Morgen on December 1, 2011 at 6:21 am
It’s been at least a couple of weeks
since Bloomberg broke the story that Newt Gingrich received $1.6
million in consulting fees from Freddie Mac over a decade or so. Gingrich has
defended the work he did for Freddie Mac claiming that he was hired only to
provide strategic advice as a “historian”, and that he had warned upper
management that their lending practices were “insane” in the years leading up
to the housing market collapse. But former officials from Freddie Mac described
his role quite a bit differently, according to the Bloomberg story (emphasis
added).
Former Freddie Mac officials
familiar with his work in 2006 say Gingrich was asked to build bridges to
Capitol Hill Republicans and develop an argument on behalf of the company’s
public-private structure that would resonate with conservatives seeking to
dismantle it.
He was expected to provide written
material that could be circulated among free-market conservatives in Congress
and in outside organizations,
said two former company executives familiar with Gingrich’s role at the firm.
He didn’t produce a white paper or any other document the firm could use on its
behalf, they said.
I did a little digging on the
Internet Archive and it sure looks to me like Gingrich delivered on at least
part of what was suggested above. From a section of Freddie Mac’s web site in
April 2007 labeled “Policy Talk“:
Q: A key element of the
entrepreneurial model is using the private sector where possible to save
taxpayer dollars and improve efficiency. And you believe the GSE model provides
one way to use the private sector.
Gingrich: Some activities of
government – trash collection is a good example – can be efficiently contracted
out to the private sector. Other functions – the military, police and fire
protection – obviously must remain within government. And then there are areas
in which a public purpose would be best achieved by using market-based models.
I think GSEs provide one of those models. I like the GSE model because it
provides a more efficient, market-based alternative to taxpayer-funded
government programs. It marries private enterprise to a public purpose.
We obviously don’t want to use GSEs for everything, but there are times when
private enterprise alone is not sufficient to achieve a public purpose. I
think private enterprise alone is not going to be able to help the Gulf region recover
from the hurricanes, and government will not get the job done in a very
effective or efficient manner. We should be looking seriously at creating a GSE
to help redevelop this region. We should be looking at whether and how the GSE
model could help us address the problem of financing health care. I think a GSE
for space exploration ought to be seriously considered – I’m convinced that if
NASA were a GSE, we probably would be on Mars today.
Certainly there is a lot of debate
today about the housing GSEs, but I think it is telling that there is strong
bipartisan support for maintaining the GSE model in housing. There is not much
support for the idea of removing the GSE charters from Freddie Mac and Fannie
Mae. And I think it’s clear why. The housing GSEs have made an important
contribution to homeownership and the housing finance system. We have a much
more liquid and stable housing finance system than we would have without the
GSEs. And making homeownership more accessible and affordable is a policy goal
I believe conservatives should embrace. Millions of people have entered the
middle class through building wealth in their homes, and there is a lot of
evidence that homeownership contributes to stable families and communities.
These are results I think conservatives should embrace and want to extend as
widely as possible. So while we need to improve the regulation of the GSEs, I
would be very cautious about fundamentally changing their role or the model
itself.
Q: This is not a point of view one
normally associates with conservatives.
Gingrich: Well, it’s not a point of
view libertarians would embrace. But I am more in the Alexander Hamilton-Teddy
Roosevelt tradition of conservatism. I recognize that there are times when you
need government to help spur private enterprise and economic development. Look
at our own history. The government provided railroad land grants to encourage
widespread adoption of what was then the most modern form of transportation to
help develop our country. The Homestead Act essentially gave land away to those
willing to live on it and develop it. We used what were in effect
public-private partnerships to bring telephone service and electricity to every
community in our nation. All of these are examples of government bringing
about desired public purposes without creating massive, taxpayer-funded
bureaucracies. To me that is a pragmatic and effective conservative approach.
It’s hard to imagine more wasteful,
taxpayer-funded bureaucracies than the sinkholes that Fannie Mae and Freddie Mac
have become, but of course it’s easy to criticize Gingrich’s comments with the
benefit of hindsight. What is probably most notable here is that by laying out
a broad case in defense of the GSE’s, on Freddie Mac’s web site no less, it
seems somewhat implausible that at the same time Gingrich was privately
criticizing Freddie Mac’s lending practices and warning management that the
market was headed towards a collapse.
But let’s say this is also true,
there is no getting around the fact that Gingrich leveraged his credibility in
defense of Freddie Mac and the GSE’s in general, at a time when he was
receiving hundreds of thousands of dollars as a paid consultant. Whether these
were his principled opinions at the time or not (and I believe they were), it
defies belief to imagine that this commentary was not provided as part of his
consulting arrangement, and obviously this is exactly what the former (albeit
unnamed) executives from Freddie Mac claim he was paid to do.
I think many conservatives would
take issue with Gingrich’s stance on the merits of GSE’s in general. It seems
to me that GSE’s are the ideal model if the goal is to privatize profits while
socializing losses, thus making them magnets for graft and corruption. But I
believe Gingrich has been a consistent supporter of public/private
partnerships, and so the issue here is more one of credibility.
In response to the Bloomberg story,
in an interview with Laura Ingraham, Gingrich pretty much flatly denied that he had made a conservative
case for GSE’s on behalf of Freddie Mac. Instead, he would have us believe that
had Freddie Mac followed his sage advice they would not have ended up in the
predicament they ultimately found themselves in. But the simple fact of the
matter is at the very height of the housing bubble, when perhaps tens of
billions of dollars in losses could still have been averted, Gingrich took a
very clear and very public position in support of Freddie Mac and the market
function they performed, while serving as a paid consultant. And it seems to me
that he has yet to fully own up to this.
Also. I’d sure like to know exactly what Gingrich had in mind
when speculating whether GSE’s might play a role in financing health care.
Because this sounds an awful lot like some of the ideas floating around for a
“public option” in 2009.
Update: “Government Sponsored Enterprise”, with Fannie Mae and
Freddie Mac being the most prominent examples (though they are now under full
government conservatorship). Source
