Five Questions with Jim Parrott

Jim Parrot’s misdeeds relating to the Fanniegate scandal are beginning to see the light of day.  The following is an interview Mr. Parrott did in March 2014. 


Five Questions with Jim Parrott, senior fellow, the Urban Institute


Jim Parrott, former economic adviser to President Obama, left the White House earlier this year to join the Urban Institute as a senior fellow, and to start Falling Creek Advisors, which provides financial institutions with strategic advice on housing finance issues. In the White House, Parrott served as a senior advisor with the National Economic Council (NEC). Prior to joining the NEC, Parrott was counsel to the secretary of the US Department of Housing and Urban Development (HUD).

Among Parrott’s publications for the Urban Institute is a paper, “Opening the Credit Box,” co-authored with Mark Zandi of Moody’s Analytics. It makes the argument that the country’s long-term economic health may hinge on easing mortgage-lending standards in ways that extend loans to more creditworthy borrowers. The Score connected with Parrott recently in Washington, D.C., and he graciously agreed to answer some questions about the paper, and to share his perspective on other pressing issues. [Note that our conversation took place shortly before U.S. Senate Banking Committee leaders released their proposed legislation to overhaul the mortgage finance market on March 16.]

1) Why have lenders been reluctant to expand access to mortgage credit, and do you see the credit box opening over the next year?

There are several factors that have been holding back access to credit in recent years. First, there is a general reticence by larger institutions to take on credit risk after coming through a credit-driven crisis. It is just harder these days for the mortgage banker to go to their bank’s chief risk officer (CRO) for more flexibility to take on risk, given that the CRO is likely still working through the damage that the last expansion of credit risk did to their institution.

Second, there are significant costs associated with servicing non-performing loans. Not only is it roughly ten times more expensive to service a non-performing loan than one in which the borrower continues to pay on time, but lenders today face increasing reputational and legal risk in servicing pools containing significant numbers of distressed borrowers. This leaves them wary of expanding their credit box where doing so will eventually leave them with larger numbers of borrowers who need more help hanging on to their homes.

And third (on what could be a much longer list), there is a great deal of uncertainty over the rules in GSE [Government-sponsored enterprise, i.e., Fannie Mae and Freddie Mac] and FHA lending. In particular, it is unclear when and why Fannie, Freddie or the Federal Housing Administration (FHA) will force a lender to take the credit risk back on a loan they have guaranteed or insured for mistakes in underwriting the loan. FHA lenders also have the added risk that the Department of Justice will file a claim for triple damages under the False Claims Act for such mistakes. The uncertainty of what constitutes a mistake makes it difficult for lenders to control this considerable risk through better quality control, so they control it instead by tightening the credit box through which they lend. For more on this, it’s worth taking a look at the paper Mark Zandi and I published back in September, “Opening the Credit Box”.

All of that said, I’m cautiously optimistic that we’ll see the credit box open in the months ahead, if only gradually. The larger institutions are already showing increasing comfort with taking on more risk as the market continues to improve. And while the significant cost of servicing distressed borrowers is not likely to decrease anytime soon, policymakers can make headway in addressing the third driver I mention, put-back uncertainty. FHA has already spent months working with lenders to understand why they are applying credit overlays, and seem to be a few months away from attempting to address the problem. For more on this effort take a look at this piece. And while a similar effort by the GSEs back in late 2012 fell short of expectations, I would expect- or I should say hope- that Director [Mel] Watt will push the GSEs to take another run at addressing the problems there.

2) In what areas do you expect Mel Watt, Director of the Federal Housing Finance Agency, to have the greatest impact?

Director Watt is by nature much more cautious than most appreciate. Unlike his more ardent critics and perhaps some of his most ardent supporters, I don’t see him moving aggressively or controversially in the early months, but taking his time to understand the different perspectives involved on the major issues he faces and seeing where there are areas for consensus on a path forward.

As for the topics he is most likely to focus on, I hope he chooses two areas: the first is expanding access to sustainable credit, which I’ve just explained a bit, and the second is what I think of as near-term GSE reform. There is an important opportunity for FHFA to put the GSEs into a more stable position while in conservatorship and, at the same time, better prepare them for transition to whatever future system Congress ultimately decides on. They can do this by focusing on two areas:

First, they can increase the number and scale of Fannie and Freddie’s risk-syndication pilots. Whatever one’s view of long-term reform, we all agree that it will involve much more private capital ahead of any government risk. So it is critical that we develop a better sense of how to bring in private capital ahead of the government risk. The pilots are designed to do precisely that, but they will only be informative as we increase the scale and range of the pilots involved. Only with multiple iterations of multiple structures can we compare back-end risk syndication through the capital markets and front-end risk sharing through mortgage insurers, for instance. Determining which of these structures works best, and how, is going to be essential to the direction long term reform ultimately takes, so better to begin learning now.

