Posted on 10/17/2008 10:55:12 AM PDT by neverdem
OPENING ARGUMENT
Misdiagnosing the causes of the crisis could lead both to regulatory overkill and to more reckless risk taking.
President Bush, his Securities and Exchange Commission appointees, other free-enterprise dogmatists who have stood in the way of regulating risky and opaque financial manipulations, and greedy Wall Streeters deserve the blame heaped on them for the financial meltdown that has so severely shaken America.
But the pretense of many Democrats that this crisis is altogether a Republican creation is simplistic and dangerous.
It is simplistic because Democrats have been a big part of the problem, in part by supporting governmental distortions of the marketplace through mortgage giants Fannie Mae and Freddie Mac, whose reckless lending practices necessitated a $200 billion government rescue last month. It is dangerous because misdiagnosing the causes of the crisis could lead both to regulatory overkill and to more reckless risk taking by Fannie, Freddie, or newly created government-sponsored enterprises.
Fannie and Freddie aside, it's worth pointing out that many, if not most, of those greedy Wall Street barons are Democrats. And that the securities and investment industry has given more money to Democrats than to Republicans in this election cycle. And that opposing regulation of risky new financial practices by private investment banks and others has been a bipartisan enterprise, engaged in by the Clinton and Bush administrations alike.
But the roles of Fannie and Freddie are my focus here. Powerful Democratic (and some Republican) advocates of affordable housing, including Senate Banking, Housing, and Urban Affairs Committee Chairman Christopher Dodd, D-Conn.; Sen. Charles Schumer, D-N.Y.; and House Financial Services Chairman Barney Frank, D-Mass., have been the GSEs' most potent and ardent champions in recent years. Meanwhile, the agencies and their employees have orchestrated a gigantic lobbying effort (costing more than $174 million between 1998 and 2008). They have also made campaign contributions of more than $14.6 million between the 2000 and 2008 election cycles, with some of the largest going to Dodd and Barack Obama.
A leading illustration of this Democrat-GSE symbiosis came in summer 2005. The Senate Banking Committee adopted a bill to impose tighter regulation on Fannie and Freddie, with all Republicans voting for it. But the Democrats voted against it in committee and killed it on the floor.
Also in 2005, Fannie and Freddie began buying vast amounts of subprime and "alt-A" mortgages with, in many cases, virtually no down payments, that had been taken out by people with low credit scores and low incomes relative to their monthly payments. To finance more and more affordable housing, as leading Democrats, and some Republicans, had urged, the GSEs dramatically lowered their traditional underwriting standards.
Between 2005 and 2007, Fannie and Freddie "sold out the taxpayers" by financing almost $1 trillion in such highly risky mortgages, according to "The Last Trillion Dollar Commitment: The Destruction of Fannie Mae and Freddie Mac," a carefully researched essay posted on the conservative American Enterprise Institute's website by Peter Wallison of AEI and Charles Calomiris of Columbia Business School.
They base their trillion-dollar figure, which is much higher than most published estimates, on detailed analysis of what they call "accounting practices that made it difficult to detect the size of those exposures."
Fannie and Freddie appear to have played a major role in causing the current crisis, in part because their quasi-governmental status violated basic principles of a healthy free enterprise system by allowing them to privatize profit while socializing risk. That is, their special privileges as GSEs -- created decades ago to promote homeownership by buying mortgages from banks, which could then use the cash to make more loans -- enabled them to lend at high rates to reap enormous profits for their private stockholders and executives and to borrow at low rates based on the government's implicit promise to rescue them from any failure, as it has now done.
Unbeknownst to the investment banks, the experts at Fannie and Freddie knew very well that their bosses were taking reckless risks.
Many conservatives have gone so far as to blame Fannie, Freddie, and their Democratic sponsors for the entire meltdown. Some (not including Wallison and Calomiris) also blame the Community Reinvestment Act of 1977, which forced banks to lend and invest more in minority and low-income areas.
This accusation has spurred furious rebuttals by Democrats and their media friends. Some have been well reasoned. Some -- especially a July 14 column by New York Times columnist Paul Krugman, who was awarded the Nobel Prize in economics this week -- have been flat-out incorrect.
