McCain's Letter "Warning Exactly of This Crisis"

by Jesse Nankin, ProPublica

Yesterday we reported on letters referred to by Barack Obama and John McCain during the second presidential debate. We had Obama's letter, but couldn't find McCain's. Since our post, the McCain campaign has sent us a letter dated May 5, 2006 (pdf), and signed by the senator and 19 other Republicans. It was addressed to the Senate Republican leadership and focuses on Fannie Mae and Freddie Mac.

"We are concerned," the senators wrote, "that if effective regulatory reform legislation for [Fannie Mae and Freddie Mac] is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole." The letter called for the Federal Housing Enterprise Regulatory Reform Act, a bill that had been introduced on Jan. 26, 2005 by Sen. Chuck Hagel (R-NE), to be brought up for debate. About 20 days after he signed the letter, McCain became a co-sponsor of the bill.

Their pleas to rein in these two financial institutes were not unfounded. About six months later, the New York Times reported that Fannie's "accounting improprieties" of several years had resulted in a reduction of its earnings by $6.3 billion.

Whether the letter warned "exactly of this crisis" can be debated. Some argue that Fannie and Freddie were relatively late entrants in Wall Street's enthusiasm for risky mortgages – that they are among the culprits, but not the root cause of the crisis. Others argue that pressure (both from Capitol Hill and Fannie and Freddie) to extend mortgages to those who could not pay for them inflated the housing bubble. But you can judge for yourself. Again, here's the letter.

Cross-posted at ProPublica, America's largest investigative newsroom.