how Gigot points up the follies of Dems: Mozila:
Trying to defend the mortgage giants, Paul Krugman of the New York Times recently wrote, “What you need to know here is that the right — the WSJ editorial page, Heritage, etc. — hates, hates, hates Fannie and Freddie. Why? Because they don’t want quasi-public entities competing with Angelo Mozilo.”
That’s a howler even by Mr. Krugman’s standards. Fannie Mae and Mr. Mozilo weren’t competitors; they were partners. Fannie helped to make Countrywide as profitable as it once was by buying its mortgages in bulk. Mr. Raines — following predecessor Jim Johnson — and Mr. Mozilo made each other rich. Which explains why Mr. Johnson could feel so comfortable asking Sen. Kent Conrad (D., N.D.) to discuss a sweetheart mortgage with Mr. Mozilo, and also explains the Mozilo-Raines tag team in 2003.
I recount all this now because it illustrates the perverse nature of Fannie and Freddie that has made them such a relentless and untouchable political force. Their unique clout derives from a combination of liberal ideology and private profit. Fannie has been able to purchase political immunity for decades by disguising its vast profit-making machine in the cloak of “affordable housing.” To be more precise, Fan and Fred have been protected by an alliance of Capitol Hill and Wall Street, of Barney Frank and Angelo Mozilo.
*******
The companies eased their assaults when they concluded we weren’t about to stop, and in any case they soon had bigger problems. Freddie’s accounting fiasco became public in 2003, while Fannie’s accounting blew up in 2004. Mr. Raines was forced to resign, and a report by regulator James Lockhart discovered that Fannie had rigged its earnings in a way that allowed it to pay huge bonuses to Mr. Raines and other executives.
Such a debacle after so much denial would have sunk any normal financial company, but once again Fan and Fred could fall back on their political protection. In the wake of Freddie’s implosion, Republican Rep. Cliff Stearns of Florida held one hearing on its accounting practices and scheduled more in early 2004.
He was soon told that not only could he hold no more hearings, but House Speaker Dennis Hastert was stripping his subcommittee of jurisdiction over Fan and Fred’s accounting and giving it to Mike Oxley’s Financial Services Committee. “It was because of all their lobbying work,” explains Mr. Stearns today, in epic understatement. Mr. Oxley proceeded to let Barney Frank (D., Mass.), then in the minority, roll all over him and protect the companies from stronger regulatory oversight. Mr. Oxley, who has since retired, was the featured guest at no fewer than 19 Fannie-sponsored fund-raisers.
******
Fan and Fred also couldn’t prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post’s Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.
Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie’s left-wing defenders are underwriters of crony capitalism, not affordable housing.
So here we are this week, with the House and Senate preparing to commit taxpayer money to save Fannie and Freddie. The implicit taxpayer guarantee that Messrs. Gray and Raines and so many others said didn’t exist has become explicit. Taxpayers may end up having to inject capital into the companies, in addition to guaranteeing their debt.
The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine “change,” not that either presidential candidate seems interested.
Franklin Raines pockets $20 million in one year for committing massive fraud under the protection of Barney Frank and Chuck Schumer.
BACKGROUND:
Franklin Delano Raines (born January 14, 1949 in Seattle, Washington) is the former chairman and chief executive officer of Fannie Mae who served as White House budget director under President Bill Clinton.
The son of a Seattle janitor [2], Raines graduated from Harvard University, Harvard Law School; and Magdalen College, Oxford University as a Rhodes Scholar. He served in the Carter Administration as associate director for economics and government in the Office of Management and Budget and assistant director of the White House Domestic Policy Staff from 1977 to 1979. Then he joined Lazard Freres and Co., where he worked for 11 years and became a general partner. In 1991 he became Fannie’s Mae’s Vice Chairman, a post he left in 1996 in order to join the Clinton Administration as the Director of the U.S. Office of Management and Budget, where he served until 1998. In 1999, he returned to Fannie Mae as CEO, “the first black man to head a Fortune 500 company.”[1]
On December 21, 2004 Raines accepted what he called “early retirement” [3] from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses [4].
Commenter jon doesn’t seem to see the problem with massive fraud and corruption, or lack of government oversight over governmental agencies:
Comment by jon on 7/23 @ 6:54 am # |Edit This
So, making massive amounts of profit and bailing out before the aftereffects hit should be what? illegal? Or should there be massive tax burdens if the profit isn’t ethical? What’s your solution? How will accountability be put back in public life?
I’m all ears. I just wonder how it will fit in with the general stance against overregulation, not soaking the rich, anti-tax, anti-socialist rhetoric I usually see on this site.