As Wallison and Calomiris demonstrate, Krugman was egregiously wrong in writing that "Fannie and Freddie had nothing to do with the explosion of high-risk lending." He was wrong again in stating that "they didn't do any subprime lending, because they can't ... by law." He was further wrong in writing that the GSEs were "tightly regulated with regard to the risks they can take."
Others in the don't-blame-Fannie-and-Freddie camp reasonably point out that private Wall Street investment banks and others financed even more of the $3 trillion in substandard mortgages than Fannie and Freddie did, and that these investment banks and many of the mortgage lenders who made (and then sold) the loans were not covered by the Community Reinvestment Act.
Wallison agrees that the 31-year-old law does not appear to have been a major cause of the current crisis. He also notes that although the Clinton administration pushed the GSEs to finance more affordable housing by purchasing subprime mortgages, it was not until 2005 that the GSEs began financing risky loans in huge amounts.
Why did Fannie and Freddie dive into the subprime mortgage market? And were their practices just one facet -- or the most important cause -- of the crisis? The questions are related and the answers debatable.
Freddie and then Fannie had been ravaged in 2003 and 2004 by accounting scandals that led to the departures of top executives, including Fannie Mae CEO Franklin Raines, a former Clinton administration official who had collected $90 million in compensation from 1998 through 2004. The scandals brought warnings from Alan Greenspan, then the powerful chairman of the Federal Reserve Board, that the government should restrain the mortgage giants' growth. Meanwhile, three Fed economists published a study casting doubt on whether Fannie and Freddie had much effect on mortgage interest rates. All of this put the two agencies on the defensive in Congress.
By the time Daniel Mudd succeeded Raines in 2004, according to an in-depth New York Times article on October 5 by Charles Duhigg, "his company was under siege. Competitors were snatching lucrative parts of its business. Congress was demanding that Mr. Mudd help steer more loans to low-income borrowers. Lenders were threatening to sell directly to Wall Street unless Fannie bought a bigger chunk of their riskiest loans.
"So Mr. Mudd made a fateful choice," Duhigg wrote. "Disregarding warnings from his managers that lenders were making too many loans that would never be repaid, he steered Fannie into more-treacherous corners of the mortgage market, according to executives.
"For a time, that decision proved profitable. In the end, it nearly destroyed the company and threatened to drag down the housing market and the economy."
(So much for Krugman's analysis.)
Duhigg added, "The ripple effect of Fannie's plunge into riskier lending was profound. Fannie's stamp of approval made shunned borrowers and complex loans more acceptable to other lenders, particularly small and less sophisticated banks." The banks had little incentive to avoid risky loans as long as they could sell them to the GSEs and others long before any defaults.
Duhigg also implies, however, that Fannie and Freddie joined the junk-mortgage binge, rather than led it, to avoid losing business to private companies such as Bear Stearns, Lehman Brothers, and Goldman Sachs. Other analysts plausibly argue that what started the ball rolling was an August 2004 decision by the big bond-rating agencies, Moody's and Standard & Poor's, to loosen their guidelines for rating mortgage-backed securities.
Wallison and Calomiris disagree. "The most plausible explanation for the sudden adoption of this disastrous course [by Fannie and Freddie] is their desire to continue to retain the support of Congress after their accounting scandals in 2003 and 2004," they argue. In an October 15 Wall Street Journal op-ed, Wallison adds, without qualification, that this was "the source of the financial crisis we are wrestling with today."
But why would investment banks take foolish risks with their own money, as well as that of investors, just because Fannie and Freddie were doing so? In an interview, Wallison theorizes that the companies wrongly assumed that these must be sound investments because the leading experts on the mortgage market -- Fannie and Freddie, with their vast databases and sophisticated computer programs -- thought so. But unbeknownst to the investment banks, the experts at Fannie and Freddie knew very well that their bosses were taking reckless risks.
Perhaps a congressional investigation will someday sort out the extent to which Congress itself -- by pressuring Fannie and Freddie to take such risks -- brought about the current crisis.
