Two things should be clear to anyone trying to figure out the financial crisis. One is that we need to get to the bottom of what caused it and why. The second is that we can’t rely on Congress to conduct such an investigation.
Politicians love to hold hearings when things go wrong. It gives them a chance to look concerned, to preen for the cameras and to attack unsympathetic witnesses -- typically wealthy corporate executives. The main point of these hearings, of course, is to assign blame elsewhere. But any fair investigation will reveal that congressional actions over the years contributed to the crisis.
Rep. Henry Waxman, D-Calif., chairs the House Oversight and Government Reform Committee. On Oct. 6 and 7 he hosted hearings bashing the former CEOs of Lehman Brothers and insurance company AIG. Such a bashing may even be deserved in some cases.
Yet Waxman has declined to even schedule a hearing involving the major culprits in the meltdown, government-sponsored enterprises Fannie Mae and Freddie Mac. (A GSE is a federally chartered corporation that is privately owned, meaning investors get the profits but Uncle Sam shares the risk.)
As housing policy expert Ronald Utt wrote in a Heritage Foundation paper in 2005, “With such market power concentrated in the hands of only two companies, the stability of U.S. financial markets could be undermined by financial problems in just one of them,” warned Utt, who served with the Department of Housing and Urban Development in the 1970s. “Of course, if a bailout ever becomes necessary, the taxpayers could end up paying the bill.” As, indeed, we now are.
Yet Fannie and Freddie evaded attempts to regulate them. A big reason is that they cultivated powerful friends in Congress, such as Sen. Christopher Dodd, D-Conn. As chair of the Senate banking committee, he pocketed more than $165,000 in campaign contributions from people associated with Fannie Mae and Freddie Mac.
Over in the House, the GSEs also enjoyed vocal support. “These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,” Rep. Barney Frank, now head of the House Banking Committee, said in 2003. “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Clearly, these gentlemen cannot credibly lead an investigation into the collapse of the very companies they championed.