houses.
The political backdrop to the debate "was like bizarre-o-world," said
the second of three people familiar with the program. "The
Republicans were pro-regulation and the Democrats were against
it; it was upside down."
Sen. Richard Shelby, the committee chairman at the time, underscored
that in a statement Wednesday, saying that with Democrats already
on their side, it was not surprising that Freddie Mac and Freddie
Mae went after Republicans. "Unfortunately," said
Shelby, R-Ala., "efforts then to derail reform were successful."
In a sign of bad things to come, Freddie Mac was already having
serious problems in 2005. Auditors had exposed massive accounting
issues, so improved regulation was one obvious remedy.
Once Freddie Mac's in-house lobbyists failed to keep Hagel's
bill bottled up in the committee, McLoughlin responded by secretly
hiring DCI.
DCI never filed lobbying reports with Congress about what
it was doing because the firm was relying on a long-recognized
gap in the disclosure law.
Federal lobbying law only requires reporting and registration
when there are contacts with a legislator or staff.
"To have it stealthy, not to let people know who is behind
this, in my opinion is unethical," said James Thurber,
director of the Center for Congressional and Presidential Studies
at American University who long has taught courses about lobbying.
Goodyear is a longtime political consultant from Arizona who
resigned from the Republican convention job this year after
Newsweek magazine revealed he had lobbied for the repressive
military junta of Myanmar.
McLoughlin, Freddie Mac's senior vice president for external
relations, was assistant treasury secretary from 1989 through
1992 in the administration of President Bush's father. McLoughlin
served as chief of staff to Sen. Nicholas Brady, R-N.J., in
1982 and to Rep. Millicent Fenwick, R-N.J., from 1975-79.
Seven of the 17 targeted Republican senators were in the midst
of re-election campaigns in 2006, and according to one of the
three people familiar with the program, Freddie Mac and DCI
hoped those facing tough races would tell their Republican
colleagues back in Washington that "we've got enough trouble;
you're making it worse with Hagel's bill."
Five of the seven DCI targets who ran for re-election in 2006
lost, and Senate control switched to the Democrats.
A Freddie Mac e-mail on May 4, 2006 the day before Hagel's
letter details the behind-the-scenes effort that Freddie Mac
and DCI generated to hold down the number of Republicans signing
Hagel's letter urging a full Senate vote. It said:
"What I'm asking is that DCI get a few of their key well-connected
constituents from each state to call in to the DC office of
their Republican senators and speak to the (legislative director)
or (chief of staff) and urge them not to sign the letter. The
following could be used as a short script."
The proposed script read: "We can all agree that Fannie's
and Freddie's regulator should be strengthened but unfortunately,
S.190 goes too far and could potentially have damaging effects
on Georgia's example home buyers."
According to the third of the three people familiar with the
program, "DCI was asked to help keep senators from signing;
it was a big part of their effort that year and it was viewed
as a success since many DCI targets did not sign the letter."
DCI's progress after the first four months of the campaign
was spelled out in a 19-page document dated Dec. 12, 2005,
and titled, "Freddie Mac Field Program State by State
Summary Report."
A snippet of a senator-by-senator breakdown of the efforts
says this about Maine's Snowe:
"Philip Harriman, former state senator, co-chair of Snowe's
2006 campaign, personal Snowe friend, major GOP donor and investment
adviser, has written the senator a personal letter on this
issue. Dick Morin, vice president Maine Association of Mortgage
Brokers, has been in direct contact with Sen. Snowe's committee
staff, has sent a letter to Snowe, and is pursuing a dozen(s)
of letters from his members."
On Wednesday, Snowe's office issued a statement saying that
she "literally gets hundreds of 'Dear Colleague' letters
seeking support for their positions that she does not sign.
Had this legislation come up for a vote in 2006, she certainly
would have considered it on its merits as she does every vote.
Just last July, she voted for the housing bill that established
a new, stronger regulator."
Rosario Marin, a staunch McCain supporter who spoke at the
GOP convention in September, was among the people DCI used
in carrying out the campaign.
Marin, the U.S. treasurer during the first term of the Bush
administration, went to Missouri and to Montana, Burns' state,
where she spoke out against Hagel's bill.
At the time, Burns, who ended up losing his re-election bid,
was caught up in a Washington influence peddling scandal centering
on disgraced lobbyist Jack Abramoff.
Marin's visit triggered a local newspaper story in which the
reporter contacted Burns' staff for comment. Burns' office
told the newspaper the senator was not supportive of the latest
version of Hagel's bill.
On Wednesday, Marin, now state consumer services secretary
in California, issued a statement confirming that her trips
to Missouri and Montana were in her capacity as a DCI consultant.
The December 2005 summary listing 17 Republican targets outlines
the inroads DCI was making.
"On day one" of the effort, Sen. George Allen of
Virginia had not addressed Hagel's bill and his legislative
aide for housing was not assigned to it, the report said.
"Today," the report added, "the senator is
aware of the issue and ... at the moment he is undecided." Allen's
deputy chief of staff "has said that the senator will
take into consideration before he decides that Freddie Mac
is located in Virginia and is one of the largest Virginia employers."
"Grasstops/opinion leaders James Todd, president, the
Peterson Companies wrote to both senators," the report
added. "Milt Peterson, the founder and CEO of the company
is one of Allen's major donors."
In the end, Allen, who lost his bid for re-election in 2006,
did not sign Hagel's letter.
___
On the Net:
DCI: http://www.dcigroup.com/
Freddie Mac: http://www.freddiemac.com/
Fannie Mae: http://www.fanniemae.com
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