An ACORN Falls from the Tree: A congressional outrage
Ken Blackwell, September 29, 2008
http://article.nationalreview.com/?q=N2Y5MTc0ZTAyMmE1Mjk3NGE3OWRiY2FkMjZlN2YxYzc=
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Inside Obama’s Acorn:
By their fruits ye shall know them
Stanley Kurtz, May 29, 2008
"What if Barack Obama’s most important radical connection has been hiding in plain sight all along? Obama has had an intimate and long-term association with the Association of Community Organizations for Reform Now (Acorn), the largest radical group in America. If I told you Obama had close ties with MoveOn.org or Code Pink, you’d know what I was talking about. Acorn is at least as radical as these better-known groups, arguably more so. Yet because Acorn works locally, in carefully selected urban areas, its national profile is lower. Acorn likes it that way. And so, I’d wager, does Barack Obama."
http://article.nationalreview.com/?q=NDZiMjkwMDczZWI5ODdjOWYxZTIzZGIyNzEyMjE0ODI
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Must see! 2004 Video: Democrats Defend Fannie/Freddie from Regulation:
"We've been through nearly a dozen hearings where frankly we were trying to fix something that wasn't broke. Mr. Chairman we do not have a crisis at Freddie Mac and in particular at Fannie Mae under the outstanding leadership of Mr. Frank Raines."-Rep. Maxine Waters, 2004
http://www.youtube.com/watch?v=YL36nwCSYUM
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History of Fannie Mae scandal
Associated Press, December 7, 2006
"Fannie Mae announces its long-awaited restatement, erasing $6.3 billion in profit from 2001 through June 30, 2004."
http://www.boston.com/business/articles/2006/12/07/history_of_fannie_mae_scandal/?page=1
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Bailout Politics: The Congressional Dems who enabled this crisis are now being trusted to fix it?
Thomas Sowell, September 30, 2008
http://article.nationalreview.com/?q=OWE3OWU3OTExYzNlNTUzMzY2YmJmOWZjMzcwN2M1NjU=
The Bush Big-Government doctrine is a prime culprit in this mess.
Explaining this Bush doctrine is easy - if there is a problem the government (i.e. - my tax money) is the solution.
I honestly think that this is basically the same as the Democrat’s solution with the only difference is Bush is hiding behind the noble sounding name of “Compassionate Conservatism”.
On this issue, I for one will not be sad he is gone.
You can not be serious, the Repubs tried 22 times since 1991 to regulate FANNIE and FREEDY; always blocked by the DemocRATs.
Why am I wasting my breath (or fingers in this case) you are hopelessly in bed with the socialization of this country.
Socialist = equal poverty for all!
Why am I wasting my breath (or fingers in this case) when you can't see the forest for the trees. Read the story. The rats get far more blame than the GOP. The title says its main subject is Freddie ans Fannie, rat enterprises.
Stuart Taylor is one of the few objective commentators in the MSM left these days. Bush is not without blame. The SEC let these investment banks on Wall Street, mainly run by dems, basically govern themselves. Hank Paulson ran Goldman Sachs, and Bush appoints him as Secretary of the Treasury?
Wait, doesn’t Barney keep a close eye on Freddie’s Fannie?
Even Bill Clinton said last month that the rats blocked the Republicans efforts to rein in Fannie Mae during his administration. (That video made a nice TV ad) It's been running in some of the battleground states.
April: The Administration’s FY02 budget declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.”
** 2002
May: The President calls for the disclosure and corporate governance principles contained in his 10-point plan for corporate responsibility to apply to Fannie Mae and Freddie Mac. (OMB Prompt Letter to OFHEO, 5/29/02)
** 2003
January: Freddie Mac announces it has to restate financial results for the previous three years.
February: The Office of Federal Housing Enterprise Oversight (OFHEO) releases a report explaining that “although investors perceive an implicit Federal guarantee of [GSE] obligations,” “the government has provided no explicit legal backing for them.” As a consequence, unexpected problems at a GSE could immediately spread into financial sectors beyond the housing market. (”Systemic Risk: Fannie Mae, Freddie Mac and the Role of OFHEO,” OFHEO Report, 2/4/03)
September: Fannie Mae discloses SEC investigation and acknowledges OFHEO’s review found earnings manipulations.
September: Treasury Secretary John Snow testifies before the House Financial Services Committee to recommend that Congress enact “legislation to create a new Federal agency to regulate and supervise the financial activities of our housing-related government sponsored enterprises” and set prudent and appropriate minimum capital adequacy requirements.
October: Fannie Mae discloses $1.2 billion accounting error.
