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Richard Baker, Fannie Mae’s lone congressional nemesis for much of the last decade, arrived late to a House Financial Services oversight hearing one Thursday morning last May. The 56-year-old Louisiana Republican had missed his turn for an opening remark, so he strode quickly over to colleague Rep. Christopher Shays (R-Conn.) and quietly asked to borrow his time. Then, talking without notes, and at a pace so rapid it galvanized the packed Rayburn hearing room, Baker let loose, inveighing, among other things, against Fannie Mae’s implicit government support, which lets the giant financial institution borrow money around the world at rates just half a percentage point more than the U.S. Treasury. “Why are they squealing?” he said, referring to Fannie Mae executives upset after the company’s stock price had fallen. “Because they are worried about losing their profit, not about helping poor people get housing. “I have simply just had it,” he continued, according to a transcript of his remarks provided by a lobbyist who attended the hearing. “There is nobody that can convince a rational person that the explicit guarantee, the implicit guarantee, the sideways guarantee, does not in fact result in that enterprise making a huge profit. “If they were ever to lose money, is there a doubt by anyone on this committee that the taxpayer would be called on to pay off that?” The room, says the lobbyist, burst into applause: “Everybody saw, ultimately, that Baker would get his way.” Last month, he very nearly did, after the Office of Federal Housing Enterprise Oversight, or OFHEO, which oversees so-called government-sponsored enterprises like Fannie Mae, issued a scathing 200-page report. It alleged, among other things, that Fannie Mae had deferred half of a $400 million charge, spreading it out against earnings over several quarters. As a result, OFHEO charged, Fannie Mae was able to hit � to the penny � earnings targets triggering the maximum payout available for executive bonuses. Baker’s May 20 tirade crystallized his long-running concerns about Fannie Mae, which, with its smaller corporate cousin, Freddie Mac, owns or guarantees payment on half the nation’s $7.9 trillion in residential mortgages. (Freddie Mac’s own accounting problems came to light last year, resulting in the resignations of its three top executives and the payment of a $125 million fine.) Pressure to maintain double-digit growth rates � from both shareholders and executives � dubious accounting practices, and Fannie and Freddie’s massive involvement in the U.S. mortgage market all create the potential for a “systemic risk,” Baker says now. “You then turn around and look at the history of its regulatory regime, and recognize how dramatically underfunded and significantly understaffed it has been,” he says. Making OFHEO an independent agency, with its own budget, and placing it in the Department of Treasury instead of the Department of Housing and Urban Development, are part of a legislative solution Baker hopes will occur next year, after a similar congressional initiative failed this year. First, though, will be an Oct. 6 hearing before the Financial Services subcommittee that Baker chairs. OFHEO boss Armando Falcon Jr. will testify and show, according to Baker, that Fannie Mae’s alleged financial transgressions are “not an aberrant, unique accounting interpretation, but a culture of mismanagement to represent financials in an inappropriate manner.” Fannie Mae spokesman Chuck Greener declined comment for this story. STORM CENTER Baker sits squarely in the middle of the Fannie Mae storm. His dogged, single-minded determination to bring more accountability to the massive company, the second-largest financial institution in the country, has made him an object of both scorn � critics say he is more interested in good press than good policy � and envy � among supporters who admire his staying power. “It’s a delicate balancing problem, [either] being viewed as a radical on the fringes of responsible government, and flipping over to the other side, where you’re an automatic defender,” Baker says. Elected to Congress in 1986, he has been chairman of the Capital Markets Subcommittee since the Republican takeover of 1995, using his position to take Fannie Mae and Freddie Mac to task at every opportunity. For a decade, it was a lonely crusade. “His was the sole voice for many years, all the way and even after the Freddie Mac scandal,” says James Butera, a partner at Butera and Andrews, who in the past has lobbied for both Fannie Mae and a coalition of financial institutions known as FM Watch, which opposes Fannie Mae’s growing market clout. “He was saying these companies needed additional federal oversight. Now the tide has turned,” says Butera, “and he’s about to be vindicated.” That’s not a term Baker will use. “I don’t want to say ‘vindicated,’ ” he says. “ But I feel as though the work has been justified.” It’s the kind of work that requires a very definitive personality. “He’s pretty intense,” says Rep. Michael Oxley (R-Ohio), chairman of the Financial Services Committee. “But I think that’s a good thing when you’re trying to get something done.” Still, says Oxley, “It’s rare that you see somebody who stays with one issue for as long as he has. A lot of members have short attention spans.” That single-mindedness, of course, has its downside. While virtually every conversation about Baker begins with an acknowledgement of his raw intellect, there is more to successful legislating than the ability to understand complicated financial concepts. “He’s very intelligent, and very involved in the policy process,” says Rep. Barney Frank (D-Mass.), the ranking member of the Financial Services Committee. “The problem is, I think emotionally it’s tough for him to