Business Without a PAC?
by Tim Carney
Issue 113 - August 6, 2008

Follow the divergent treatment recently of four different financial companies suffering from the mortgage crisis, and you begin to detect a pattern: The well-connected — with big lobbying budgets and generous campaign contributions — get special favors from Washington, while the others get special abuse.

Government-backed mortgage companies Fannie Mae and Freddie Mac are collapsing, and so Congress and the Bush administration are rushing to save them, insisting to the investing public that everything is OK.

Lehman Brothers is upset about negative rumors hurting its stock prices, and so Uncle Sam is investigating who is badmouthing the firm. But IndyMac, a commercial bank and mortgage lender, was pushed over the edge by a U.S. senator, Charles Schumer, D-N.Y.

The difference: Fannie, Freddie and Lehman are all famously well-connected to Washington, with high-priced lobbyists and burgeoning political action committees; IndyMac, meanwhile, had no PAC at all and only a tiny lobbying budget.

Fannie Mae and Freddie Mac were so tight with government that it was hard to tell if they were government agencies or private corporations. Officially “government-sponsored entities,” they were chartered by Congress to boost the mortgage industry, but they were still private companies, owned by shareholders who bought their stock (FNMA and FMAC) as you might buy General Motors or Microsoft stock.

Fannie’s closeness to federal power has been well covered by the press recently. Jim Johnson — a longtime top aide to Walter Mondale and more recently an adviser to Barack Obama’s campaign — headed Fannie Mae throughout most of the Clinton administration, Johnson’s ties to Democrats in power being invaluable. Clintonistas on Fannie’s payroll included Deputy Attorney General Jamie Gorelick and Office of Management and Budget Director Franklin Raines, the New York Times reported. Former and current Bush administration officials have worked for Fannie, too, including former U.S. Trade Representative Robert Zoellick. Fannie Mae spent $1.39 million on lobbying in this year’s first quarter alone — more than $15,000 per day, counting Saturdays and Sundays. Fannie and Freddie combined spent nearly $200 million since 1998 on lobbying and campaign contributions.

Their preferential treatment at the hands of Congress and the administration is unsurprising. Senate Banking, Housing and Urban Affairs CommitteeChairman Christopher Dodd, who has received $25,000 from Fannie’s and Freddie’s PACs over the past three cycles, took the extraordinary measure of publicly talking up these corporations last week.

“These institutions are fundamentally sound and strong,” Dodd told reporters as their stock dropped last Friday. “There is no reason for the kind of reaction we’re getting.” Sounding a lot like an Enron executive in late 2001, Dodd added, “This is not a time to be panicking about this. These are viable, strong institutions.”

Over the weekend, Treasury Secretary Henry Paulson proposed, in broad terms, some sort of federal bailout of the two companies.

While Dodd was talking up Fannie Mae, somebody was talking down Lehman Brothers, an investment bank suffering from its exposure to subprime mortgages. In response, the government sprang into action, starting an investigation into who is spreading “rumors” that hurt Lehman and the stock of other companies. One federal official told Reuters that the government was working “to prevent rumors that threaten commercial banks, investment banks and government-sponsored enterprises.”

Lehman has spent about $2 million lobbying since 2004, while its PAC has spent about $350,000. That money has helped Lehman turn the power of the already overburdened Securities and Exchange Commission against anyone who talks down Lehman’s stock.

IndyMac got the opposite treatment. Schumer, a longtime Fannie Mae defender, wrote a gratuitous public letter warning of IndyMac’s impending collapse. This led to a run on the bank and the stock’s price plummeting — and thus IndyMac’s actual collapse.

IndyMac had no lobbying presence at all before last spring, and has spent less than $50,000 on lobbying ever — less than half of what Fannie Mae averaged in one week in this year’s first quarter. Even worse, they don’t even have a political action committee. Trying to do business in finance without a PAC and a big lobbying outfit is like trying to haul trash in northern New Jersey without permission from the likes of Tony Soprano.

Timothy Carney is a columnist with the Washington Examiner, where this first appeared.