The Politics of the Financial Crisis: Were Donations from Government Sponsored Enterprises to Blame?

The 2008 financial crisis was a result of several instigators. This paper examines the crisis from a political perspective by first explaining how the crisis was a government failure and then quantitatively analyzing how certain variables may have shaped government policy. This study uses a pooled ordinary least squares regression as well as a fixed effects estimator to study how and if campaign contributions made by GSEs (Fannie Mae and Freddie Mac) influenced legislators’ voting records. In particular, the study was interested in knowing if members of the relevant House and Senate committees were more likely to support regulatory or deregulatory legislation after receiving contributions from the GSEs. The timeframe for the study is the 105th-111th Congress (1997-2010) – the run-up to and immediate aftermath of the crisis. The analysis revealed, with moderate confidence, that Republicans were more likely to support regulatory legislation than were Democrats. The study was additionally able to conclude that while the general trend shows deregulatory legislating associated with campaign contributions, these donations do not meaningfully cause voting outcomes.