I hate to say it, but these high-profiting dorks only got pennies (if that) on the dollar for all the fucked up shit they cost their companies and the general economy. I’m all for a good amount of scapegoating here and there and now and then, but these guys did good for their company and shareholders for a while. That was their job. The overall economy is someone else’s job, and those people did fail. And “those people†is almost all of us.
Aren’t Barney Frank and Chuck Schumer themselves massive frauds?
Nature doesn’t have to point out the folly of men; we do that quite well for ourselves.
Cue a lefty to explain how Frank and Schumer really aren’t Democrats…
“Fannie’s left-wing defenders are underwriters of crony capitalism, not affordable housing.”
Shouldn’t that term be “state capitalism”?
You know, the fascist brand.
Krugman lied?! Get out of here.
Sorry I’m late for my cue, but how much money was made in the years the GOP held Congress? Big business isn’t exactly a Dem or a GOP protectorate, since both parties have bent over for deregulation and profiteering for years and spend their time figuring out how to get tiny amounts of profit into party coffers while ignoring the massive amounts of profit being made in shady deals and pyramid schemes that really do deserve some oversight and–gasp! oh heavens!–regulation.
Of course, all the Congressional oversight in the world wouldn’t stop stupid people from taking stupid loans because they thought the mortgage HELOC ARM of destiny only gave money and didn’t actually mean that some money would eventually be owed.
We are so screwed. And if we think Washington should have saved us, then we are never going to get out from under.
For starters, Jon, I think an example ought to be made of Mr. Raines. See, that’s how we begin to put accountability back in public life.
So, making massive amounts of profit and bailing out before the aftereffects hit should be what? illegal? Or should there be massive tax burdens if the profit isn’t ethical? What’s your solution? How will accountability be put back in public life?
I’m all ears. I just wonder how it will fit in with the general stance against overregulation, not soaking the rich, anti-tax, anti-socialist rhetoric I usually see on this site.
I hate to say it, but these high-profiting dorks only got pennies (if that) on the dollar for all the fucked up shit they cost their companies and the general economy. I’m all for a good amount of scapegoating here and there and now and then, but these guys did good for their company and shareholders for a while. That was their job. The overall economy is someone else’s job, and those people did fail. And “those people” is almost all of us.
Sorry I’m late for my cue, but how much money was made in the years the GOP held Congress? Big business isn’t exactly a Dem or a GOP protectorate, since both parties have bent over for deregulation and profiteering for years and spend their time figuring out how to get tiny amounts of profit into party coffers while ignoring the massive amounts of profit being made in shady deals and pyramid schemes that really do deserve some oversight and–gasp! oh heavens!–regulation.
Here’s the problem Jon, whenever a scandal is unearthed about a republican, it is evidence that republicans are all evil and greedy and bad. Whenever it is demonstrated that Dems are just as bad, if not worse, some lefty (You in this case) comes along and says “both sides do it, nothing to see here – we need more leftist policies.”
why is it that in your mind when a republican is caught in such a scandal it is proof that republicans are all evil and greedy but when a dem is caught doing THE EXACT SAME THING OR WORSE it is only proof that more leftist policies need to be enacted?
Cognitive dissonance much? Perhaps such huge Gov’t run boondoggles as Fanny Mae and Freddy Mac prove just the opposite of what you claim it proves. Perhaps it proves that the gov’t should get out of trying to control the market (i.e., allow capitalism to work)?
Nobody argues (the strawman you imply) that absolutely no regulation is needed. Instead, we argue about what regulations are needed, how much is too much regulation, etc. the left wants to regulate everything to the point that there is no longer any capitalism but instead a command economy – a system that is a proven failure, over and over again. The right wants as little regulation as possible because that is the system that is proven to work.
I would be perfectly happy in this case allowing a full investigation into Fanny Mae and Freddy Mac and prosecuting (if laws were broken) all those who were involved. Unfortunately, the left won’t allow it b/c Fanny Mae and Freddy Mac have been democrat ATMs for much longer and to a much great extent than for republicans (and I’m not saying no republicans were involved – I’m just saying that in this particular case it is a much greater scandal for the dems).
doesn’t that disabuse you of the whole “republicans evil” “dems good” mindset?
No, they committed fraud. They defrauded American investors and taxpayers of hundreds of millions of dollars while cooking the books to give themselves huge executive compensation packages. They ought to be in jail, and the people on Wall Street and in Congress both who made it possible for them to continue to do so for so long ought to pay a heavy penalty as well, either financial or political.
I just wonder how it will fit in with the general stance against overregulation, not soaking the rich, anti-tax, anti-socialist rhetoric
Yes, we all know that Fannie Mae is right out of the pages of Adam Smith as interpreted by Ayn Rand.
Nothing regulated, tax-consuming, or socialist about it what. so. ever.
Perhaps it proves that the gov’t should get out of trying to control the market (i.e., allow capitalism to work)?
