Media won't talk about Barney Frank's Fannie Mae love connection.
cmdr buzz corey
Democratic House Financial Services Committee Chair promoted GSEs
while former 'spouse' was Fannie Mae executive.
By Jeff Poor
Business & Media Institute
9/24/2008 4:00:57 PM
Are journalists playing favorites with some of the key political
figures involved with regulatory oversight of U.S. financial markets?
MSNBC’s Chris Matthews launched several vitriolic attacks on the
Republican Party on his Sept. 17, 2008, show, suggesting blame for
Wall Street problems should be focused in a partisan way. However, he
and other media have failed to thoroughly examine the Democratic side
of the blame game.
Prominent Democrats ran Fannie Mae, the same government-sponsored
enterprise (GSE) that donated campaign cash to top Democrats. And one
of Fannie Mae’s main defenders in the House – Rep. Barney Frank, D-
Mass., a recipient of more than $40,000 in campaign donations from
Fannie since 1989 – was once romantically involved with a Fannie Mae
executive.
The media coverage of Frank’s coziness with Fannie Mae and his
pro-Fannie Mae stances has been lacking. Of the eight appearances
Frank made on the three broadcasts networks between Jan. 1, 2008, and
Sept. 21, 2008, none of his comments dealt with the potential
conflicts of interest. Only six of the appearances dealt with the
economy in general and two of those appearances, including an April 6,
2008 appearance on CBS’s “60 Minutes” were about his opposition to a
manned mission to Mars.
Frank has argued that family life “should be fair game for
campaign discussion,” wrote the Associated Press on Sept. 2. The
comment was in reference to GOP vice presidential nominee Sarah Palin
and her pregnant daughter. “They’re the ones that made an issue of her
family,” the Massachusetts Democrat said to the AP.
The news media have covered the relationship in the past, but
there have been no mentions since 2005, according to Nexis and despite
the collapse of Fannie Mae. The July 3, 1998, Reliable Source column
in The Washington Post reported Frank, who is openly gay, had a
relationship with Herb Moses, an executive for the now-government
controlled Fannie Mae. The column revealed the two had split up at the
time but also said Frank was referring to Moses as his “spouse.”
Another Washington Post report said Frank called Moses his “lover” and
that the two were “still friends” after the breakup.
Frank was and remains a stalwart defender of Fannie Mae, which is
now under FBI investigation along with its sister organization Freddie
Mac, American International Group Inc. (NYSE:AIG) and Lehman Brothers
(NYSE:LEH) – all recently participants in government bailouts. But
Frank has derailed efforts to regulate the institution, as well as
denying it posed any financial risk. Frank’s office has been
unresponsive to efforts by the Business & Media Institute to comment
on these potential conflicts of interest.
While the relationship reportedly ended 10 years ago, Frank was
serving on the House Banking Committee the entire 10 years they were
together. The committee is the primary House body which along with the
Office of Federal Housing Enterprise Oversight (OFHEO) has
jurisdiction over the government-sponsored enterprises.
He has served on the committee since becoming a congressman in
1981 and became the ranking Democrat on the committee in 2003. He
became chairman of the committee, now called the House Financial
Services Committee, in 2007.
Moses was the assistant director for product initiatives at
Fannie Mae and had been at the forefront of relaxing lending
restrictions at the company for rural customers, according to the Feb.
23, 1998, issue of National Mortgage News (NMN).
“Herb Moses, who helped develop many of Fannie Mae’s affordable
housing and home improvement lending programs, has left the mortgage
industry,” Darryl Hicks wrote for NMN. “Mr. Moses - whose last day
was Feb. 13 - spent the past seven years at Fannie Mae, most recently
as director of housing initiatives. Over the course of time, he played
an instrumental role in developing the company’s Title One and 203(k)
home improvement lending programs.”
Hicks explained in his story how Moses orchestrated a
collaborative effort between Fannie Mae and the Department of
Agriculture.