Second, the FHFA can begin to sync up the operations of Fannie and Freddie so that the two begin to function more and more as a single infrastructure for the mortgage market. This is a more efficient way for the enterprises to work while in conservatorship and it will put us in a better position to transition to whatever future system congress decides upon, because that system will inevitably involve a single core operational infrastructure rather than the multiple competing ones we have today (see both Johnson-Crapo and the PATH Act). The common securitization platform is an important first step, but the FHFA can also begin the move towards a single security, a single set of pooling and servicing agreements and even a single framework for master servicing agreements.

But that’s just my wish list. As I said, Director Watt is cautious by nature and, consistent with that, he views his mandate narrowly. So whether he moves on either of these fronts will depend on whether he comes to view access and/or near-term GSE reform as central to his job as a conservator. I am optimistic that he gets there on access, and hopeful that he does on near-term GSE reform.

3) Speaking of reform, now that we have movement the Senate Banking Committee, how do you see the legislative effort on housing finance reform shaping up over the summer?

If Senate Banking can get a bill out of their committee, then things are going to get interesting this summer. If they get it passed with strong bipartisan support in April, which is when Chairman [South Dakota Democrat Tim] Johnson and Ranking Member [Idaho Republican Mike] Crapo are trying to bring it for a vote, then there will be a good deal of pressure for Majority Leader [Nevada Democrat Harry] Reid to bring the bill before the full Senate for a vote. With strong support from the leaders on this topic from both sides of the aisle and the Administration, whatever makes it out of the Banking Committee is likely to have a very good chance of passing out of the Senate.

If that happens, then it would set up a fascinating dynamic with the House. Chairman [of the U.S. House Banking Committee, Texas Republican Jeb] Hensarling has passed a GSE reform bill out of the House Financial Services Committee that reflects the antagonism many House Republicans have for any government support of the market beyond the targeted support provided by FHA, VA and USDA. So they will naturally be suspicious of whatever more moderate bill ultimately comes out of the Senate. However, they are bound to realize that the political momentum on this issue is not in their favor. If we don’t pass something in this congress, it will become increasingly hard to muster the political fortitude to push reform as dramatic as that currently envisioned by the Banking Committee. So if the Senate does manage to pass something, the House will face a choice: either negotiate over the structure by which the Senate proposes to provide broad if remote government support for the market (not over whether there is such support at all as they do now), or allow the current nationalization of the housing finance system to go on indefinitely and run the very real risk that it becomes the new norm.

4) Changing topics a bit, how do you see the QM rule affecting lending in coming months?

I think early on we’ll see the biggest impact on middle class borrowers with anything less than perfect credit. Larger lenders will lend to wealthy non-QM borrowers because they want them as clients for other products. And they’ll lend to those with perfect credit scores because they don’t mind the minimal credit risk on their balance sheet. But those non-QM borrowers who don’t fall into either bucket will not be able to find a loan over the near term.

Hopefully this will change as you see a secondary market develop for these loans, allowing lenders (large and small) to make the loans without holding them in their portfolios. Unfortunately, we’re likely a ways off from that yet, given the frictions that are holding back the return of the PLS [private label securities] market.

5) Since you’ve raised the issue, how do we get private capital flowing back into a robust private label securities market?

This is a good question to ask, not only because it’s important, but also because folks have not been thinking about the issue very clearly in recent years. Most focus on getting the government out of the way, either by pricing them out of the market or lowering the maximum loan-size they can support. The assumption here is that it’s the government’s competitive advantage that is keeping private capital out.

The problem is that there are also other barriers to the re-emergence of a strong private label securities market. After being burned so badly in the downturn, investors don’t trust issuers, the ratings agencies or those that are underwriting the collateral on their investments. In essence, they don’t trust those on whom they depend to understand the credit risk on their investments. Until they do, they won’t step back into the market aggressively and we won’t see a robust PLS market.

So if you pull the government out of the market before you restore that trust throughout the system, you’ll create a credit wasteland beyond the border of government support, not bring private capital back. Fortunately you’re seeing policymakers beginning to think about this the right way. See, for instance, Treasury senior advisor Mike Stegman’s speech in New York a few weeks back.


Timothy Bowler, Part 2

This post is a follow-up to a February 1, 2015 post regarding Timothy Bowler. In that post, there is mention of the revolving door problem between Wall Street and Washington, DC, though it did not mention President Obama’s Executive Order 13490 — Ethics Commitments by Executive Branch Personnel. That Executive Order will be addressed here.

