What would Freddie Mac have been doing in those years that Newt Gingrich was on the payroll as a consultant?
First, to be clear, Gingrich has been adamant that he did not lobby while working for Freddie Mac. And Peter Wallison, the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute, notes that Gingrich was just one of many, many D.C.ers on the Fannie and Freddie train.
“Both Fannie and Freddie paid a lot of people to maintain their franchise,” Wallison says. “Every lobbyist in town was working for one of the two of them. They had people, very well known people, Nobel laureates and so forth, who wrote papers for them extolling their work in the mortgage world and in the housing world and assuring Congress that they were not any risk to the taxpayers.”
“They spread around a lot of the money that they were making in order to assure themselves they would not going to lose support in Congress for their portfolios principally,” Wallison adds.
For Freddie Mac and Fannie Mae in the past decade, a top concern was ensuring that Congress did not start regulating how many mortgages the companies were allowed to hold. A 2005 piece by Wallison shows the stakes Fannie and Freddie faced then:
Thus, as early as February 2004, Greenspan was telling the Senate committee members that their search for a world class regulator would not produce the reduction in systemic and other risk that they had identified as their goal. Indeed, tighter regulation might make the problem worse. The only way to reduce this risk, he pointed out, was to reduce the size of the GSEs’ portfolios of mortgages and MBS [mortgage-backed securities]. …
After the Greenspan testimony, however, that issue suddenly achieved currency, with lawmakers in both the House and Senate saying that they intended to look carefully at whether such a provision should be included in the legislation they were drafting.
The sudden appearance of this new threat changed the attitude of the GSEs toward the legislation. Although they had begun 2005 offering conciliatory statements and suggesting that they had no serious problems with the regulatory proposals that Congress was then contemplating, the GSEs were clearly alarmed by the idea that their portfolios might be limited or reduced. …
But a serious proposal to limit the size of their portfolios is of a different order entirely than mere enhanced regulation. Although the exact number is difficult to determine, the GSEs’ mortgage portfolios may provide as much as 85 percent of their profits. This seems to be a reasonable estimate, because their net interest income–the amount they earn on the difference between their borrowing costs and the yield on the mortgages and MBS they hold–is about $23 billion, while their fee income from the issuance of MBS is approximately $4 billion. … In this sense, the long fight to control the GSEs has finally come to a point of real significance; if they lose this argument, they will no longer be the second and fourth largest financial institutions in the United States, or among the most highly profitable companies in the S&P 500. At the same time, they will no longer be creating major risks for the taxpayers and the economy.
According to the Associated Press, Gingrich addressed his connection to Freddie Mac this way today: “It reminds people that I know a great deal about Washington. We just tried four years of amateur ignorance, and it didn’t work very well. So having someone who actually knows Washington might be a really good thing.”
The Associated Press also reported this about Gingrich’s role at Freddie Mac:
Four people close to Freddie Mac say he was hired to strategize with his employer about identifying political friends on Capitol Hill who would help the company through a very difficult legislative environment. All four spoke only on condition of anonymity to discuss the personnel matter freely.
Freddie Mac executives hoped Gingrich’s presence would reflect positively on the company as he circulated among conservative groups and would help build intellectual support within his party, the officials said.