“The Dartmouth grad also played a crucial role in brokering a
relationship between Fannie Mae and the Department of Agriculture,”
Hicks wrote. “This led to the creation of Fannie Mae’s rural housing
program where the secondary marketing agency agreed to purchase small
farm loans insured through the department.”
While Moses served at Fannie Mae and was Frank’s partner, Frank
was actively working to support GSEs, according to several news
outlets.
In 1991, Frank and former Rep. Joe Kennedy, D-Mass., lobbied for
Fannie to soften rules on multi-family home mortgages although those
dwellings showed a default rate twice that of single-family homes,
according to the Nov. 22, 1991, Boston Globe.
BusinessWeek reported in its Nov. 14, 1994, issue that Fannie Mae
called on Frank to exert his influence against a Housing & Urban
Development proposal that would force the GSE to focus on minority and
low-income buyers and police bias by lenders regardless of their
location. Fannie Mae opposed HUD on the issue because it claimed doing
so would “ignore the urban middle class.”
Moses left Fannie in 1998 to start his own pottery business.
National Mortgage News called Moses a “mortgage guru” and said he
developed “many of Fannie Mae's affordable housing and home
improvement lending programs. Moses ended his relationship with Frank
just months after he left Fannie.
Even after the relationship ended, however, Frank was a staunch
defender of Fannie Mae even as other experts suggested there were
serious problems building in Fannie Mae and Freddie Mac.
According to an article by Kathleen Day in the Oct. 8, 2003,
Washington Post, Frank opposed giving the Bush administration the
right to approve or disapprove business activities that “could pose
risk to the taxpayers.” He told the Post he worried the Treasury
Department “would sacrifice activities that are good for consumers in
the name of lowering the companies’ market risks.”
Just a month before, Frank had aggressively thwarted reform
efforts by the Bush administration. He told The New York Times on
Sept. 11, 2003, Fannie Mae and Freddie Mac’s problems were
“exaggerated,” a gross miscalculation some five years later with costs
estimated to be in the hundreds of billions.
“These two entities – Fannie Mae and Freddie Mac – are not facing
any kind of financial crisis,” Frank said to the Times. “The more
people exaggerate these problems, the more pressure there is on these
companies, the less we will see in terms of affordable housing.”
Frank has also reaped campaign contribution benefits from Fannie
Mae and its counterpart Freddie Mac. According a front page story in
the Sept. 19, 2008, Investor’s Business Daily by Terry Jones, Frank
has received $40,100 in campaign cash over the past two decades from
the GSEs.
Frank is ranked 16th on a list that includes both houses of
Congress and fifth among his colleagues in the House. According to
data from the Center for Responsive Politics’ OpenSecrets.org,
political action committees financed by both Freddie and Fannie have
contributed $3,017,797 to members of Congress since 1989. And
according to the July 16 issue of Politico, the two entities have
spent a whopping $200 million to buy influence – including not only
campaign donations to members of Congress, but also presidential
campaigns and lobbying efforts.
In a July 23 op-ed, Wall Street Journal Editorial Page Editor
Paul Gigot put the blame for the GSEs’ collapse firmly on the members
of the liberal establishment who took money from Freddie and Fannie.
“Fan and Fred also couldn't prosper for as long as they have without
the support of the political left... This includes Mr. Frank and Sen.
Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. [Paul]
Krugman and the Washington Post's Steven Pearlstein in the press.”
Frank was asked by CNN’s John Roberts on the Sept. 22, 2008
“American Morning” about this and his opposition to reform Fannie Mae
and Freddie Mac. Originally, he claimed he didn’t think the two GSEs
were facing any problems when the issue first surfaced in 2003. He
instead blamed the Republican-controlled Congress for their ultimate
fall, failing to mention his friendly relationship with Fannie Mae and
the contributions it had made to his campaign over the years.