And, what I mean by this, is that when you have a huge endeavor that oversees millions $$ such as these, and it is heavily “regulated” and “overseen” by the gov’t – such as here, you have a much, much greater chance of corruption.
Whenever there is great gov’t oversight, there is greater lobbying, etc. And you always end up with situations like this. And, finally, when something bad happens, there is no real investigation b/c nobody in gov’t wants anything uncovered and there is no accountability b/c blame is spread so thin and it is in the gov’ts (read politicians) interest to make the matter so complicated for the public that nobody is certain who is to blame. Moreover, you have the electorate who realizes that congress generically is to blame – don’t hold their own congressman accountable. So, there is never any accountability. And, b/c they want to avoid electoral problems and scandal, the gov’t will bail out the endeavor with taxpayer $$.
Generally, this does not happen in the private sector. If a company fails, it fails. The CEO may be fired, or other actions taken by shareholders. There will be investigations and prosecutions if there was illegal behavior (see Enron). This is b/c in those situations the gov’t is not so closely involved and will allow investigations and prosecutions.
thus, if you think about it long and hard enough, you will realize that more regulation and more gov’t control over the economy will lead to more corruption and problems like this, not less.
Here’s my suggestion: have the GOP investigate fraud rather than let others do so (accounting was difficult in this case, so they went to a minority party–Democrat–expert? the GOP isn’t looking so good here if they can’t find an accountant they trust more than Barney Frank, who was probably mistaken for Smith Barney or something) and pursue those who make huge profits after said fraud is revealed rather than focus federal prosecutions on cases that involve Democrats, as was shown to be the case in the USA Prosecutors fiasco that has undermined much well-earned trust in the Justice Department. Then, after the GOP becomes the party of law and order and the Justice Department becomes something other than a political machine, we can talk about how stupid my party’s corrupt officials are. In the meantime, we should all mention how this entire mortgage mess is the result of greed on the part of millions of people who still feel some bizarre sort of entitlement to profit even in the face of the overwhelming reality that they were screwed mostly by their own greed.
Go after Raines. He wasn’t ethical, legal, or right to do what he did, but I didn’t hear about any demands for federal prosecution then. Where was the leadership? Both parties failed miserably. But still I ask, how much cooking of the books makes it illegal and how much hididng of debts is okay? I think the GOP doesn’t have a good track record for promoting ethical business regulation, but I can’t say the Dems do either.
Statements like “The right wants as little regulation as possible because that is the system that is proven to work” don’t explain the fact that so many companies that aren’t regulated still leave shareholders empty handed if not outright defrauded. If that’s your definition of “proven to work” I don’t want you working for me.
Strawmen are fighting to the death here, and there are lots of straw on the floor making my feet itchy. But really, I’m all for lots of egg on the faces of politicians over this issue, some people should go to jail for much more important reasons than just to reestablish public trust (reasons like: their behavior was criminal,) but we should all take a good long look at how we’ve thought we could make money lately and how it wasn’t necessarily a good thing.
Freddie and Fannie were hybrids: private with some sort of public backing. It was a stupid idea to keep things that way, maybe the government shouldn’t have kept and ultimately made what public backing they did, and it doesn’t allow for much crowing from pro-socialist or pro-capitalist ideologues outside of the Che-poster-people and the gold-fetishist extremes. It certainly made for a corruption inducement of massive proportions: capitalizing the profit and socializing the costs is any profiteers dream. The clusterfuck these companies have created goes beyond calls for regulation and enters the realm of a need for trustbusting. If they were too big and important to fail, they should have been nationalized (the first choice of some, but not me) or they should have been diversified (a better option.)
Jon,
How about you go to the MAJORITY party in congress and your favorite party the dems and ask them why they are not investigating / prosecuting regarding Fanny Mae and Freddy Mac. then report back here your efforts in this regard and the dems’ response. After you have accomplished that you can lecture us on how republicans should do it.
Statements like “The right wants as little regulation as possible because that is the system that is proven to work†don’t explain the fact that so many companies that aren’t regulated still leave shareholders empty handed if not outright defrauded. If that’s your definition of “proven to work†I don’t want you working for me.
I will try to explain it so that you understand it then. I’m talking about overall economics, not particular cases. There will always be bad results in any system. But, if you claim that free markets haven’t been “proven to work” better than command economies – I guess then that no facts will ever sway your deeply held “feelings”.
We, in fact, have some companies that defraud investors. Nobody denies that that happens. (and you accuse me of straw-manism? laughable). but, regulating the ecomony to death is never the answer and is a proven failure. Fanny Mae and Freddy Mac are prime examples of what happens when you let the gov’t run business. As is Amtrak. As is public education. I could go on.
Your logic is that b/c there is some crime/fraud in private business, gov’t should control everthing. Well, there is some crime in everyday life – should gov’t totally control our lives? Why not?
