Gingrich Warned Freddie Mac of Housing Bubble, Never Lobbied
(CNSNews.com) – Newt Gingrich warned government-sponsored mortgage giant Freddie Mac not to make irresponsible loans, when it hired his consulting firm, the former House speaker and GOP presidential contender said in the CNBC debate this week. Freddie Mac and fellow government-sponsored enterprise Fannie Mae are largely blamed for the mortgage crisis that led to the 2008 financial collapse.
Freddie Mac paid the Gingrich Group $300,000 for strategic advice. Gingrich, during the debate, and in a campaign statement afterwards stated that he never lobbied on behalf of the firm.
Gingrich was one of many former lawmakers and government officials to be hired by Freddie Mac and Fannie Mae. Gingrich’s former chief of staff Arne Christenson also became vice president for regulatory affairs at Fannie Mae.
During the CNBC debate Wednesday, a debate panelist asked Gingrich, “Your firm was paid $300,000 by Freddie Mac in 2006. What did you do for that money?”
Gingrich answered, “I offer them advice on precisely what they didn’t do.”
The panelist followed up, “Were you not trying to help Freddie Mac fend off the effort by the Bush administration and the – to curb Freddie Mac.”
Gingrich answered, “I have never done any lobbying. Every contract was written during the period when I was out of the office, specifically said I would do no lobbying, and I offered advice.
“And my advice as a historian, when they walked in and said to me, ‘We are now making loans to people who have no credit history and have no record of paying back anything, but that's what the government wants us to do,’ as I said to them at the time, this is a bubble. This is insane. This is impossible,” Gingrich said.
“It turned out, unfortunately, I was right, and the people who were doing exactly what Congresswoman [Michele] Bachmann talked about were wrong. And I think it’s a good case for breaking up Fannie Mae and Freddie Mac and getting much smaller institutions back into the private sector to be competitive and to be responsible for their behavior,” he added.
Freddie Mac retained the Gingrich Group in 2006, according to a campaign statement released on Nov. 9.
“To be clear, Speaker Gingrich did no lobbying of any kind, nor did his firm,” the campaign statement said. “This was expressly written into the Gingrich Group contracts. Instead, the Gingrich Group was hired to offer strategic advice to Freddie Mac on a number of issues.
“Speaker Gingrich has always believed that America should have programs to help low-income people acquire the ability to buy homes,” the statement said. “However, as a conservative, he also believed they have to be within a context of learning how to budget and save which makes it possible for the poor to afford what they were purchasing.
“Therefore, on numerous occasions in meetings with Freddie Mac, Speaker Gingrich advised that a business model that involved lending money to people with bad credit and no money down was unsustainable and a bubble, and that it was dangerous to buy securities made up of these mortgages,” the statement said.
Freddie Mac hired 52 political consulting and lobbying firms in 2006 and has paid other former government officials and their firms, according to the Associated Press.
This includes $240,000 to former Sen. Alfonse D’Amato (R-N.Y.) at Park Strategies; $360,297 to former Rep. Vin Web (R-Minn.) of Clark & Weinstock; $300,000 to former Rep. Susan Molinari (R-N.Y.) of the Washington Group, $240,790 to Susan Hirschman of Williams & Jensen.
Fannie Mae has also hired powerful government officials, such as Franklin D. Raines as CEO, the former budget director for President Clinton. Also, former Clinton administration Deputy Attorney General Jamie Gorelick became the vice chair of Fannie Mae.
In 2001, Christenson wrote an op-ed in The Washington Times defending Fannie Mae from previous criticism in the newspaper.
“Fannie Mae stands ready to supply funds for mortgages in all markets and at all times,” Christenson wrote in the Feb. 18, 2001 op-ed. “In doing so; it has changed the housing market from being one of the most volatile to one of the most settled sectors of the economy.”
The op-ed continues, “In the second half of 1998, for instance, credit in many markets become tight – if it was available at all – following financial upheaval in Russia and Asia. While others faced crisis, American homebuyers hardly noticed because Fannie Mae (along with Freddie Mac) was able to supply a sustaining amount of credit in the mortgage market.”
By 2008, Gingrich expressed disgust with corporate bailouts that included Fannie Mae and Freddie Mac.
“You can’t be for capitalism on the way up and socialism on the way down, and you can’t be for a welfare state for the rich,” Gingrich was quoted in The Washington Times on Sept. 22, 2008. “The entire policy from economy is healthy, but Washington and Wall Street are sick. The politicians here would like to change America to be more like Washington, but we need to change Washington to be like the rest of America.”
The Gingrich campaign statement said the former speaker’s consulting firm offered advice on how Freddie Mac could lower health care costs and how to reach out to more conservatives.
“In addition, Freddie Mac was interested in advice on how to reach out to more conservatives,” the campaign statement said. “The Gingrich Group stressed that Freddie Mac must be open to reform of their lending practices but that by stressing the historical success of public-private partnerships in achieving public goods at a minimum of taxpayer money and bureaucracy.