Corporate Lobbying's Influence on the Subprime Crisis

So whose fault was it anyway?

God knows there's plenty of blame to go around from greedy businessmen, to irresponsible borrowers, to regulators asleep at the wheel, to a misguided government effort to increase homeownership rates. Now add to that a familiar enemy, the lobbying system, suggests a new working paper from University of Chicago's Atif Mian, Amir Sufi, and Francesco Trebbi.

The researchers looked at how special interests, in this case mortgage companies, spread their money around during the mortgage credit expansion of the early part of this decade. They find that mortgage lobbying from the likes of Fannie Mae, Freddie Mac, and the Mortgage Bankers Association outpaced non-mortgage lobbying in districts with a lot of subprime borrowers:

While the results don't show a direct link between campaign contributions and the move by the government to increase the affordable housing mandate or the lack of lending oversight,

they suggest that special interests recognized a role for the U.S. Congress in the mortgage expansion and directed their efforts towards representatives more likely to gain electorally from it. While the evidence is circumstantial, it is consistent with the view that special interest politics played a role in sustaining (or at least not hindering) the mortgage credit expansion.

The researchers next tried to see if they could find a more direct link between contributions and actual laws that were considered. They turned to the Responsible Lending Act of 2005 which was widely supported by the mortgage industry and opposed by consumer advocacy groups.

The bill had 39 co-sponsors and the researchers find that

mortgage industry campaign contributions predict cosponsorship on the RLA, which is widely believed to be a pro-mortgage industry piece of legislation. These findings demonstrate that mortgage industry campaign contributions have a direct effect on politicians considering regulation on the subprime mortgage market.

But again the evidence is circumstantial. The Responsible Lending Act never actually made it to a House roll call vote because one of the Congressmen who introduced the bill was implicated in the Jack Abramoff scandal.

Finally, the researchers also looked at how elected officials voted on the legislation passed this summer that rescued Fannie Mae and Freddie Mac, provided $300 billion in mortgage guarantees, and gave tax credits to first-time homebuyers. They found that regardless of a politician's ideology, if he or she represented a district with high mortgage default rates, then he or she was much more likely to vote for the bill's passage.

The overall conclusion seems to be that politicians are motivated by money and the threat of losing their job. Who knew?

Comments

[User 265729:]

Interesting chart...

I think the Congressional vote on the $700 billion should be enough evidence who Congress works for. The all voted AGAINST THE WILL OF THEIR CONSTITUENTS.

Here are the turncoats that gave the taxpayers a $700 billion bill. VOTE THEM OUT THIS NOVEMBER!

Republicans, No to Yes (25)

Arizona _ John Shadegg.

Florida _ Vern Buchanan, Ileana Ros-Lehtinen.

Illinois _ Judy Biggert

Louisiana _ Rodney Alexander, Charles Boustany.

Michigan _ Joe Knollenberg, Peter Hoekstra.

Minnesota _ Jim Ramstad.

North Carolina _ Howard Coble, Sue Myrick.

Nebraska _ Lee Terry.

New Jersey _ Rodney Frelinghuysen.

New York _ Randy Kuhl.

Ohio _ Jean Schmidt, Pat Tiberi.

Oklahoma _ Mary Fallin, John Sullivan.

Pennsylvania _ Charles Dent, Jim Gerlach, Bill Shuster.

South Carolina _ Gresham Barrett.

Tennessee _ Zach Wamp.

Texas _ Mike Conaway, Mac Thornberry.

___

Republican Jerry Weller of Illinois was absent Monday. He voted yes on Friday.

___

Democrats No to Yes (33)

Hawaii _ Neil Abercrombie, Mazie Hirono.

California _ Joe Baca, Barbara Lee, Adam Schiff, Hilda Solis, Mike Thompson, Diane Watson, Lynn Woolsey.

Nevada _ Shelley Berkely.

Iowa _ Bruce Braley.

Indiana _ Andre Carson.

Missouri _ Emanuel Cleaver.

Texas _ Henry Cueller, Al Green, Sheila Jackson Lee, Solomon Ortiz.

Maryland _ Elijah Cummings, Donna Edwards.

Arizona _ Gabrielle Giffords, Harry Mitchell, Ed Pastor.

Illinois _ Jesse Jackson Jr., Bobby Rush.

Michigan _ Carolyn Kilpatrick.

Georgia _ John Lewis, David Scott.

New Jersey _ Bill Pascrell.

Ohio _ Betty Sutton.

Massachusetts _ John Tierney.

Vermont _ Peter Welch.

Oregon _ David Wu.

Kentucky _ John Yarmuth.

___

Democrats Yes to No (1)

Washington _ Jim McDermott.

2008 Oct 14 05:02 PM

[joe1:]

and at the end of the day.. a great example how voting is the biggest waste of time. .YOU the voter dont control this country. Big money,PAC, lobby, campaign contributions. Go search youtube or something on a 60 Minutes piece about the drug lobby. Trust me. youll stay at home in November.

2008 Oct 14 06:00 PM

[Jackson Cash:]

I agree with joe1, it is astounding how much influence lobbying has!

I heard from someone (no attribution sorry) that the vast majority of Americans were AGAINST the bailout... my question is does the United States have a double personality? Do these people vote to bail out at work and then no at home?!

Anyone have a credible figure for the power of the people being absolutely ignored by their Congressional representation -- instead being suckered by a "doomsday"scenario from those that created the catastrophe?

Wow.

2008 Oct 14 07:08 PM

[anarchist:]

I think you commenters have the wrong idea about representative Democracy. The idea is that we send to Washington educated people who hire a battery of consultants to read all the stuff they (and we) haven't the time for and assist him or her in making an intelligent vote. He has a term long enough that he supposedly can make independent decisions regardless of the "flavor of the month" ideas of his constituency. He or she is NOT elected to do what is popular at the moment but what they believe is the best for his constituency in the long haul otherwise we might as well put up every law and bill up for popular vote.
That's the idea anyway but where it goes wrong is when, as now the Corporations have bought the vote through campaign contributions and intense pressure of the lobbyist.

2008 Oct 14 07:48 PM

[john s. gordon:]

corporate lobbying wins every time. question is - how to get the legislative process back on track ?
> jack

2008 Oct 15 08:30 AM

[rdr4:]

Anarchist,
The idea behind representative government is that the representatives represent the electorate. Somewhere during the 50's or 60's, the word represent was replaced with lead.
The lobbying system is a system designed to defeat representative government and provide a shortcut to non-voting entities. Expecting the government to eliminate lobbying is the same as expecting a prostitute to give up sex.
If lobbying was illegal and legislators were paid the mean average income of their electorate, we might return to representative government.

2008 Oct 15 11:35 AM