Dems, GOP resume battle over Fannie’s, Freddie’s role in crisis

Members of the House from both parties grilled former executives of Fannie Mae and Freddie Mac on Tuesday during a panel hearing, but Democrats insisted the mortgage giants were not to blame for the sub-prime crisis rocking the economy.

Republicans countered that Fannie and Freddie were the primary actors in the housing crisis that has led to job losses and a plummeting stock market.

{mosads}“We have before us some of the perpetrators of the financial meltdown,” said Rep. John Mica (R-Fla.).

The standoff occurred at a long-awaited House Oversight and Government Affairs Committee hearing on Fannie and Freddie, which had been postponed until after the election.

Rep. Henry Waxman (D-Calif.), in his last hearing as the committee chairman, pointed to documents that he said showed Fannie and Freddie executives had ignored warnings from their advisers that they were making too many risky loans

“These documents show that the companies made irresponsible investments that are now costing federal taxpayers billions of dollars,” Waxman said.

Waxman, however, said that Wall Street banks — not the mortgage giants — were the cause of the economic crisis. “Fundamentally, they [Fannie and Freddie] were following the market, not leading it,” he said.

Other Democrats on the panel followed Waxman’s lead.

“Fannie and Freddie would be in trouble today even if they hadn’t been involved in sub-prime loans,” said Rep. Paul Kanjorski (D-Pa.).

Republicans, however, released a memo that called Fannie and Freddie “primary actors in driving up home prices and driving mortgage lending standards downward, causing the financial crisis.”

Rep. Christopher Shays (R-Conn.), who lost his reelection bid in November, was especially critical of how Fannie and Freddie lobbied Congress to avoid stricter regulation. Over a 10-year period, the two companies spent $175 million on lobbying efforts.

Shays said that he was shocked that a “quasi-governmental company felt it needed to manipulate Congress. It is almost surreal to be at this hearing and to hear you.”

Republicans and Democrats have sparred for months over the role Fannie and Freddie played in the financial crisis, with House Republicans pushing for hearings. They saw the companies as a weak point for Democrats, whom they said pushed Fannie and Freddie to make loans to consumers who could not pay them back.

Before the election, Democrats did hold hearings on other companies caught up in the spiraling market, including insurance giant American International Group and Lehman Brothers, an investment bank. But Waxman put off a hearing with Fannie and Freddie, despite GOP complaints.

Tuesday’s hearing was largely overshadowed by the arrest of Illinois Gov. Rod Blagojevich (D), who allegedly sought bribes to appoint President-elect Obama’s successor in the Senate. Congressional aides and reporters in the room frantically sent messages to colleagues about the arrest during the hearing.

{mospagebreak}Shays said he was not upset the hearing was postponed, but added it “probably should have been the first hearing, not the last” on the crisis.

Both Republicans and Democrats sharply criticized the executives’ decisions and called on them to take responsibility for the collapse of their companies.

“All four of you are in complete denial,” Rep. Darrell Issa (R-Calif.) said. “Your whole excuse is everyone else is doing it. Well, I’m sorry you wanted to be the most popular girl in the school.”

{mosads}Rep. Dennis Kucinich (D-Ohio) said that the executives were refusing to take responsibility even though “the facts show many of you did know the risks and ignored them.”

As one executive began to respond, Kucinich interrupted, “Holy smokes. Are you guys listening to this?”

Rep. Carolyn Maloney (D-N.Y.) questioned the firing of Freddie Mac risk manager David Andrukonis. According to e-mails and other internal documents the committee released, Andrukonis had warned executives about unwise investments as far back as 2004.

“Do you regret firing him?” Maloney asked. “Do you regret the way you led, and I would say mismanaged, your company?”

Richard Syron, Freddie Mac’s former chief executive officer, said other factors led to Andrukonis’s firing. He also defended Freddie’s loan policies.

“In perfect hindsight you always wish that you hadn’t made loans that went bad. But given the information we had at the time, we thought we made the right decisions,” he said.

Shays, who introduced two bills to provide stricter regulation of the companies, told The Hill that he had received personal calls from Fannie Mae CEO Franklin Raines and called the lobbying efforts “about as corrupt as it gets.”

“I felt it was like David against Goliath,” Shays said.

He pointed to the lack of regulation as part of the reason the companies collapsed. “Fannie and Freddie argued against their own best interest,” he said.

He said the companies’ claims that they were only victims of the market’s downturn was false.

Waxman will be chairman of the Energy and Commerce Committee in the next Congress after defeating that panel’s longtime chairman, Rep. John Dingell (D-Mich.), in a post-election contest.

Rep. Edolphus Towns (D-N.Y.) will become the new chairman of the House Oversight Committee, while Issa will be the ranking member following the retirement of Rep. Tom Davis (R-Va.).