Timothy Bowler had worked for Goldman Sachs prior to working for the Treasury Department, where he worked as Deputy Assistant Secretary for Financial Stability from 2011 to June 2015. Apparently, Mr. Bowler has returned to Goldman Sachs. I personally was unable to verify this fact (although his LinkedIn page states he is currently a Managing Director at Goldman Sachs… not sure if that is updated), but rather rely mainly on what Josh Rosner mentioned in an April 2016 tweet.


Based on Mr. Bowler’s actions, it appears that he violated the Executive Order twice – once upon joining the government and again when he left the government.

The previous February 2015 post had Mr. Bowler describing how Goldman Sachs could take a share of Fannie and Freddie’s business – Mr. Bowler was quoted in a July 2011 article…the same month he went from GS to Treasury.

By now, we know that Tim Bowler was a key architect of the Third Amendment to the PSPAs.

For those who want further proof, Jeff Foster pointed out in his deposition:

“FOSTER: There were a number of people that were working on the PSPAs.

PATTERSON:  And who were they?

FOSTER:  To my knowledge, myself, counsel, Tim Bowler, Michael Stegman, Mary Miller and Adam Chepenik, Beth Mlynarczyk. There were many people working on it.”

Additionally, the record is extensive that proves Mr. Bowler’s focus while at Treasury was his work to put Fannie and Freddie out of business.

The following passage is the Exec Order than banned Mr. Bowler’s activities:

  1. Revolving Door Ban   All Appointees Entering Government. I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts.

The above passage referred to Tim Bowler’s actions when he joined the government. However, Mr. Bowler is also apparently in violation of the next two passages, as well which relates to his departure from his high-ranking government position.

  1. Revolving Door Ban   Appointees Leaving Government. If, upon my departure from the Government, I am covered by the post employment restrictions on communicating with employees of my former executive agency set forth in section 207(c) of title 18, United States Code, I agree that I will abide by those restrictions for a period of 2 years following the end of my appointment.
  1. Revolving Door Ban   Appointees Leaving Government to Lobby. In addition to abiding by the limitations of paragraph 4, I also agree, upon leaving Government service, not to lobby any covered executive branch official or non career Senior Executive Service appointee for the remainder of the Administration.

The White House visitor log shows that Tim Bowler has attended several meetings regarding housing finance. These records are for 2015 — the 2016 log will not be released until January 2017. The log shows that Mr. Bowler visited the White House seven times from when he left the government in June 2015 to December 31, 2015. Mr. Bowler was even a guest of the Obamas for a large Thanksgiving celebration on November 28, 2015.

The other six meetings were hosted by the National Economic Council (NEC), the White House group responsible for housing finance (and where Michael Stegman worked while at the White House, after his Treasury position).

Mr. Bowler met with Adrienne A. Harris, Special Assistant to the President for Economic Policy, National Economic Council at the White House on October 13, 2015.

Mr. Bowler returned two days later to meet with NEC staff again on October 15, 2015. This time, Mr. Bowler was accompanied by Adam Chepenik, Deputy Director at U.S. Department of the Treasury. Mr. Chepenik was a co-author of the Third Amendment.

On several occasions (10/27, 11/16, 12/1 and 12/16) large groups of attendees, including Tim Bowler, met with NEC staff.

Here is a sampling of attendees at one meeting (11/16):

Elaine Buckberg, Stephen Campbell and Julian Colbert (Assistant Secretary for Legislative Affairs) from Treasury. Plus, two attorneys from Treasury — Brendan Crimmins and Mark Kaufman.

Monique Rollins, Director of Capital Markets at Treasury (who reported to Tim Bowler when he was at Treasury)

Ms. Rollins gave a presentation in February 2016 outlining Treasury’s commitment in revitalizing the private label securitization mortgage market (if you’re keeping score at home more PLS likely means less Fan/Fred business; more PLS means more business for Tim Bowler’s GS).

Also from Treasury: Mark McArdle, Office of Financial Stability and Deputy Assistant Secretary Housing & TARP; Glen Sears, Deputy Assistant Secretary for Legislative Affairs Housing, Banking and Finance; and Sam Valverde, Senior Advisor to the Under Secretary for Domestic Finance.

