On June 12, 2008, Citizens for Ethics and Responsibility in Washington (CREW), a prominent “watchdog” group, issued a press release stating “in light of a news report detailing favorable loan terms given to current and former public officials by Countrywide Financial, [CREW] has written to both the Senate and House Ethics Committees asking for investigations into members of Congress that may have received loans in violation of existing gift bans.” Specifically, CREW pointed to media reports that Senators Christopher Dodd (D-CT) and Kent Conrad (D-ND) received preferential treatment under a “V.I.P.” program “that waived points, lender fees and company borrowing rules for prominent people.” CREW explained that “[a]lthough there is no evidence that either Sen. Dodd or Sen. Conrad were aware they were receiving special treatment from Countrywide, their receipt of the unusually favorable loans creates exactly the sort of appearance of impropriety that the gift rule was designed to address.”
A few weeks later, on July 2, the Washington Post reported that Senator Barack Obama (D-Ill.) received a discounted loan from Northern Trust when he purchased his $1.65 million home in Chicago. Like Senators Dodd and Conrad, Senator Obama paid no origination fees or discount points, yet received a below-market interest rate. Like Senators Dodd and Conrad, Senator Obama evidently received better treatment from this financial institution than would have been available to a member of the general public.
Despite these similarities, CREW did not call for an ethics investigation of Senator Obama’s loan. This was no mere oversight on CREW’s part. CREW executive director Melanie Sloan claimed in an interview on CNN that there was a principled distinction between the two situations. “Both Dodd and Conrad were getting special treatment under a program designed to give them special treatment because they were Senators,” she explained, “Senator Obama just got better treatment because he was a wealthy guy.”
This explanation, however, reflects CREW’s spin on the facts, not the facts as they have been reported to date. In the first place, it is somewhat misleading to state that Senators Dodd and Conrad were in “a program designed to give them different treatment because they were Senators.” The Senators were in a program designed to give preferential treatment to certain prominent or well-connected persons. It was not designed specifically for Senators or other members of Congress. While there is evidence that Senators Dodd and Conrad were included in the program (at least in part) because they were Senators, the program was not limited to elected or government officials. James Johnson, the former chief executive of Fannie Mae, for example, received a loan under this program.
There is no evidence to suggest that the Countrywide program was made available to people who were poor credit risks or who lacked financial assets to justify the loans that were made. Certainly Dodd, Conrad and Johnson are all, to use Sloan’s term, “wealthy guys,” and it seems likely that everyone who got a Countrywide VIP loan was a “wealthy guy” (or gal).
So how is the Obama loan situation any different? Unlike Countrywide, Northern Trust did not have a formal VIP program. But according to a Northern Trust executive interviewed in the Post story, it was the bank’s practice to “pursue successful individuals, families and institutions.” As part of this practice, Northern Trust would offer preferential rates and terms to certain borrowers, including Senator Obama, taking into consideration the “person’s occupation and income.” So it sounds very much like Senator Obama received a preferential loan from Northern Trust because of a discretionary decision by that bank that was based, in part, on the fact that he was a Senator. In other words, pretty much the same thing that happened with the Dodd/Conrad loans.
From the standpoint of the Senate ethics rules, the Dodd/Conrad and Obama loan situations are also the same. The Senate rules permit Senators to accept “loans from banks or other financial institutions on terms generally available to the public.” In neither case were the terms “generally available to the public.” Senators are also allowed to accept benefits offered to members of a group or class “in which membership is unrelated to congressional employment.” Presumably, therefore, a Senator may obtain a loan on terms extended to all persons of a certain income or asset level. However, if qualification for the loan terms depends on subjective judgments that may include consideration of the applicant’s congressional employment, which was evidently the case with regard to both the Dodd/Conrad and Obama loans, the loan probably violates the gift rule.
In short, CREW’s attempt to distinguish the Dodd/Conrad and Obama loans does not hold water. If the former warrant an ethics investigation, the latter does as well.
My attempts to get a response from CREW have been unsuccessful.