David Brooks describes the scandal of Fannie Mae:
Fannie Mae co-opted relevant activist groups, handing out money to Acorn, the Congressional Black Caucus, the Congressional Hispanic Caucus and other groups that it might need on its side.
Fannie ginned up Astroturf lobbying campaigns. In 2000, for example, a bill was introduced that threatened Fannie’s special status. The Coalition for Homeownership was formed and letters poured into Congressional offices opposing the bill. Many signatories of the letter had no idea their names had been used.
Fannie lavished campaign contributions on members of Congress. Time and again experts would go before some Congressional committee to warn that Fannie was lowering borrowing standards and posing an enormous risk to taxpayers. Phalanxes of congressmen would be mobilized to bludgeon the experts and kill unfriendly legislation.
Fannie executives ginned up academic studies. They created a foundation that spent tens of millions in advertising [emphasis added]. They spent enormous amounts of time and money capturing the regulators who were supposed to police them.
Who first headed that foundation? Wendy Sherman, now the nominee for the third top spot at the State Department. From 1996 to 1997, she was the one atop the entity that was endowed with $350 million in Fannie stock, the value of which was sustained by using the taxpayers as a guarantor for risky loans.
In 2002, a prescient Washingtonian article reported:
What worries lenders most is that Fannie spends millions each year on radio and print ads. Why does a company that serves mortgage bankers need to promote itself with the public?
A Fannie spokesperson concedes it’s good for people to associate Fannie Mae with homeownership. A senior vice president suggests that the ads “educate” officials about Fannie’s good works.
More advertising comes from the Fannie Mae Foundation, a charitable organization funded by Fannie Mae the corporation. Last year, the foundation gave out $34.8 million in grants. It spent more than that — $44 million — on television “outreach” ads so consumers can request brochures about obtaining a mortgage. Housing advocates say Fannie’s foundation should be doubling the size of its grants rather than spending millions to provide people with information available elsewhere.
Sherman had left by 2001 but surely her role in the debacle-in-the-making should be cause for concern. As the Washingtonian told us, the purpose of the organization Sherman headed was to wield influence and maintain Fannie Mae’s survival and preferred status:
Controversy surrounds the Fannie Mae Foundation as well. It gives out more affordable-housing grants than anyone else in the country, provides millions to DC advocacy groups and cultural institutions like the Kennedy Center and Arena Stage, and sponsors the Help the Homeless walkathon and other charitable ventures.
The foundation also helps Fannie Mae fight its adversaries. Although foundation CEO Stacey Davis claims that a “Chinese wall” separates the foundation from Fannie’s corporate interests, housing advocates and other critics accuse Fannie Mae of using the foundation’s grant money as a weapon.. . .
John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for more than 800 neighborhood organizations, says the foundation took away a $65,000 grant after he complained about Fannie’s poor record on affordable housing. (Fannie later reinstated the funding.) Reverend Graylan S. Hagler, pastor of DC’s Plymouth Congregational United Church of Christ, told Congress that after he challenged Fannie about its zero-down lending policy, the foundation canceled an $80,000 grant to a nonprofit housing group he supported. He picketed Fannie’s headquarters and its annual meeting in Texas in response.
A St. Petersburg Times study found that the foundation’s grant-giving favors groups affiliated with Fannie’s executives or in the districts of powerful politicians. Fannie denies that the foundation is a lobbying arm.
It all came tumbling down, of course, as Fannie’s critics predicted. But the executives who ran Fannie and its Foundation largely escaped scrutiny. They went on to positions of importance and influence.
As Brooks observes, “The final message is that members of the leadership class have done nothing to police themselves. The Wall Street-Industry-Regulator-Lobbyist tangle is even more deeply enmeshed.” But should she get nominated, the Senate will have an opportunity to query one of those who profited, ultimately at the expense of the taxpayers, and who thought that a mix of bullying and largess was simply par for the Washington power game.