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Unearthed: Gingrich Makes the Case for GSE’s on Freddie Mac’s Web Site in 2007/2008

Morgen on December 1, 2011 at 6:21 am

I’m a little late with this – 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. With Gingrich currently rocketing up the polls it’s safe to say he survived the initial controversy over this, but I think questions over this are going to continue to dog his campaign. 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: GSE is an acronym for “Government Sponsored Enterprise”, with Fannie Mae and Freddie Mac being the most prominent examples (though they are now under full government conservatorship). I was remiss in not defining this term in the initial post.

Also, we’ve posted recent video clips which suggest Gingrich has not been fully candid regarding the work he did for Freddie Mac here and here. As I said elsewhere, either Gingrich knew Freddie Mac’s lending practices were contributing to an unsustainable housing bubble headed for collapse, as he now claims, and yet accepted money to publicly defend them anyway. Or he is now stretching the truth about his assessment of Freddie Mac’s problems at the time, and the advice he privately gave them. Neither of these scenarios is very good.

 

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