“Yes, I did not think we were facing a crisis in 2003, but that
didn't mean we didn't have to have reform,” an animated Frank said
when confronted with the question. “Here’s the deal, the Republicans
controlled Congress from 1995 through 2006. They did zero to reform
Fannie Mae and Freddie Mac.”
However, on Sept. 17, 2008, former Bush administration Deputy
Chief of Staff Karl Rove elaborated on the Bush administration’s
efforts to curb abuses at the two GSEs in 2003. He told Fox News’
“Hannity & Colmes” that Frank was among the most aggressive opponents
of White House attempts to reform Fannie Mae and Freddie Mac.
“All of this bad stuff on Wall Street happened because people got
greedy and the greed started at Fannie Mae and Freddie Mac,” Rove
said. “And I know this because five years ago, the administration was
alerted by the regulator, James Lockhart, that there was insufficient
authority and that these institutions – particularly Fannie – were out
of control.”
Rove said the Bush administration’s efforts to reform Fannie and
Freddie were opposed by congressional Democrats – specifically Frank
and Senate Banking Committee Chairman Christopher Dodd, D-Conn.
“And I got to tell you, for five years, I was part of an effort
at the White House to fight this and our biggest opponents on the Hill
who blocked this every step of the way were people like Chris Dodd and
Barney Frank. And Fannie and Freddie are the $200 billion contagion at
the center of this.”
Frank has been quick to blame deregulation for some of the
problems in the financial environment, as he did on Bloomberg
television’s Sept. 19 “Political Capital with Al Hunt.” However, as
earmark crusader Rep. Jeff Flake, R-Ariz. pointed out – it’s not
deregulation, but it was the structure of Fannie Mae and Freddie Mac
that had been guarded by Frank and other members of Congress.
“Some people point at deregulation,” Flake said to the Business &
Media Institute on Sept. 23. “It’s not deregulation at all. We have
for far too long shielded Fannie and Freddie for example, with the
implicit and now explicit guarantee. I just found it humorous.”
Flake specifically named Frank as one of the members behind
letting allegations of transgressions at the two GSEs for slipping by
without oversight from Congress.
“Just a few minutes ago, a reporter was asking me about this and
saying, ‘Barney Frank is saying that’s just – because there were
allegations,’ correct ones – ‘that Fannie and Freddie have been the
playground for politicians for years and now the other side is saying
Fannie and Freddie were just a small part of this and this goes far
beyond.’ It does, but these same people a couple of weeks ago said,
‘You got to bail out Fannie and Freddie because they touch everything
out there. They touch nearly every mortgage out there.’ And because of
that explicit guarantee – that we would come and bail them out, nobody
has been subject to market discipline.”
Frank claims differently, according to a letter to the editor
published in the Sept. 17, 2008 Wall Street Journal. Frank noted that
in 2005 he supported regulating compensation for Fannie and Freddie
executives.
“In fact, my reform efforts had begun when we were still in the
minority. In 2005, I joined Michael Oxley, then chairman of the House
Financial Services Committee, in supporting legislation to increase
the regulation of Fannie and Freddie that passed the House by a vote
of 330 to 90,” Frank wrote. “When former Congressman Richard Baker
proposed to examine the compensation structure of Fannie and Freddie's
top executives, and some members of Congress tried to block him, I
explicitly spoke out in support of his right to do that and our right,
as a Congress, to examine the GSE’s compensation practices.”
The red flags were raised long before the government bailed out
the two GSEs in August 2008. The first egregious scandal involving
Fannie Mae occurred in 2004. A 2004 Wall Street Journal editorial was
first to point out claims in an OFHEO report that showed accounting
malpractices by the GSE.
“For years, mortgage giant Fannie Mae has produced smoothly
growing earnings. And for years, observers have wondered how Fannie
could manage its inherently risky portfolio without a whiff of
volatility, the Oct. 4, 2004, editorial, “Fannie Mae Enron?” said.
“Now, thanks to Fannie’s regulator, we know the answer. The company
was cooking the books. Big time.”