Newt Gingrich has a Frannie problem.
The former Speaker of the House used to work for Freddie Mac but is trying to win the nomination of a party that believes that government meddling in the form of the quasi-governmental Frannie, along with laws like the Community Reinvestment Act, were the primary drivers (some say the only drivers) of the housing bubble and, thus, the crisis.
Fortunately for Gingrich, this belief is objectively false. While Fannie and Freddie were bad organizations (bad!) and certainly contributed to the size of the bubble, they did not cause it. The mortgages they bought or guaranteed were far, far better than the private market’s, defaulting at less than one-quarter the rate of private-sector loans. As their market share fell, profit considerations prompted them to buy lots of private-label securities, but never more than a quarter of the total in any given year. Without the depravity of much of the private sector real estate industry from 2004 to 2007, in other words, there would have been no financial crisis.
Unfortunately for Gingrich, the Big Lie, designed to protect the Wall Street banks and mortgage companies that were far and away its most significant actors, has become conventional wisdom in his party.
So what’s a leading candidate for the Republican nomination to do? Make up history to make him look better in light of the baloney about Frannie.
CNBC pressed Gingrich at its GOP debate last week on his stint as a Freddie consultant, and he said this:
“I offered them advice on precisely what they didn’t do,” he said. “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.”
That seemed just a wee bit convenient to Bloomberg News. Go back and read that paragraph again and imagine executives actually saying this to Gingrich. It’s implausible when you think about it, and it fits too neatly with the bank apologists’ line on the crisis.
But it’s no small catch by Bloomberg’s Clea Benson, who made some calls to find out what exactly Gingrich actually told Freddie at the time. It’s not what Gingrich says he told them:
Former Freddie Mac officials familiar with the consulting work Gingrich was hired to perform for the company in 2006 tell a different story. They say the former House speaker was asked to build bridges to Capitol Hill Republicans and develop an argument on behalf of the company’s public-private structure that would resonate with conservatives seeking to dismantle it.
If Gingrich concluded that the company’s business model was at risk and that the housing market was a “bubble,” as he said during the debate, he didn’t share those concerns with Richard Syron, Freddie Mac’s chief executive officer at the time, a person familiar with the company’s internal discussions said.
Perhaps Gingrich really thinks he gave the advice he says he did back then, or maybe it’s just all these people at Freddie whose memory is mistaken.
But it’s worth noting that for true facts to be eclipsed and convenient myth to take hold, the myth has to be supported by fibs and fudges, outright falsehoods, poor memories, and bad history—exactly what the press should be exposing, and exactly what Bloomberg does here.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.