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Newt Gingrich’s relationship with Freddie Mac -- the Federal Home Loan Mortgage Association -- has become a political briar patch for the former House speaker and Republican presidential candidate. His opponents, including Ron Paul, Michele Bachmann and Rick Perry, cast him as a lobbyist in everything but name who landed over $1.6 million in fees from the one of the biggest players in the home mortgage industry.
Gingrich states flatly he never lobbied on behalf of Freddie Mac, but in the last debate before the Iowa caucuses, Gingrich had to explain another wrinkle in his past dealings with Freddie. One of the panelists asked him about his words from 2007 "I like the GSE, or government sponsored enterprise like Freddie Mac, model."
Gingrich took the broad view to defend his position, saying "when you look for example at electric membership co-ops, and you look at credit unions, there are a lot of government sponsored enterprises that are awfully important and do an awfully good job."
So we ask, was that a fair comparison? Are electric co-ops and credit unions the same as government sponsored enterprises, GSE’s, like Freddie Mac?
There is one similarity between a GSE and a credit union or an electric co-op. Neither pays federal or state income taxes. But Patrick Lavigne, spokesman for the National Rural Electric Cooperative Association (NRECA), said GSE "is not a term that I’ve heard applied to electric coops before."
Nor, as we learned, would he be likely to. The term GSE applies to just a handful of very particular institutions. It takes a specific act of congress to create one, usually to ease the flow of money to a certain industry, like housing or agriculture. Glossaries like Investopedia define GSE’s as "(p)rivately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy."
When the White House submits its annual budget, it includes the GSE’s, and the list isn’t long. There are the Agricultural Credit Bank and Farm Credit Banks, Fannie Mae and Freddie Mac and the Federal Home Loan Banks and the Federal Agricultural Mortgage Corporation. And that’s it. No electric co-ops.No credit unions.
The 2012 White House budget explains that Congress chartered Freddie Mac in 1970 to facilitate "the flow of investment dollars from the capital markets to mortgage lenders and ultimately, to homebuyers."
A credit union or an electric co-op is born completely differently. They come into being only when a group of local investors pool their money.The country’s very first credit union was started in 1908 by a priest in Manchester, N.H., to provide credit to the factory workers in the textile mills. Washington played no role at all.
Later, the federal government offered both funding assistance and regulatory guidelines. Local groups need to apply to a government agency for recognition as a nonprofit, member-owed entity. By the way, that’s another difference. Freddie Mac is owned by stockholders. Co-ops are owned by their members, the people who use them. Levine, with the NRECA, says electric co-ops started in the 1930’s when "farmers would each throw $5 dollars into the hat and then ask Washington for a loan for a transformer or some power lines."
Back then, and today, those loans would come with a very low interest rate but a GSE such as Freddie Mac was treated even more favorably. It was formed with a direct line of credit into the federal Treasury -- upwards of $2 billion. "They could borrow money cheaper than anyone except Uncle Sam himself," said Kathleen Day, a former Washington Post reporter who covered the GSE’s for over two decades.
The deal for Freddie Mac got even better. Thanks to that intimate association with the federal government, Day says "the markets perceived them as something that was backed by Washington and invested at a very low cost ... That’s what allowed it to grow."
We asked the Gingrich campaign to send us any source that describes a credit union or a electric co-op as a GSE. We did not hear back.
John Berlau, a policy director with the Competitive Enterprise Institute, a think tank that supports limited government and free markets, says he knows of no such description. In an email, he wrote "credit union officials I have talked to are fearful that Gingrich's false claim that they are a type of GSE may unjustly harm their image among the public and legislators."
Gingrich spoke of credit unions and electric cooperatives as if they were the same sort of entities as Freddie Mac. We find no support for that and find major differences in how they are created and operate compared with GSEs. Congress created Freddie Mac, as it does every GSE, by passing a specific law to bring it into being. Freddie Mac has stockholders and a direct line of credit with the U.S. Treasury. The term, Government Sponsored Enterprise, applies only to a handful of financial entities listed in the federal budget.
None of those characteristics apply to credit unions and electric cooperatives.
Gingrich was paid by Freddie Mac to provide strategic advice, so he should be familiar with government sponsored entities and know what is and isn’t a GSE. But Gingrich got it wrong twice during the debate in Iowa.
We rule his claim Pants on Fire.
Definition of Government Sponsored Enterprise, Investopedia, accessed Dec. 16, 2011
Public Law No. 91-351, 84 Stat. 450 (creating Freddie Mac), accessed Dec. 16, 2011
White House budget for FY 2012 - Section on GSE’s., accessed Dec. 17, 2011
History of Electric Coops, National Rural Electric Cooperative Association, accessed Dec. 16, 2011
Application for Credit Union Registration, National Credit Union Association, accessed Dec. 18, 2011
Federal Subsidies and the Housing GSE’s, Congressional Budget Office, May 2001, accessed Dec. 18, 2011
Federal National Mortgage Association 10K, Feb. 27, 2008, accessed 12/19/2011
History of Credit Unions in the U.S., American Credit Union Museum, accessed 12/18/2011
Patrick Levine, Spokesperson, National Rural Electric Cooperative Association, interviewed Dec. 16, 2011
Kathleen Day, former Washington Post reporter, interviewed Dec. 16, 2011
John Berlau, Director, Center for Investors and Entrepreneurs, Competitive Enterprise Institute, interviewed Dec. 16 and 17, 2011
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