Then, after the GOP becomes the party of law and order and the Justice Department becomes something other than a political machine, we can talk about how stupid my party’s corrupt officials are.
Uhh, Janet Reno? She ran the Justice Department entirely as a political operation for Clinton. Plus, fyi – Clinton fired all the U.S. Attorneys when he took office. That is a president’s perogative.
I’m not really sure you understand what you are talking about.
Law and Order. Like Sandy Berger? Selling info to China for campaign contributions? Buddhist Monk’s campaign contributions? Selling pardons? Waco? Elian Gonzalez? FBI files? Perjury?
I’m not sure the dems have any “law and order” credibility. I don’t trust gov’t at all as all politicians tend to be corrupted, but the dems are much more brazen and their idolizers tend to look the other way no matter how egregious and unethical the behavior. So, stop throwing stones from your thin-glass house.
Not to mention that Ken Lay was much, much closer to Clinton then he ever was to Bush. I could go on all day. I understand why you are complaining that you have so much straw at your feet. Try an argument based on facts.
But Chuck Schumer tells me he’s an honorable man. He’s a Senator, one of an elite 100. Our next president will be a Senator. Is there anyone who is not feeling at least slightly nauseous at that thought?
These guys could turn a slow economy into a recession and a recession into a depression. If their abilities were one percent as great as their egos, this would be paradise.
I think Jon’s rhetoric has some merit. This home loan crisis is so deep, clusterfuck is a good way of putting it. And yet, I haven’t seen any CEOs marched off to the pokey yet. When something drastic actually happens, and it’s shown that somebody did it, then I think credit can be handed out, no matter who did it, dems or repubs. I don’t think you can demonize anyone in this unless you demonize everyone. Don’t tell me someone’s not on the take here; everyone is, somewhere down the line.
I don’t care who they are, if they can be shown to have benefitted by systematic malfeasance, I want them punished.
Franklin Raines pockets $20 million in one year for committing massive fraud under the protection of Barney Frank and Chuck Schumer.
Yeah and that was in 2003, many of the lefts villains in “Big Oil” “Big Pharma” “Big flavor of the day” don’t pull in that now, in 2008.
During the 2004 oversight hearings black leaders accused the republicans of racism for asking Raines to account for his malfeasance and said it was a modern day lynching. So yeah, the Democrats weren’t interested in oversight.
Great Banana is right. The failure of Fanny Mae and Freddy Mac is directly linked to the involvement of government, and yet the Left is already seizing on it as an example proving that markets don’t work and more government involvement in the economy is needed.
Well, duh. Some might say that’s their goal; create regulatory schemes that will fail, then call for more regulations to “fix” their mess. Look at energy; it’s lefty policies that prevent us from actually using the resources we have.
The same could be said for the health care system, only more so.
Franklin Raines, Jim Johnson, Barney Frank, Chris Dodd, Jamie Gorelick, Kent Conrad.
What do they have in common, jon? Anything? Anything at all? I know it’s a tough one.
What do they have in common, jon?
Let me try! Is it their passion for affordable housing for the poor?
Good guess, Aldo. But the answer is: moops.
There are plenty of villains in this mortgage mess, but no one wanted to mention the shit in the shat-in economic punchbowl until people started puking their guts out. That no one includes people on the right, who were the majority party in Congress for most of the last few years and have had the Executive Branch for the last seven. If you can show me how the malfeasance only started up the moment the Democrats got in charge, please do. But if you can’t, just know that if Barney Frank is the biggest fish you get to fry in this mess, then you are in the wrong pond.
Did politicians let me down? Yes. Did the banks? Yes. Did everyday working people who got greedy, whether they were mortgage brokers, realtors, loan officers, or just plain old greedy homebuyers? Hell yes. Who warned us about all this? No major politician.
When things went this wrong and the first thing political folks do is assess blame, I assume there’s some running away from the idea of correcting the underlying problem. The only people I do see mentioning just what a clusterfuck this is are pretty damned apocalyptic right now, and they are the ones who thought we’d get here. I hate that those pessimists are the ones with the good track record, but after reading them I can’t help but see dark days ahead for the US (and world) economy. And the next President will be a one-termer because he’ll try to fix things and people will be unable to handle the scope of the crisis or he’ll ignore things and people will start to understand the scope of the crisis. We’ve got a falling dollar, expensive energy, a home mortgage crisis that’s in year two of a predicted many, no manufacturing base to fall back on, a homebuilding base that is going to be gutted either by no demand or falling prices (pick both,) and stagnant wages. Hope without much relevance to these issues or some vague hope that tax breaks will solve everything seem to be our two choices this election. Either way, I don’t see much happening right now except a holding pattern before the next administration.