New York Times Reveals a Revolving Door in Housing FinanceTweet
December 9, 2015
The New York Times published a revealing article earlier this week calling attention to the role the revolving door is playing in the mortgage market. As big banks look to steal valuable market share from Fannie Mae and Freddie Mac, they are hiring high-ranking housing finance specialists who circulate between the private sector and public office—specifically the office of Housing and Urban Development (HUD). The Times expresses concern that these individuals, although at times employed by the federal government, never really stop working for big banks and are rewarded with high-paying jobs representing powerhouse firms when they return to the private sector.
The article shows that the policies enacted while these officials held public office favored large banks like the ones they used to work for and would end up returning to. One memo—addressed to then-Treasury Secretary Timothy Geithner by one of his deputies—warned that a major policy recommendation being drafted was “bank-centric” and “could lead to increased concentration in the banking sector and higher costs for borrowers served by smaller institutions.” Unfortunately, the final report only contained the far weaker warning that smaller lenders might have a harder time competing for business.
The use of the Freedom of Information Act revealed that these officials, beyond advocating for big banks while in office, continued to lobby top housing officials after they returned to the private sector.
“This is a classic example of the revolving door at its worst,” former Project On Government Oversight investigator Michael Smallberg told the Times. “When you hear they [big banks] are hiring the key policy makers to represent them, it raises serious questions that these decisions are being made not on the merits but on those personal connections.”
If any of the former officials said anything during meetings with current officials that were “intended to influence government decisions in … matters involving Fannie and Freddie…they violated the [conflict of interest] statute.” That comes from Richard Painter, former chief ethics lawyer at the White House. He believes that, according to 18 U.S.C. § 207, the individuals cited in the article “each have a lifetime ban on representing back to the United States government on either of these two particular party matters involving Fannie and Freddie.”
POGO has historically advocated for tighter controls of the revolving door, including a two-year “cooling off” period during which former employees cannot lobby the agency they just left.
Daniel Van Schooten is a Investigator at the Project On Government Oversight.
Topics: Financial Sector
Authors: Daniel Van Schooten