From HUD: Edward Golding, (formerly from Urban Institute and FMCC); Thomas Heinemann, Senior Legislative Advisor; Benjamin Metcalf; Erika Moritsugu and Theodore Tozer, President of Ginnie Mae (likely recipient of Fan/Fred business if they were wound down)

Two former government officials were also at this meeting, which could indicate that they too violated the Revolving Door executive order:

Olga Gorodetsky, Managing Director, MAX Exchange (Mortgage Asset Exchange)– former Senior Policy Advisor at Treasury – left July 2015

Beth Mlynarczyk, VP Two Harbors, A REIT company – former Senior Advisor to the Counselor on Housing Finance Policy at Treasury until 2014

Each of the other meetings listed above that Mr. Bowler attended were similar as far as 20+ attendees of high-level current and/or former government officials.

This blatant disregard for the law is disturbing. Everyone attending these meetings would have known that Tim Bowler was breaking the law by his presence…especially the Treasury lawyers who attended the meetings with him. Those lawyers, and everyone else present, participated in this legal wrongdoing.

One meeting, on 10/27/15, Karen Dynan was in attendance. Dr. Dynan, Assistant Secretary for Economic Policy, is a very high-ranking Treasury official. Incredible…

It is obvious that no government official is concerned with either directly violating this Executive Order or indirectly assisting the violation by participation. This revolving door executive order takes two to tango, right? One to violate and the other to allow violation…

Perhaps these activities are a sampling of the general view of Administration officials that they are untouchable… above the law. No oversight department or agency will go after any other executive branch official.

And it’s clear that no legislative oversight committee is interested in holding executive branch officials accountable.

Perhaps our last hope is the judicial branch…

And as far as the Fourth Estate, the country’s Media, there exist fewer investigative journalists that pursue these types of stories.

If a Fifth Estate exists it would likely be the Banking and Financial Elite — that appear to have an omnipotent hidden hand — that control everything in this country. Could this oligarchy be the source that offers unlimited protection to government officials’ wrongdoing?

Would this Fifth Estate government official protection (sound like the Mafia?) extend to all wrongdoers in Fanniegate? It may be the only explanation of why so many (revolving door) officials feel so comfortable breaking so many laws…

Or can those of us that know the truth stand up to Goliath?

Ugoletti Deposition Highlight

BY MR. THOMPSON: Q. Okay. Now, you did not raise the topic of the Net Worth Sweep with the companies until just a couple of days before August 17th; is that right?

UGOLETTI: I do not recall ra- — I did not raise the topic with them. I’m not sure when Acting Director — I can’t, on this time line, I can’t recall when Acting Director DeMarco actually — and I’m pretty sure he called both companies and talked them through it. They did get a copy of what became close — what became the final version to review. But that’s, that’s — in terms of the time line, that’s as far as I can remember.

BY MR. THOMPSON: Q. But they weren’t involved in the negotiations over the Net Worth Sweep, were they?

A. No. They weren’t involved in negotiations over the PSPAs or any of the amendments to the PSPAs, or this amendment to the PSPA.

Q. But this amendment to the PSPA was driven by a perceived problem, right?

BY MR. THOMPSON:  Q. A problem that their funding commitment might be exhausted, right?

A. Right, and you’ve showed me enough of their views on what they thought the base case looked like, so why — what — so I understand what their views were.

Q. Okay. But my question is: Why not talk to them and see if they have thoughts on whether there are different alternatives to solve this problem?

A. Just not an issue that we would talk to the companies about.

Q. You didn’t value their opinion?

UGOLETTI: We valued their opinion and, their opinion and understand what their opinion is, I understand it.

BY MR. THOMPSON: Q. Okay. What was their reaction when they told all of their income would be swept to the federal government?

UGOLETTI: I don’t, I don’t recall a specific reaction that I could sit here and say —

BY MR. THOMPSON: Q. Well, a —

A. — this, this CEO said that, that CEO said that, I don’t recall, I don’t recall a specific one.

Q. Do you have a recollection of the general reaction?

A. Well, I think their general reaction was they probably were not too happy about it.

Q. Why not?

A. Well, in many camps within Fannie Mae and Freddie Mac, I mean, I think there were people, they, they certainly never liked the Treasury Department saying that they were going to be wound down. They  didn’t want to be wound down, right. You don’t want to be wound down. You want to be Fannie Mae and Freddie Mac. So to the extent that they perceived this as further somehow taking that possibility away, they might not have been very happy about it.


When it comes to Mr. Ugoletti, everyone immediately focuses on the DTAs. That is obviously a big deal.  

However, the above passage is also pretty significant… 

Where in this exchange is there discussion about preserving and conserving the companies’ assets? Where is the intent “…of returning the entities to normal business operations?” (J. Lockhart’s words 9/7/08)

This deposition makes explicitly clear that the Conservator rather worked with Treasury over the boards and senior leaders at Fannie and Freddie.  Remember, the original executive teams were replaced with FHFA hand-picked leaders.  And still, FHFA did not care to consult with the companies’ leadership teams on this vitally important matter.

