Fannie Mae Collapse or the Democrat Swindle of the U.S. Taxpayer
Thursday, July 24, 2008 at 06:34PM In 2006 an election year, the Democrats were still trying to lay the Enron scandal on Bush and the Republicans. With the help of the press a cover up of a larger financial scandal was taking place. A scandal that we are paying for today. In 2006 a 3 year investigation into fraud at Fannie Mae was concluded. It revealed a level of financial misconduct by Franklin Raines, Jamie Gorelick, and others that grossly overstated earnings by 10.6 Billion dollars. To gain bonuses.
For those who don't know both Raines and Gorelick were high ranking officials in the Clinton Administration.
Byron York wrote back in 2006
ON May 23, as a jury in Houston deliberated the case against top Enron executives Kenneth Lay and Jeffrey Skilling, a little-known regulatory agency in Washington, the Office of Federal Housing Enterprise Oversight (OFHEO), released a study with the dryly bureaucratic title "Report of the Special Examination of Fannie Mae." The document received far less attention than the news from Enron, but its conclusions were stunning. In meticulous detail, it outlined a culture of corruption at the Federal National Mortgage Association--better known as Fannie Mae--that rivals the most serious corporate scandals in recent years. In this case, however, the main players are Washington insiders--some of them prominent veterans of the Clinton administration--and the scandal's effects could ripple through Congress for years.
In doing so, the report says, Raines and his team steered Fannie Mae far afield from its original mission, transforming it from a stable business into a risky one. But Fannie Mae is not just any private institution. It is congressionally chartered, meaning its existence is established in law, it does not have to pay state and local income taxes, and it is not subject to bankruptcy laws.
In 1999, Raines announced a new goal to double Fannie Mae's EPS in five years, from $3.23 per share to $6.46. It was an audacious goal, and reaching it, according to OFHEO, became Fannie Mae's reason for existence: "$6.46, the EPS goal, became the corporate mantra--everything else was secondary to hitting that target."
Even though his salary never topped $1 million, Raines' total compensation shot from $6.48 million in 1998 to $8.52 million in 1999, to $13.89 million in 2000, to $18.86 million in 2001, to $18.20 million in 2002, to $24.15 million in 2003, all on the strength of EPS bonuses. Investigators found that of the $90.12 million Raines was paid in that six-year period, more than $52 million came from EPS bonuses.
Gorelick's situation was similar. OFHEO found that she took home $26.46 million in the period from 1998 to 2002 (she left in that year, so she wasn't there for the entire period under investigation). Of that figure, nearly $15 million came from EPS bonuses.
In other words, they cooked the books. And to make matters worse, according to OFHEO, when regulators began to catch on to what was happening, Raines and his team then "sought to interfere" with the OFHEO investigation by trying to get Congress to start up a separate probe of OFHEO. Fannie Mae also lobbied Congress to cut OFHEO's funds unless it got rid of the top official in charge of investigating Fannie Mae.
The Democrats aided Raines by refusing to hold hearings on Raines and Gorelicks fraud. Their actions have led to the collapse of this institution, putting the American taxpayer on the hook for 5.6 Trillion Dollars. We are the insurers of this institution.
Even today with the collapse of Fannie Mae when Republican Baynor called for hearings again Barney Frank refused. When you look at our Government run institutions Social Security, Medicare, Medicaid, and Fannie Mae. Not one of these is solvent. We the American public hold the bills due on this group of catastrophes to the tune of $59 Trillion.
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Reader Comments (7)
I actually believe things are worse at Fannie Mae than we've been told so far. My thinking goes like this: Fannie Mae & Freddie Mac hold about half the mortgage debt in America. However, what about the other half? What should be made of the fact that half the mortgage debt is not in their control? I believe most of it is held by the original mortgage underwriter (usually a local bank) and those banks tend to be more conservative than those banks that knew they'd be selling on the debt to Fannie & Freddie. So not only do Fannie & Freddie have half the debt, but they have the riskier half.
That these institutions were run unnecessarily aggressively (read risky) is beyond doubt, but the Federal authorities are hoping that with a few well played card tricks they can convince the big financial institutions to help absorb the risk.
What annoys me about this is that many of those financial institutions took too many risks too. Banking is special and should be run more conservatively. Banks cannot be allowed to fail. If Citibank fails that's a much bigger issue than if GM (for example) were to fail. Citibank would become a liability on the taxpayer who never asked to assume such risk. Those elected to keep a watch on the financial institutions failed. There should be serious penalties for mismanaging a bank. Those penalties must include jail time for the chiefs.
I'm still more angry than coherent about this stuff, but so far this issue has been underplayed by the media and both political parties.
thats because both parties have crossed a line. The underlying philosophy of the US used to be you try and fail and learn from the bad decisions that caused the failure. Then if you can gather the investors your try again.
Todays philosophy has no penalties for failure. Fannie Mae and Freddie Mac encouraged the other banks to write mortgages to people with bad credit. Because the government said it was discriminatory not to.
They were able to do this because Mae & Mac would then buy those bad credit mortgages and even if they all defaulted they convinced the other banks don't worry because were the government will just cover it with a check from the treasury.
We the people are the treasury
Think of the tens of billions of dollars of stock that workers in all these large companies had that are now almost worthless. They worked their whole lives and are screwed while Democrats at the top took millions in bonuses and got away Scot Free!
"We the people are the treasury"
But not those 'poor people who couldn't really afford a mortgage, in the first place. They will not be in any position to help bail anyone out.
All those 'Why pay rent, when a mortgage costs less' adverts, - are they really doing the poorest folk a favour? - I don't think so!... but then that's socialist egalitarianism for you, - long on good intention, but short on consequence and responsibility, not to mention a total lack of even a modicum of 'common-sense'.
Sod em all.
Our banking system has taken a fool proof system for making money out of nothing and still managed to cock it up. The deserve all they get.
The following clip from the excellent Ambrose Evans-Pritchard, - in the DT business section.
DT Business
"Superficially, one can blame Lehman and its ilk for the excesses that led to this crisis.
However, the root cause lies in the actions of governments across the Western world. They held interest rates too low for much of the past two decades, and encouraged the debt burden to explode to unprecedented levels.
This reckless experiment has left our societies acutely vulnerable to a sudden reversal of debt issuance, or ''deleveraging" as it is known. The ferocious purge now under way will come at a high human cost. Millions in Britain, Europe, the US, and the rest of the world will lose their jobs over the next two years, through no fault of their own.
Having caused this crisis, it would now be remiss for governments to pursue a policy of strict debt liquidation in the name of capitalist purity.
As the bankruptcies mount, the state will have an obligation to step in to preserve social stability. If that means the temporary nationalisation of large chunks of the Western economy, so be it.
This is too grave a crisis for ideological preening and free market infantilism. May those calling for debt liquidation ''a l'outrance" be the first in line to lose their jobs."
They have been ruining my generation's (70+),pension provisions for the past twenty years, with their policy of low interest borrowing. Now it's the 'boomers' turn, after all they have been among the largest beneficiaries of those policies.
In hindsight, we should have realised how crooked our mutual politicians in the West were, when they
started to raid Grannie's savings to pay the way for all their 'social welfare' programmes...
You are right Daytripper - sod 'em all!...
The junction between banking, governance and politics is probably the murkiest and least understood areas of life in the western hemisphere. Politicians for too long have been led by the nose by international finance. It has to end.
The major concern I've had for some time now is that War is just as effective a method of debt liquidation as anyting else.