November: Council of the Economic Advisers (CEA) Chairman Greg Mankiw explains that any “legislation to reform GSE regulation should empower the new regulator with sufficient strength and credibility to reduce systemic risk.” To reduce the potential for systemic instability, the regulator would have “broad authority to set both risk-based and minimum capital standards” and “receivership powers necessary to wind down the affairs of a troubled GSE.” (N. Gregory Mankiw, Remarks At The Conference Of State Bank Supervisors State Banking Summit And Leadership, 11/6/03)
** 2004
February: The President’s FY05 Budget again highlights the risk posed by the explosive growth of the GSEs and their low levels of required capital, and called for creation of a new, world-class regulator: “The Administration has determined that the safety and soundness regulators of the housing GSEs lack sufficient power and stature to meet their responsibilities, and therefore…should be replaced with a new strengthened regulator.” (2005 Budget Analytic Perspectives, pg. 83)
February: CEA Chairman Mankiw cautions Congress to “not take [the financial market’s] strength for granted.” Again, the call from the Administration was to reduce this risk by “ensuring that the housing GSEs are overseen by an effective regulator.” (N. Gregory Mankiw, Op-Ed, “Keeping Fannie And Freddie’s House In Order,” Financial Times, 2/24/04)
June: Deputy Secretary of Treasury Samuel Bodman spotlights the risk posed by the GSEs and called for reform, saying “We do not have a world-class system of supervision of the housing government sponsored enterprises (GSEs), even though the importance of the housing financial system that the GSEs serve demands the best in supervision to ensure the long-term vitality of that system. Therefore, the Administration has called for a new, first class, regulatory supervisor for the three housing GSEs: Fannie Mae, Freddie Mac, and the Federal Home Loan Banking System.” (Samuel Bodman, House Financial Services Subcommittee on Oversight and Investigations Testimony, 6/16/04)
** 2005
April: Treasury Secretary John Snow repeats his call for GSE reform, saying “Events that have transpired since I testified before this Committee in 2003 reinforce concerns over the systemic risks posed by the GSEs and further highlight the need for real GSE reform to ensure that our housing finance system remains a strong and vibrant source of funding for expanding homeownership opportunities in America… Half-measures will only exacerbate the risks to our financial system.” (Secretary John W. Snow, “Testimony Before The U.S. House Financial Services Committee,” 4/13/05)
** 2007
July: Two Bear Stearns hedge funds invested in mortgage securities collapse.
August: President Bush emphatically calls on Congress to pass a reform package for Fannie Mae and Freddie Mac, saying “first things first when it comes to those two institutions. Congress needs to get them reformed, get them streamlined, get them focused, and then I will consider other options.” (President George W. Bush, Press Conference, The White House, 8/9/07)
September: RealtyTrac announces foreclosure filings up 243,000 in August – up 115 percent from the year before.
September: Single-family existing home sales decreases 7.5 percent from the previous month – the lowest level in nine years. Median sale price of existing homes fell six percent from the year before.
December: President Bush again warns Congress of the need to pass legislation reforming GSEs, saying “These institutions provide liquidity in the mortgage market that benefits millions of homeowners, and it is vital they operate safely and operate soundly. So I’ve called on Congress to pass legislation that strengthens independent regulation of the GSEs – and ensures they focus on their important housing mission. The GSE reform bill passed by the House earlier this year is a good start. But the Senate has not acted. And the United States Senate needs to pass this legislation soon.” (President George W. Bush, Discusses Housing, The White House, 12/6/07)
** 2008
January: Bank of America announces it will buy Countrywide.
January: Citigroup announces mortgage portfolio lost $18.1 billion in value.
February: Assistant Secretary David Nason reiterates the urgency of reforms, says “A new regulatory structure for the housing GSEs is essential if these entities are to continue to perform their public mission successfully.” (David Nason, Testimony On Reforming GSE Regulation, Senate Committee On Banking, Housing And Urban Affairs, 2/7/08)
March: Bear Stearns announces it will sell itself to JPMorgan Chase.
March: President Bush calls on Congress to take action and “move forward with reforms on Fannie Mae and Freddie Mac. They need to continue to modernize the FHA, as well as allow State housing agencies to issue tax-free bonds to homeowners to refinance their mortgages.” (President George W. Bush, Remarks To The Economic Club Of New York, New York, NY, 3/14/08)
April: President Bush urges Congress to pass the much needed legislation and “modernize Fannie Mae and Freddie Mac. [There are] constructive things Congress can do that will encourage the housing market to correct quickly by … helping people stay in their homes.” (President George W. Bush, Meeting With Cabinet, the White House, 4/14/08)
May: President Bush issues several pleas to Congress to pass legislation reforming Fannie Mae and Freddie Mac before the situation deteriorates further.