This part of the deposition is damning evidence that both FHFA and Treasury conspired to defy the laws outlined in HERA. Here is a senior official who worked at FHFA, and Treasury before that, stating their focus was to put Fannie and Freddie out of business.  

And Mr. Ugoletti makes it clear that Treasury was making the decisions regarding Fan and Fred… not the Conservator as required by law.

It is a clear admission of guilt… 

Click to access 13-465-0304-Unsealed-Exhibits-C-through-I.pdf


Foster Deposition Highlight

July 14, 2015 Deposition of Jeff Foster, Senior Policy Advisor at US Treasury 2009 – 2012

Mr. Patterson refers to Pete Patterson of Cooper and Kirk, attorney for plaintiffs

PATTERSON: How did the net worth sweep help achieve the objective of ensuring that the GSEs would be wound down and would not be allowed to return to the market in their prior form?

FOSTER: The net worth sweep and the third — the third amendment supported the wind-down of Fannie Mae and Freddie Mac to allow the size and the scope of the portfolios and guarantee book to be shrunk gradually over time, which would lower/reduce their ability to generate net income, which would reduce their ability to cover fixed income dividend payments and, therefore, the net worth sweep would have supported the execution of that wind-down policy.

PATTERSON: And then it says that feature of the third amendment, I’m assuming says this will help achieve several important objectives, including the objective that we’ve discussed. So I guess my question is, how would moving to the net worth sweep dividend advance the commitment that the GSEs would be wound down and not be allowed to return to the market in their prior form?

FOSTER: So in order to be able to wind down the GSEs in a safe and responsible manner, we needed to be able to reduce — well, Congress or FHFA would have needed to reduce the size and the footprint of the GSEs or Fannie Mae and Freddie Mac’s retained portfolio and guarantee books. That reduction in footprint would reduce their ability to generate net income. Reduce net income generation capacity would reduce its ability to meet any fixed income dividend payments under a variety of — almost under any scenario and, as a result, to be able to support the wind-down, a more flexible dividend structure supported that.

Jeff Foster’s testimony is a clear admission of guilt by clearly stating the purpose of the Third Amendment was to put Fannie and Freddie out of business. 

It is also interesting to see on Mr. Foster’s LinkedIn page that his accomplishment at Treasury was:

“Led policy work to help the housing market recover and reform the housing finance system.”

…he accomplished the housing market recovery and reformed the housing finance system by facilitating the destruction of Fannie and Freddie prior to creating an alternative or replacement system?

Under “Publications” Mr. Foster lists:
Reforming America’s Housing Finance Market
February 2011
White paper Treasury team wrote that continues to be the foundation of housing finance reform

In this paper it states: “Winding Down Fannie Mae and Freddie Mac on a responsible timeline: The Administration will work with FHFA to determine the best way to responsibly reduce Fannie Mae and Freddie Mac’s role in the market and ultimately wind down both institutions, creating the conditions for private capital to play the predominant role in housing finance.”

Is this not further proof that FHFA has not acted independently as mandated by law? Mr. Foster makes clear that the conservator never intended to restore Fannie and Freddie and that FHFA has all along worked hand-in-hand with Treasury to destroy these two privately-owned companies.

What further proof is needed? 

Millionaire Bob Corker



60 Minutes ran a piece about congressional insider trading in November 2011.  While Senator Corker is not mentioned in this video transcript, his practice of high frequency stock trading could perhaps be better understood after reading this post.

(Mr. Corker, also a former mayor of Chattanooga, TN,  has previously been accused of misusing his taxpayer-paid position while mayor for private gain) 

Congress: Trading stock on inside information

Steve Kroft reports that members of Congress can legally trade stock based on non-public information from Capitol Hill

Editor’s Note: The report “Insiders” received quite a reaction the week after it aired. Democratic Congresswoman Nancy Pelosi’s office called the report a “right-wing smear.” While Republican Speaker John Boehner’s office called his inclusion in the story “idiotic.” But now, at least 93 members of Congress have signed on as cosponsors of the Stock Act, and for the first time the bill has been introduced in the Senate.

Washington, D.C. is a town that runs on inside information – but should our elected officials be able to use that information to pad their own pockets? As Steve Kroft reports, members of Congress and their aides have regular access to powerful political intelligence, and many have made well-timed stock market trades in the very industries they regulate. For now, the practice is perfectly legal, but some say it’s time for the law to change.

