Advocate Editorial: Rising Above Party Divide
Advocate Opinion Page Staff
Published: May 23, 2007 With all the talk about the Democratic takeover of the Congress and the relegating of Republicans to the minority, there are still occasions when intelligence and deep knowledge of an issue rise above the partisan divide.
So it was a notable event when U.S. Rep. Richard Baker, R-Baton Rouge, rose Thursday in the House during a battle over an amendment to a major bill regulating government-sponsored enterprises. The GSEs, as they are called, include financial giants providing cash to the U.S. housing markets by bundling mortgages for sale as securities.
The amendment was aimed at restricting the authority of a new, tougher regulator of the GSEs. Pushed by the home-building lobby - a very powerful one, as Baker acknowledged on the floor of the House - the amendment ultimately was passed.
Baker reminded the House about past financial crises and promised to continue to make his case about tougher GSE regulation in the conference committee that will reconcile House and Senate versions of the GSE bill.
"This is a mistake," he said firmly of the amendment.
In a sign of the respect inspired by Baker's long-standing influence in the Financial Services Committee, the new chairman of the committee promised to work with Baker and the U.S. Treasury in the conference committee. The chairman, U.S. Rep. Barney Frank, D-Mass., acknowledged Baker's identification of the risks in the giant housing GSEs - Fannie Mae and Freddie Mac - occurred long before the companies stumbled into recent financial scandals.
"Some of us were not as tuned in as we should have been earlier, and I appreciate that," Frank said to Baker in the House. He promised Baker's concerns would be addressed in the conference committee.
The fact that GSE regulation is even an issue owes to Baker's persistent warning of the threat to the overall financial system that could be caused by mismanagement of the Fannie Mae and Freddie Mac portfolios.
A great deal of the financial backing of U.S. and major foreign banks is in GSE paper. While the new regulator created by the House bill will have authority over the companies, the amendment Baker opposed limits the agency's purview to the soundness of the companies - and not the risks to the larger financial system that a GSE stumble might entail.
"There are billions of dollars of Fannies and Freddies (notes) spread across this economic fabric woven together in an intrinsically complicated manner, and we are going to tell this regulator you can only look through the keyhole, you can't look at the room?" Baker asked. "It makes no sense."
While Baker's view on GSE regulation might not be entirely accommodated by the conference committee, that the House passed the bill at all represents a huge vindication of Baker's often-lonely advocacy.
Fannie Mae in particular was a lavish funder of Washington politicos for years, and its politically connected management was one of the most-powerful lobbies on Capitol Hill when Baker began speaking out about the large GSE portfolios as a "systemic risk" in the global financial system.
Since then, Baker has been joined by the two most recent chairmen of the Federal Reserve, Alan Greenspan and Ben Bernanke, and many others.
The new GSE regulator, even if Baker's view on systemic risk is not fully met in conference, is a big step toward avoiding financial panics in the future.