“Americans are concerned about making their mortgage payments and keeping their homes. Yet Congress has failed to pass legislation I have repeatedly requested to modernize the Federal Housing Administration that will help more families stay in their homes, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance sub-prime loans.” (President George W. Bush, Radio Address, 5/3/08)
“[T]he government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator.” (President George W. Bush, Meeting With The Secretary Of The Treasury, the White House, 5/19/08)
“Congress needs to pass legislation to modernize the Federal Housing Administration, reform Fannie Mae and Freddie Mac to ensure they focus on their housing mission, and allow State housing agencies to issue tax-free bonds to refinance subprime loans.” (President George W. Bush, Radio Address, 5/31/08)
June: As foreclosure rates continued to rise in the first quarter, the President once again asks Congress to take the necessary measures to address this challenge, saying “we need to pass legislation to reform Fannie Mae and Freddie Mac.” (President George W. Bush, Remarks At Swearing In Ceremony For Secretary Of Housing And Urban Development, Washington, D.C., 6/6/08)
July: Congress heeds the President’s call for action and passes reform of Fannie Mae and Freddie Mac as it becomes clear that the institutions are failing.
In 2005— Senator John McCain partnered with three other Senate Republicans to reform the government’s involvement in lending.
Democrats blocked this reform, too.
More... Not only did democrats not act on these warnings but Barack Obama put one of the major Sub-Prime Slime players on his campaign as finance chairperson.
UPDATE: The media is not reporting that the failed financial institutions are big Obama donors.
http://www.youtube.com/watch?v=NU6fuFrdCJY
Freepers,
Follow the link. 10 minutes, 59 second long. Explains EXACTLY how we ended up ‘here’ in a financial crisis.
Email it to your friends, family, business associates. Post it in every forum you can think of.
19 days.
I don’t normally ask for this sort of thing in ANY forum, let alone here at FR.
Check it out for yourself. If I’ve made a error in putting up here for you all to see, and decide for yourselves, flame away.
19 days, folks. We have to drag McCain over the finish line in spite of himself, or what we all think of him as a politician.
Follow the link.
FR POSTED 10/6 BY PARATROOPER 82
Unqualified home buyers were not the only ones who benefited from Massachusetts Rep. Barney Frank’s efforts to deregulate Fannie Mae throughout the 1990s. So did Frank’s partner, a Fannie Mae executive at the forefront of the agency’s push to relax lending restrictions. Now that Fannie Mae is at the epicenter of a financial meltdown that threatens the U.S. economy, some are raising new questions about Frank's relationship with Herb Moses, who was Fannie’s assistant director for product initiatives.
Moses worked at the government-sponsored enterprise from 1991 to 1998, while Frank was on the House Banking Committee, which had jurisdiction over Fannie. Both Frank and Moses assured the Wall Street Journal in 1992 that they took pains to avoid any conflicts of interest.
Critics, however, remain skeptical. ‘It’s absolutely a conflict,’ said Dan Gainor, vice president of the Business & Media Institute. “He was voting on Fannie Mae at a time when he was involved with a Fannie Mae executive. How is that not germane? “If this had been his ex-wife and he was Republican, I would bet every penny I have - or at least what’s not in the stock market - that this would be considered germane,’ added Gainor, a T. Boone Pickens Fellow. ‘But everybody wants to avoid it because he’s gay. It’s the quintessential double standard.’
A top GOP House aide agreed. ‘C’mon, he writes housing and banking laws and his boyfriend is a top exec at a firm that stands to gain from those laws?’ the aide told FOX News. ‘No media ever takes note?
Imagine what would happen if Frank’s political affiliation was R instead of D? Imagine what the media would say if [GOP former] Chairman [Mike] Oxley’s wife or [GOP presidential nominee John] McCain’s wife was a top exec at Fannie for a decade while they wrote the nation’s housing and banking laws.’
Frank’s office did not immediately respond to requests for comment. Frank met Moses in 1987, the same year he became the first openly gay member of Congress. ‘I am the only member of the congressional gay spouse caucus,” Moses wrote in the Washington Post in 1991. “On Capitol Hill, Barney always introduces me as his lover.’
