“Crony capitalism” has become a popular buzz phrase when speaking of the bailouts as American taxpayers struggle to make sense of the corrupt relationships that led to the financial crisis.
If you want to know precisely what this phrase means and how it works, just read a blistering new report from Rep. Darrell E. Issa, California Republican, and his House Committee on Oversight and Government Reform, titled, “How Countrywide Used Its VIP Program to Influence Washington Policymakers.”
The report, released earlier this month, provides strong evidence that former Sen. Chris Dodd, Connecticut Democrat, who once was chairman of the powerful Senate Banking and Finance Committee, and current Sen. Kent Conrad, North Dakota Democrat, must have known they were receiving special treatment from Countrywide Financial in the form of sweetheart mortgage deals. The report also “outs” other members of Congress who received special treatment from the mortgage-lending giant in a scandal that emerged back in 2008.
“The committee’s investigation found Countrywide lobbyists and CEO Angelo Mozilo used discounted loans as a tool to ingratiate itself with policymakers in an effort to benefit the company’s business interests,” Mr. Issa said in announcing the report, which documents 29 VIP loans to 12 members of Congress and congressional staff.
Mr. Dodd and Mr. Conrad were perhaps the most visible recipients of those favorable loans. Mr. Dodd used two VIP mortgage loans in 2003 to refinance residences in Connecticut and Washington, D.C., while Mr. Conrad took two loans the following year to refinance his beach house in Delaware and an apartment building in North Dakota (saving more than $20,000 in the process, according to the report).
Why would Countrywide offer such perks to politicians?
According to Mr. Issa, there was a very simple motivation behind the program: To build “good will” with power brokers on Capitol Hill and cast a “wide net of influence” in order to gain favorable treatment in return from Congress. It worked.
For example, the report notes that “on June 17, 2008, the same day he acknowledged for the first time that he was a Countrywide VIP customer, Dodd announced that he was bringing to the Senate floor a housing bailout to help Countrywide and other struggling subprime lenders.”
But according to Mr. Issa, the program also played a “critical part” in blocking efforts to reform the mortgage-lending industry, including the government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac. Countrywide also gave sweetheart deals to top officials at those GSEs, who were the biggest buyers of Countrywide’s dubious mortgage loan products.
In other words, the Friends of Angelo program was far more damaging than the typical quid-pro-quo corrupt Washington arrangement. The program also helped tip the subprime domino into the financial crisis. Four years and many trillions of dollars later, we have yet to recover.
In addition to Mr. Dodd and Mr. Conrad, Mr. Issa’s report implicates a number of other members of Congress who benefited from the Countrywide program. Key congressional staff with significant public policy influence also were invited into Mr. Mozilo’s inner circle of “friends.”
Of course, all of these involved claim they did not know they were part of any special program, despite the fact that correspondence uncovered by Mr. Issa’s committee has the words “VIP TEAM” emblazoned at the top of the letter.
Mr. Issa’s committee should be commended for thoroughly investigating this massive influence-peddling scandal, but it should not have been necessary.
In 2009, the Senate Ethics Committee had all of the evidence it needed to hold accountable Mr. Dodd, Mr. Conrad and other recipients of special treatment from Countrywide. Instead, the Senate Ethics Committee whitewashed the two senators’ Countrywide problems, proving yet again that members of Congress cannot be trusted to police themselves.