The following is a script of “Insiders” which aired on Nov. 13, 2011. Steve Kroft is correspondent, Ira Rosen and Gabrielle Schonder, producers.

The next national election is now less than a year away and congressmen and senators are expending much of their time and their energy raising the millions of dollars in campaign funds they’ll need just to hold onto a job that pays $174,000 a year.

Few of them are doing it for the salary and all of them will say they are doing it to serve the public. But there are other benefits: Power, prestige, and the opportunity to become a Washington insider with access to information and connections that no one else has, in an environment of privilege where rules that govern the rest of the country, don’t always apply to them.

Most former congressmen and senators manage to leave Washington – if they ever leave Washington – with more money in their pockets than they had when they arrived, and as you are about to see, the biggest challenge is often avoiding temptation.

Peter Schweizer: This is a venture opportunity. This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family.

Peter Schweizer is a fellow at the Hoover Institution, a conservative think tank at Stanford University. A year ago he began working on a book about soft corruption in Washington with a team of eight student researchers, who reviewed financial disclosure records. It became a jumping off point for our own story, and we have independently verified the material we’ve used.

Schweizer says he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.

Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it’s not illegal, but I think it’s highly unethical, I think it’s highly offensive, and wrong.

Steve Kroft: What do you mean honest graft?

Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.

Kroft: So congressman get a pass on insider trading?

Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is– is considering not reimbursing for a certain drug that’s market moving information. And if you can trade stock on– off of that information and do so legally, that’s a great profit making opportunity. And that sort of behavior goes on.

Kroft: Why does Congress get a pass on this?

Schweizer: It’s really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they’ve conveniently written them in such a way that they don’t apply to themselves.

The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.

Schweizer: We know that during the health care debate people were trading health care stocks. We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on.

In mid September 2008 with the Dow Jones Industrial average still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed door briefings with congressional leaders, and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Representative Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman.

Schweizer: These meetings were so sensitive– that they would actually confiscate cell phones and Blackberries going into those meetings. What we know is that those meetings were held one day and literally the next day Congressman Bachus would engage in buying stock options based on apocalyptic briefings he had the day before from the Fed chairman and treasury secretary. I mean, talk about a stock tip.

While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.

Congressman Bachus declined to talk to us, so we went to his office and ran into his Press Secretary Tim Johnson.

Kroft: Look we’re not alleging that Congressman Bachus has violated any laws. All…the only thing we’re interested in talking to him is about his trades.

Tim Johnson: Ok…Ok that’s a fair enough request.

What we got was a statement from Congressman Bachus’ office that he never trades on non-public information, or financial services stock. However, his financial disclosure forms seem to indicate otherwise. Bachus made money trading General Electric stock during the crisis, and a third of GE’s business is in financial services.

During the healthcare debate of 2009, members of Congress were trading health care stocks, including House Minority Leader John Boehner, who led the opposition against the so-called public option, government funded insurance that would compete with private companies. Just days before the provision was finally killed off, Boehner bought health insurance stocks, all of which went up. Now speaker of the House, Congressman Boehner also declined to be interviewed, so we tracked him down at his weekly press conference.

Kroft: You made a number of trades going back to the health care debate. You bought some insurance stock. Did you make those trades based on non-public information?

John Boehner: I have not made any decisions on day-to-day trading activities in my account. And haven’t for years. I don’t– I do not do it, haven’t done it and wouldn’t do it.

Later Boehner’s spokesman told us that the health care trades were made by the speaker’s financial adviser, who he only consults with about once a year.

[Peter Schweizer: We need to find out whether they’re part of a blind trust or not.]

Peter Schweizer thinks the timing is suspicious, and believes congressional leaders should have their stock funds in blind trusts.

Schweizer: Whether it’s uh– $15,000 or $150,000, the principle in my mind is that it’s simply wrong and it shouldn’t take place.

But there is a long history of self-dealing in Washington. And it doesn’t always involve stock trades.

Congressmen and senators also seem to have a special knack for land and real estate deals. When Illinois Congressman Dennis Hastert became speaker of the House in 1999, he was worth a few hundred thousand dollars. He left the job eight years later a multi-millionaire.

Jan Strasma: The road that Hastert wants to build will go through these farm fields right here.

In 2005, Speaker Hastert got a $207 million federal earmark to build the Prairie Parkway through these cornfields near his home. What Jan Strasma and his neighbors didn’t know was that Hastert had also bought some land adjacent to where the highway is supposed to go.

Strasma: And five months after this earmark went through he sold that land and made a bundle of money.

Kroft: How much?

Strasma: Two million dollars.

Kroft: What do you think of it?