decide to be more collegial. He’s very solipsistic,” says Frank. “And not just with Democrats � with other Republicans as well.” Says Baker: “My political skills are improving. When I got here I was not the most adept political figure in the world.” But he is learning. It is no secret that Baker has his eye on the chairmanship of the Financial Services Committee, which will open up in January 2007, when GOP-imposed term limits force Oxley to step down. Like many members of the House Financial Services Committee, he receives the bulk of his campaign money from the finance, insurance, and real estate industries. Data from the nonpartisan Center for Responsive Politics show that as of Sept. 13, that sector had contributed just more than half of the $961,669 Baker had so far raised during this campaign cycle. SON OF A PREACHER MAN The son of a Methodist minister, Baker, who represents Baton Rouge, graduated from Louisiana State University with a degree in political science. He was married at 22. His mother-in-law was a longtime local political operative: “She got me putting up yard signs and the usual customary things.” In 1972, when he was 24 and starting a career as a residential real estate developer, Baker ran and won an open seat in the Louisiana Statehouse against six other contestants, all of whom were older. “I walked every door in the district twice,” he says. “I spent $2,600 to win my first race.” Baker spent 14 years in the Louisiana Legislature, a part-time job that allowed him to continue his career as a developer. While there, he took on a subject as freighted with power and influence on the state level as anything he has tackled in Washington: the Louisiana Department of Transportation and Development. There, he helped make fundamental changes in the way transportation projects were awarded, establishing minimum objective criteria for funding rather than relying on the whim of the governor. “Richard was one of the young Turks who came in as part of a group of reform candidates in 1972, along with [future Rep. Billy] Tauzin,” recalls Wallace Henderson, who was counsel to two Louisiana Statehouse committees in the 1970s and later worked for Tauzin in Washington. Henderson is now a lobbyist in D.C. with Loeffler Jonas & Tuggey. “The Department of Transportation was a no-man’s land back in the 1970s, as a lot of Louisiana politics was, and Richard came in and tackled the job, and created a hell of a credible department. They knew he was looking at them,” says Henderson. In 1986, Baker won the vacant House seat in Louisiana’s Sixth District, garnering 50.3 percent of the vote to defeat state Senate President Pro Tem Thomas Hudson (D), now a lobbyist in the D.C. office of Brownstein Hyatt & Farber. A year earlier, Baker had switched to the Republican Party, in part because the GOP saw him as the best chance to retain the seat of Henson Moore, who was making an ultimately unsuccessful bid for the Senate seat of Russell Long against Sen. John Breaux (D). “Ronald Reagan was asking me, and Edwin Edwards was pushing me,” Baker says, referring to four-term Gov. Edwin Edwards (D-La.), now serving a 10-year prison term on racketeering charges. SHAPED BY SCANDAL In one respect, Baker’s obsession with Fannie Mae and Freddie Mac’s fiscal stability � and the economic consequences for U.S. taxpayers if there is ever a systemic failure � can be traced back to his experiences as a developer in Louisiana, where the savings and loan crisis hit particularly hard. “Fortunes were lost, and that was aggravated by the actions of the federal government, by the Resolution Trust Corporation,” he remembers, referring to the federal agency created in 1989 to dissolve problem thrifts. By 1996, a year after Baker had been chairman of the Capital Markets subcommittee, Fannie Mae executives had their eye squarely on the member from Baton Rouge. On Feb. 28, 1996, then-Fannie Mae chairman and chief executive James Johnson organized a fund-raiser for Baker at his home. “It was an effort to provide what I would call introductory political work between the government relations people and me as a relatively unknown member,” recalls Baker. Trouble was, Baker wasn’t able to attend. But a mention of Johnson’s fund-raiser for Baker still made The Washington Post. Baker, says one lobbyist who knows him well, was apoplectic. “There was this implication that Baker’s for sale, and that somehow I was consorting with the enemy,” says Baker. “It was the usual Fannie way of working things. They’re always looking for magic keys.” The incident, he says, “regalvanized my concern.” In 1996, the year Baker assumed the subcommittee chairmanship, Fannie Mae hired away his legislative director, Duane Duncan, now Fannie Mae’s chief lobbyist. Baker’s former chief of staff, Tim Carpenter, is also on Fannie Mae’s payroll, working in Fannie Mae’s Louisiana Partnership office. Another ex-Baker chief of staff, Pat Cave, joined the Federalist Group in 2003, where he lobbies for Freddie Mac. But the hires, Cave says, seem to make little difference, at least if the intention is to draw Baker off his mission. “It’s like, well, you have to support your family,” says Cave. “It’s never personal.” Though it’s unclear where the OFHEO report � and an investigation by the Securities and Exchange Commission � will lead, Baker already has another target in his sights. “My concern now is the rating agencies, the Fitches, the Moody’s, the Standard & Poor’s. There’s no standard by which you become a recognized rating agency, no methodology to decommission one. “We take it on good faith, these companies’ representations,” Baker says, adding: “In the old days, one shark was eating another on Wall Street. But when the sharks are eating the minnows, that’s when we have a problem.”

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