Incensed by McCain attacks linking Barack Obama to the Wall Street crisis by highlighting campaign donations from employees of Fannie Mae and Freddie Mac, officials from the twin mortgage giants have responded by noting the $2m paid to Rick Davis, the Republican nominee's campaign manager, to protect the companies from stricter regulation.
On Friday, with the financial markets on the verge of implosion, McCain tore into his rival for his ties to the two companies, which benefited from a government bailout earlier this month. The Arizona senator noted that Fannie Mae’s former CEO, Jim Johnson, once sat on Obama’s vice presidential search committee and that the Illinois senator had received campaign contributions from employees of both firms. He also released an ad claiming that Obama had received advice from another former Fannie Mae chief, Franklin Raines - a statement refuted by both Mr Raines and the Obama campaign.Accusing Obama of "gaming the system", McCain said: "The crisis on Wall Street started in the Washington culture of lobbying and influence peddling, and he was square in the middle of it."
What he failed to mention was the involvement of his own aides and advisers in lobbying for the two companies, which together own roughly half of the $12 trillion US housing market.
In fact, McCain's own manager, Rick Davis, played a key role in helping the firms to evade stricter regulation as they began venturing into riskier mortgages with tacit government approval, according to the New York Times.
Between 2000 and 2005, Davis received over $30,000 a month in salary as head of the Homeowners Alliance, an advocacy group set up by the two companies to beat back regulatory challenges. In all, the payments amounted to over $2 million.
The New York Times says that following McCain's attack, several current and former executives of the companies came forward with information on Davis' role.
“The value that he brought to the relationship was the closeness to Senator McCain and the possibility that Senator McCain was going to run for president again,” said Robert McCarson, a former spokesman for Fannie Mae. He said that while he worked there from 2000 to 2002, the two firms together paid Davis $35,000 a month.
It is not clear that Davis ever substantially influenced McCain's position with regard to the two companies. However several former executives of the companies said Davis did arrange for the senator to attend a 2004 awards banquet that the Homeownership Alliance held in a Senate office building. The organisation printed a photograph of McCain at the event in its annual report that year, affording it greater credibility and influence.
McCain spokesman Tucker Bounds noted that the Homeownership Alliance included nonprofit organisations, saying: “It’s not controversial to promote homeownership and minority homeownership.”
However the New York Times cited over half a dozen current and former executives as saying that the Homeownership Alliance was set up mainly to represent Fannie Mae and Freddie Mac, which funded the group between them.
“They were financed largely, possibly exclusively, by Fannie and Freddie,” said William R. Maloni, former head of industry relations for Fannie Mae. “We thought it would be helpful to have someone who was a broadly recognized Republican to be the face of the organization, and that person became Rick Davis.” Mr. Maloni added, “Rick, for that purpose, turned out to be quite good.”
At the time of Davis' recruitment, Fannie Mae and Freddie Mac were facing challenges to their status as federally-backed private companies, which many argued gave them an unfair advantage and exposed the US taxpayer to immense financial risk. Critics had formed their own Washington-based advocacy group, FM Watch, and were pushing for regulations that would prevent the companies from expanding into new sectors, including the riskier mortgages now known to an anxious world as sub-prime.
Davis, fresh from running McCain's 2000 presidential campaign, was brought in and remained president of The Homeownership Alliance until 2005, when it was wound up as the companies looked to save costs, former executives said.
Bounds noted that during that time, McCain backed legislation which increased oversight over the companies' accounts and executive pay packets. But it did nothing to deal with their unusual status as government-supported private firms.
Since the two companies received a government bailout amid multi-billion dollar losses, they have become a symbol of what critics argue is the overly lax regulatory framework which has led to chaos in the financial system.
Source: TimesOnline.TypePad.Com
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