Strasma: It stinks.

We stopped by the former speaker’s farm, to ask him about the land deal, but he was off in Washington where he now works as a lobbyist. His office told us that property values in the area began to appreciate even before the earmark and that the Hastert land was several miles from the nearest exit.

But the same good fortune befell former New Hampshire Senator Judd Gregg, who helped steer nearly $70 million dollars in government funds towards redeveloping this defunct Air Force base, which he and his brother both had a commercial interest in. Gregg has said that he violated no congressional rules.

It’s but one more example of good things happening to powerful members of Congress. Another is the access to initial public stock offerings, the opportunity to buy a new stock at insider prices just as it goes on the market. They can be incredibly lucrative and hard to get.

Schweizer: If you were a senator, Steve, and I gave you $10,000 cash, one or both of us is probably gonna go to jail. But if I’m a corporate executive and you’re a senator, and I give you IPO shares in stock and over the course of one day that stock nets you $100,000, that’s completely legal.

And former House Speaker Nancy Pelosi and her husband have participated in at least eight IPOs. One of those came in 2008, from Visa, just as a troublesome piece of legislation that would have hurt credit card companies, began making its way through the House. Undisturbed by a potential conflict of interest the Pelosis purchased 5,000 shares of Visa at the initial price of $44 dollars. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House.

Congresswoman Pelosi also declined our request for an interview, but agreed to call on us if we attended a news conference.

Kroft: Madam Leader, I wanted to ask you why you and your husband back in March of 2008 accepted and participated in a very large IPO deal from Visa at a time there was major legislation affecting the credit card companies making its way through the– through the House.

Nancy Pelosi: But–

Kroft: And did you consider that to be a conflict of interest?

Pelosi: The– y– I– I don’t know what your point is of your question. Is there some point that you want to make with that?

Kroft: Well, I– I– I guess what I’m asking is do you think it’s all right for a speaker to accept a very preferential, favorable stock deal?

Pelosi: Well, we didn’t.

Kroft: You participated in the IPO. And at the time you were speaker of the House. You don’t think it was a conflict of interest or had the appearance–

Pelosi: No, it was not–

Kroft: –of a conflict of interest?

Pelosi: –it doesn’t– it only has appearance if you decide that you’re going to have– elaborate on a false premise. But it– it– it’s not true and that’s that.

Kroft: I don’t understand what part’s not true.

Pelosi: Yes sir. That– that I would act upon an investment.

Congresswoman Pelosi pointed out that the tough credit card legislation eventually passed, but it was two years later and was initiated in the Senate.

Pelosi: I will hold my record in terms of fighting the credit card companies as speaker of the House or as a member of Congress up against anyone.

Corporate executives, members of the executive branch and all federal judges are subject to strict conflict of interest rules. But not the people who write the laws.

Schweizer: If you are a member of Congress and you sit on the defense committee, you are free to trade defense stock as much as you want to if you’re on the Senate banking committee you can trade bank stock as much as you want and that regularly goes on– in– in all these committees.

Brian Baird: There should only be one thing in your mind when you’re drafting legislation, ‘Is this good for the United States of America?’ That’s it. If you’re starting to say to yourself ‘how’s this going to affect my investments,’ you’ve got– you’ve got a mixed agenda and a mixed purpose for being there.

Brian Baird is a former congressman from Washington state who served six terms in the house before retiring last year. He spent half of those 12 years trying to get his colleagues to prohibit insider trading in Congress and establish some rules governing conflicts of interest.

Baird: One line in a bill in Congress can be worth millions and millions of dollars. There was one night, we had a late, late night caucus and you could kind of tell how a vote was going to go the next day. I literally walked home and I thought, ‘Man, if you– if you went online and made– some significant trades, you could make a lot of money on this.’ You– you could just see it. You could see the potential here.

So in 2004, Baird and Congresswoman Louise Slaughter introduced the Stock Act which would make it illegal for members of Congress to trade stocks on non-public information and require them to report their stock trades every 90 days instead of once a year.

Kroft: How far did you get with this?

Baird: We didn’t get anywhere. Just flat died. Went nowhere.

Kroft: How many cosponsors did you get?

Baird: I think we got six.

Kroft: Six doesn’t sound like a very big amount.

Baird: It’s not, Steve. You– you could have– ‘National Cherry Pie Week’ and get 100 cosponsors.

When Baird finally managed to get a congressional hearing on the Stock Act, almost no one showed up. It’s reintroduced every session, but is buried so deep in the Capitol we had trouble finding congressmen who had even heard of it.

Kroft: Have you ever heard of the Stock Act?

Steve Palazzo: The what?

