Representative Richard H. Baker (R-La.) and Federal Reserve Chairman Alan Greenspan share two interests: stargazing and curbing the risk to the financial system posed by mortgage-finance giants Fannie Mae and Freddie Mac. So when Baker got a photo of a star exploding into two gaseous clouds, he sent a copy to Greenspan with a note about the risks represented by big, complex systems -- a thinly veiled allusion to the two mortgage behemoths.
Now Baker, Chairman of the house capital markets subcommittee, is at the center of his own supernova. The scandal over Freddie's accounting practices has given him a long-sought opening to rein in both quasi-governmental institutions. And his campaign to force mutual funds to disclose more information about fees and costs is rattling an industry that considers itself squeaky-clean.
In the past, Baker, 55, has shone harsh lights into some of Wall Street's darker corners -- but mostly left the cleanup to regulators or industry self-policing. Now, he's starting to do more of his own heavy lifting. Before the ink was even dry on a June 9 Securities & Exchange Commission report on mutual funds, Baker was ready with a bill that would force mutual funds to reveal more about fees and commissions and require fund boards to add more independent directors.
Financiers aren't used to such rough treatment from conservative Republicans. And Baker has been attacking Wall Street's anticompetitive ways ever since he won his Baton Rouge seat in 1986. He held hearings on stock analysts' inflated ratings in 2001, a year before New York Attorney General Eliot Spitzer uncovered evidence of tainted research at Merrill Lynch & Co. He insisted the SEC set up funds to reimburse shareholders defrauded by corrupt companies. And he has railed against the cozy club of four agencies that control the credit-rating business. Baker's next target: credit bureaus, whose impact on consumers' borrowing power is a mystery to many.
What drives this Dixie Republican to be a thorn in the side of some of his party's biggest allies and contributors? Baker says he is a standard-bearer for a "Republican consumerism that aims to provide more competition so consumers can have more choices at better prices." The son of a Methodist minister, he entered the state legislature at age 23 and attacked patronage in highway-building projects. "He's a Louisiana populist who believes in a level playing field," says Representative Christopher Shays (R-Conn.).
In the 12 hearings he has held on Fannie and Freddie since 2000, Baker has blasted their ability to borrow at lower rates than banks and the lax oversight of their combined $1.6 trillion portfolio. Until now, Baker has made little headway, but with Freddie's accounting scandal, he's gaining backers for his plan to move regulation of the two from the Housing & Urban Development Dept. to the Treasury Dept. or the Fed. House Financial Services Committee Chairman Michael G. Oxley (R-Ohio) says that Baker "is doing the Lord's work."
Tackling Freddie and Fannie certainly won't be a cinch: The two are lobbying powerhouses. Another obstacle could be fellow Southern populist Richard C. Shelby (R-Ala.), chairman of the Senate Banking Committee, who insists that he "won't be stampeded into doing anything."
No matter. Friends and foes alike say Baker is nothing if not persistent. As corporate scandals continue to explode, Baker's star is just getting brighter.
By Amy Borrus, with Paula Dwyer, in Washington