The two lived together in a Washington home until they broke up in 1998, a few months after Moses ended his seven-year tenure at Fannie Mae, where he was the assistant director of product initiatives. According to National Mortgage News, Moses ‘helped develop many of Fannie Mae’s affordable housing and home improvement lending programs.’ Critics say such programs led to the mortgage meltdown that prompted last month’s government takeover of Fannie Mae and its financial cousin, Freddie Mac. The giant firms are blamed for spreading bad mortgages throughout the private financial sector.
Although Frank now blames Republicans for the failure of Fannie and Freddie, he spent years blocking GOP lawmakers from imposing tougher regulations on the mortgage giants.
In 1991, the year Moses was hired by Fannie, the Boston Globe reported that Frank pushed the agency to loosen regulations on mortgages for two- and three-family homes, even though they were defaulting at twice and five times the rate of single homes, respectively.
Three years later, President Clinton’s Department of Housing and Urban Development tried to impose a new regulation on Fannie, but was thwarted by Frank. Clinton now blames such Democrats for planting the seeds of today’s economic crisis. ‘I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was president, to put some standards and tighten up a little on Fannie Mae and Freddie Mac,’ Clinton said recently.”
Excerpt ...Ten years ago, the typical conforming mortgage required a down payment of 10 to 20 percent, and low-down payment mortgages were considered too risky. But then we helped to standardize the 3 to 5 percent down payment loan, brought it to global capital markets, and made it available to lenders and communities nationwide. Now low-down payment loans are commonplace. And we just adopted a new variance in our underwriting standards that will make the $500 down payment loan widely available as well...
In 1994, we pledged to provide $1 trillion in capital to ten million underserved families by the end of 2000. Thanks to our housing and industry partners, we met that goal early.
Then in 2000, we launched our American Dream Commitment, a pledge to provide $2 trillion in capital to 18 million underserved families by the year 2010, including $400 billion targeted specifically for minority families (later raised to $700 billion in response to President Bush’s Minority Homeownership Initiative). After four of the strongest years in housing and mortgage finance history, we’ve already surpassed the top-line goals of this commitment. But our work is far from complete.
So in January 2004, we announced our Expanded American Dream Commitment and pledged significant new resources to tackle America’s toughest housing challenges. Our new commitment has three main goals.
First, we will expand access to homeownership for six million first-time home buyers in the next ten years, including 1.8 million minority first-time home buyers.We also will help raise the national minority homeownership rate from 49 percent to 55 percent, with the ultimate goal of closing it entirely.
Second, we will help new and long-term homeowners stay in their homes through a series of initiatives, and commit $15 billion to preserve affordable rental housing and $1.5 billion to support the revitalization of public housing communities.
Third, we will increase the supply of affordable housing and support community development activities in at least 1,000 neighborhoods across the country through our American Communities Fund, and through targeted investments like Low-Income Housing Tax Credits that help finance affordable rental housing.
It is because of initiatives like our Trillion Dollar Commitment and our American Dream Commitment that we have exceeded our HUD affordable housing goals for ten consecutive years.
archived headliner reports dot.com with 2006 update
Proving you can fool most of the people most of the time until you get caught, Franklin Raines (shown here), who reigned for 5 years following Clinton's appointing him as CEO of Fannie Mae, the US' quasi-governmental mortgage house, has been ousted.
There are several ongoing investigations of Fannie Mae's operations and accounting practices covering the last 5 years in order to determine when accounting irregularities started and the magnitude of the financial shortfalls. Current estimates indicate that there was a $9 billion misstatement of earnings and accounting irregularities between 2000-2004.
Former chief executive Franklin Raines received more than $40 million in bonuses and other pay as a result of falsely inflated earnings at the US' largest mortgage finance company. This is according to a supplement of a lawsuit filed by Ohio Attorney General Jim Petro. Fannie Mae added "tens of millions of false revenue" to meet "Raines' 1999 publicly announced goal to double" earnings over the next five years, Petro's November 23, US District Court in Washington alleges. The filing alleges that, "Raines personally profited by over $40 million by this false earnings history.