Kroft: The Stock Act. Do you know anything about it?

Congressman: No.

Kroft: Congressman. Congressman. Congressman.

Congressman Quayle: I haven’t heard about that one yet.

Kroft: Have you ever heard of something called the Stock Act?

Congressman Watt: No.

Male voice: I’ve heard about, but not. I can’t say it’s an issue I’ve spent a lot of time on.

Male voice: I would have no problem with that.

Kroft: Okay.

Male voice: But then again I am a big fan of, you know, instant disclosure on almost everything.

Kroft: They’re looking for co-sponsors.

Male voice: And yet, I’ve never heard of it.

Baird: When you have a bill like this that makes so much sense and you can’t get the co-sponsorships, you can’t get the leadership to move it, it gets tremendously frustrating. Set aside that it’s the right thing to do, it’s good politics. People want their Congress to function well. It still baffles me.

But what baffles Baird even more is that the situation has gotten worse. In the past few years a whole new totally unregulated, $100 million dollar industry has grown up in Washington called political intelligence. It employs former congressmen and former staffers to scour the halls of the Capitol gathering valuable non-public information then selling it to hedge funds and traders on Wall Street who can trade on it.

Baird: Now if you’re a political intel guy. And you get that information. Long before it’s public. Long before somebody wakes up the next morning and reads or watches the television or whatever, you’ve got it. And you can make real– real-time trades before anybody else.

Baird says its taken what would be a criminal enterprise anyplace else in the country and turned it into a profitable business model.

Baird: The town is all about people saying– what do you know that I don’t know. This is the currency of Washington, D.C. And it’s that kind of informational currency that translates into real currency. Maybe it’s over drinks maybe somebody picks up a phone. And says you know just to let you know it’s in the bill. Trades happen. Can’t trace ’em. If you can trace ’em, it’s not illegal. It’s a pretty great system. You feel like an idiot to not take advantage of it.

Tara Helfman


Yale Law School graduate and Associate Professor at Syracuse University College of Law Tara Helfman has written about the conservatorships of Fannie Mae and Freddie Mac on several occasions.  The following is a sampling of her work:

May 2, 2016: Was the Fannie/Freddie ‘Death Spiral’ All a Mirage?

“Judge Sweeney’s decision to remove the “Protected Information” designations from the documents was a restrained and measured move that will have far-reaching implications for the GSEs and for the rule of law generally. And if the first round of public disclosures is any indication of what is to come, public officials will have a lot to answer for in the way they have executed their public duties through the GSEs.”

March 11, 2016: Ninth Circuit Provides New Ammunition To Fannie And Freddie Shareholders

“By ruling that Fannie and Freddie are private companies, the Ninth Circuit has opened the door for shareholders to hold the companies’ boards accountable for their breach of these obligations. If the profit sweep does not amount to self-dealing by a fiduciary, it is difficult to imagine what would. Government accountability is on the line. With its latest holding on the nature of the GSEs as private companies, the Ninth Circuit has come one step closer to putting an end to the Treasury Department’s charade.”

January 11, 2016: How the Feds Abuse Fannie and Freddie

“The gross mishandling of the conservatorship of Fannie and Freddie represents one of the most stunning abuses of executive power in recent memory. Mirroring the Federal Deposit Insurance Corp. statute on which it was modeled, the Housing and Economic Recovery Act provided an explicit mandate that the government put the enterprises on a sound and solvent footing. In fact, the opposite has occurred, and the enterprises are being deliberately held at the brink of insolvency — the GSEs have become an ATM for the U.S. Treasury.”

October 8, 2015: Tearing down the wall of secrecy

“Thankfully, Judge Sweeney has been chipping away at the government’s attempts to build a wall of secrecy around its financial decisions.  In late July of this year, she permitted Fairholme to use information that the government sought to keep secret as “protected information” in its shareholder lawsuit.

In the short term, Judge Sweeney’s ruling will help throw much-needed daylight on the government’s financial policies.  In the long term, it will send a message to future administrations about transparency and accountability in a free market economy: our markets are a lot more resilient than politicans [sic] think.”

August 24, 2015: Property Rights Under Fire: Why the Government Must Compensate Fannie Mae and Freddie Mac’s Shareholders

“If the courts deny the plaintiffs compensation for the property the government has taken, they would set a dangerous and self-defeating precedent. They would deter prospective investors from taking a risk on GSEs, making it impossible for the government to marshal the energy and ingenuity of the private sector to serve the public interest. Moreover, by allowing the government to keep its thumb on the scales in its dealings with private investors, the courts would hollow out a key constitutional safeguard of private property rights.”