Square In The Middle Of It

http://obsidianwings.blogs.com/obsidian_wings/2008/09/square-in-the-m.html

September 23, 2008

by hilzoy

From the NYT:

"One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCain’s campaign manager, according to two people with direct knowledge of the arrangement.

The disclosure undercuts a statement by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years.

Mr. Davis’s firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the people said.

They said they did not recall Mr. Davis’s doing much substantive work for the company in return for the money, other than speak to a political action committee of high-ranking employees in October 2006 on the approaching midterm Congressional elections. They said Mr. Davis’s firm, Davis & Manafort, had been kept on the payroll because of Mr. Davis’s close ties to Mr. McCain, the Republican presidential nominee, who by 2006 was widely expected to run again for the White House.

Mr. Davis took a leave from Davis & Manafortfor the presidential campaign, but as a partner and equity-holder continues to benefit from its income. No one at Davis & Manafort other than Mr. Davis was involved in efforts on Freddie Mac’s behalf, the people familiar with the arrangement said."

A couple of points: first, the article also says that Davis was hired as a "consultant", not a lobbyist. So if he says that he didn't do any "lobbying work", this is probably true, both in a technical sense (he was a consultant), and, more broadly, in that he doesn't seem to have done much work of any kind. It isn't exactly "straight talk", though. Second, Newsweek writes:

"Davis also said he "had a severed leave of absence" from his lobbying and consulting firm, and "I've taken no compensation from my firm for 18 months." (A campaign spokesman said that Davis receives no partnership distribution under his arrangement)."

I don't know enough about how partnerships work, and what it means to have equity in one, but unless all earnings are fully distributed on an ongoing basis, and Davis' arrangement means that all the money from Freddie Mac was distributed among the other partners, I'm not sure that this matters. Certainly, if Freddie Mac made some asset of mine more valuable, the fact that I did not actually convert that added value into cash and move it into my checking account would not show that I had not profited from the deal.

Third, if the NYT and Newsweek are right to say that Davis did almost no work for Freddie Mac, that (to my mind) makes the story worse, not better. What McCain spends his time railing against on the campaign trail is "the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac." Paying someone to do nothing, because of his "close ties to Mr. McCain, the Republican presidential nominee, who by 2006 was widely expected to run again for the White House", is about as clear an example of what McCain called "the Washington culture of lobbying and influence peddling" as you could ask for.

McCain is absolutely right to condemn it. He was just wrong about who was "square in the middle of it." It wasn't Barack Obama. It was his own campaign manager.