Update -- 2/22/2006: Former Senator Warren Rudman's team of investigators and auditors selected from his law firm, Paul, Weiss, Rifkind, Wharton & Garrison, and from Huron Consulting Group presented their 600-page report calling Fannie Mae's accounting systems "grossly inadequate." It is based on a review of millions of documents.
The report found that accounting obfuscations were intended to increase stock valuations, thus increasing executive bonuses.
Raines was one of the most influential and politically savvy figures in Washington is identified by the Rudman investigation as not directly knowing that Fannie Mae's accounting practices violated rules. The report does state, "We did find, however, that Raines contributed to a culture that improperly stressed stable earnings growth and that... he was ultimately responsible for the failures that occurred on his watch".
Raines will continue to live well being supported by Fannie Mae's shareholders. Some relevant facts include: -- Raines and his wife will be paid $114,393 a month as long as they live. -- Stock options: Raines holds vested stock options worth roughly $5.7 million. -- Stock bonuses: Raines was granted awards, payable in stock, for reaching performance goals. Under the program, he got 69,577 shares... half of what Fannie determined he should receive in January. At Monday's close, the shares are worth $4.9 million. It is unclear if he will receive the rest. -- Deferred pay: For tax planning while employed by the company, Raines was allowed to put off the receipt of payment. These deferred past payments total $8.7 million --
Future salary: Although Fannie Mae says Raines' retirement was effective December 21, 2004, he is seeking to have it effective as of June 22, 2005, and thereby receive $600,000 more in pay.
Mr. Raines followed a well-worn path in the United States during the later half of the 20th century. His humble beginnings were in Seattle. He won a scholarship to Harvard and was a Rhodes Scholar at Oxford. He worked on Wall Street for over a decade in the prestigious firm Lazard Freres. He was a member of President Clinton’s cabinet and director of his Office of Management and Budget. In 1999, Clinton selected him for the position of Fannie Mae CEO.
Following revelations of the financial scandal, Mr. Raines took early retirement from Fannie Mae so that he could collect a compensation package including $1 million per year for life and $11 million in vested stock. In 2003 Mr. Raines was paid $20 million in salary and bonus.
Fannie Mae is facing criminal investigations by the Justice Department, operational investigations by the SEC, and various Congressional investigations. There are questions regarding earnings statements being incorrectly inflated. In 2003, if derivative and other losses had been included, no bonuses would have been paid to top executives. However, deferral of the losses allowed declared earnings to reach a level which triggered maximum executive bonuses.
It is a far stretch to imagine that Franklin Raines actually was capable of satisfying the requirements of the positions he held from Harvard to Director of the White House Office of Management and Budget. If he had been competent enough to hold those positions, how could he have been Fannie Mae's CEO for 5 years and allowed, not known about, or not understood that $9,000,000,000 was being mishandled.
FR POSTED http://www.freerepublic.com/focus/news/2086744/posts?page=1
The action of F&F et al. was akin to that of a burglar who torches an entire neighborhood to conceal evidence of his burglary. Does anyone remember how to apply tar and feathers?
McCain's War Story (about Iraq and the strategic reasons for it)
Evidence Mounts: Ayers Co-Wrote Obama's Dreams
WARREN E. BUFFETT: Buy American. I Am.
Will an angry electorate hand the election to Obama?
Some noteworthy articles about politics, foreign and military affairs, IMHO, FReepmail me if you want on or off my list.
Thanks for the ping.
Stuart Taylor writes...
“Others in the don’t-blame-Fannie-and-Freddie camp reasonably point out that private Wall Street investment banks and others financed even more of the $3 trillion in substandard mortgages than Fannie and Freddie did...”
Why doesn’t Stuart Taylor get specific and give an example of Penny Pritzker’s Superior Bank or name names like Marty Nesbitt?
This powerful entry from Bob Feldman February 17, 2008 (waaaay before the meltdown)...here...
http://bfeldman68.blogspot.com/2008/02/obama-campaigns-pritzkersuperior-bank-s.html
Thanks for the link-———amazing how much they knew BEFORE the meltdown.
Thanks for the link.
Freddie Mac and Fannie Mae and the government deception have caused the collapse of our financial system. Trillions of dollars have been lost. More importantly trust has been lost. Banks need to trust each other. Countries need to trust the US. Democrats will only create more programs like Freddie Mac and Fannie Mae. A vote for Barrie is a vote for Barnie.
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