What do you do if you are Freddie Mac (OTC: FMCC) back in 2006 and your business is under attack by the Bush administration and Federal Reserve Chairman Alan Greenspan? Well, you do what any other company would do. You hire a historian for $300,000.
That's what we learned last week during one of the Republican debates. When former Speaker Newt Gingrich, R-Ga., was asked what he did for the $300,000 he received back in 2006, he replied:
I have never done any lobbying. Every contract was written during the period when I was out of the office, specifically said I would do no lobbying, and I offered advice.
And my advice as a historian, when they walked in and said to me, "We are now making loans to people who have no credit history and have no record of paying back anything, but that's what the government wants us to do," as I said to them at the time, this is a bubble. This is insane. This is impossible.
Wow, $300,000 for the advice of a historian? Yes, it is insane. It is impossible.
Not so fast
The real story, of course, is more complicated than that. In a blog post titled "Freddie Mac Didn't Pay $300K for History Lectures," David Frum, a former speechwriter for President George W. Bush, calls our attention to the following quote from The Associated Press back in 2008:
The Bush administration and Federal Reserve Chairman Alan Greenspan were sounding the alarm about the potential threat to the nation's financial health if the fortunes of the two mammoth companies turned sour. They did eventually, when they took on $1 trillion worth of subprime mortgages and when their traditional guarantee business deteriorated. Commercial banks regarded Freddie Mac and Fannie Mae as competitors and were anxious to pick up business that would result from scaling back the two companies.
Pushing back, Freddie Mac enlisted prominent conservatives, including Gingrich and former Justice Department official Viet Dinh, paying each $300,000 in 2006, according to internal records.
Gingrich talked and wrote about what he saw as the benefits of the Freddie Mac business model.
And the Daily Kos reported back in 2008 that Newt Gingrich's ties to Fannie Mae and Freddie Mac go back to July 1999 when Gingrich was hired by Freddie "to provide strategic counsel on a range of issues." At that time, Fannie Mae also hired Gingrich's former chief of staff Arne Christenson as a senior vice president for regulatory policy. Finally, Bloomberg reported late last night that Gingrich made between $1.6 million and $1.8 million overall in fees during the time that he consulted for Freddie Mac.
Gingrich, of course, wasn't the only one who was raking in the cash by consulting on behalf of one or both of the government-sponsored enterprises -- and the money crossed party lines. According to USA Today in 2008, Fannie Mae's lobbying stable included former Reps. Tom Downey, D-N.Y. and Ray McGrath, R-N.Y. Among Freddie's lobbyists were former Reps. Vin Weber, R-Minn., and Susan Molinari, R-N.Y. In 2006, Freddie Mac paid $11.7 million to 52 outside lobbyists and consultants. For the decade ending in 2006, Fannie and Freddie spent a total of $170 million on lobbying. Considering that taxpayers eventually bailed them out, that was our money.
Historians sure are expensive
The enormous amount of money spent on lobbying both sides of the aisle is absolutely staggering. According to the website OpenSecrets.org, the finance/insurance/real estate sector spent $4,746,995,354 on lobbying from 1998 to 2011. Among the top-spending public companies in the securities and investment area in 2011 were Blackstone Group
So is Gingrich telling the truth when he says he consulted as a historian and not a lobbyist? People don't actually lie in Washington, I've learned. They merely haggle over definitions. Recall when former President Bill Clinton said, "It depends on what the meaning of the word 'is' is."
As a former history teacher who made a tenth (per year) of Gingrich's $300,000 when I taught at Bronx Community College back in the mid-1990s, I'm entirely confident that Freddie Mac wasn't interested in Gingrich's insights on the history of housing policy. Gingrich seems to concede that himself in a recent statement on this subject, when he said that he advised Freddie on its business model.
Really? Is Gingrich an expert on credit risk in addition to the War of 1812? I can almost guarantee you that Gingrich didn't understand very much about the business of a government-sponsored enterprise.
Why doesn't he just admit that Freddie wanted him for his connections and knowledge of how Washington works? The other explanation is simply preposterous. It's one thing to enrich yourself at the public's expense. It's another thing altogether to mislead the American public about your activities on behalf of the government-sponsored enterprises. So, Mr. Gingrich, please tell us the real story.
I've actually sent emails to both Freddie Mac and the Newt Gingrich campaign asking for more details about the "historical" consulting. I'll share those details with all of you when I hear back from them.
If you'd like to stay updated on Wall Street and financial reform, shoot a blank email to email@example.com.John Reeves does not own shares in any of the companies mentioned in this article. You can follow him on Twitter @TMFBane. Motley Fool newsletter services have recommended buying shares of Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.