When Rep. Christopher Shays (R-CT) discovered in 2002 that Fannie Mae and Freddie Mac were the "only Fortune 500 companies that didn't have to tell the public about their financial condition," he teamed up with Rep. Edward Markey (D-MA) to try to "apply the government's disclosure rules to Fannie Mae and Freddie Mac."
They didn't succeed. But the story surrounding that quest is worth the 15 minutes it will take you to read the republished article.
You really need to read this story if you still believe that there were no warning signs, that this catastrophic mess the President talked about Wednesday night somehow came from out of the blue, or that the entire mess lies on the shoulders of only one political party.
By 2005, Business Week called Fannie Mae CEO Franklin D. Raines one of the worst managers of 2004 "after the Securities & Exchange Commission's top accountant declared that mortgage giant Fannie misstated earnings for 3 1/2 years, leading to an estimated $9 billion restatement that will wipe out 40% of profits from 2001 to mid-2004."
In December 2006, U.S. regulators filed 101 charges against Raines; chief financial officer J. Timothy Howard; and former controller Leanne G. Spencer. In April 2008, Raines agreed to pay $24.7 million, including a $2 million fine; Howard, $6.4 million; and Spencer, $275,000. The settlement was orchestrated by the Office of Federal Housing Enterprise Oversight (OFHEO). In addition, Fannie Mae paid a record $400 million fine in its settlement with OFHEO and the Securities and Exchange Commission (SEC).
I didn't realize that this isn't the first time that Fannie Mae has been in trouble since LBJ turned it into a quasi-public/quasi-private institution. "Fannie lost $1 million a day during the early 1980s, requiring tax relief and other interventions." I remember those days; double digit interest rates and falling home prices; I remember when my best friend phoned to tell me that they owed more on their New Jersey (suburban NYC) home that it was worth on the market.
I also didn't realize that although Fannie Mae and Freddie Mac are supposed to be helping Americans buy homes, they are in the equity credit business as well as the second home business. Moreover, although a favorite conservative talking point is that FM/FM got into this mess because Democrats have pushed for low income housing programs ... "for years HUD has found that Fannie and Freddie lag behind private lenders in serving African-American borrowers and other underserved communities" ... despite a taxpayer subsidy that the CBO penciled out to be about $11 billion in 2001.
Oh, about the political party fingerpointing? I've already detailed that Republicans gave lip service to reform in 2003, when the party controlled the House, the Senate and the White House. The Washingtonian Magazine analysis helps me understand a bit about why it may have been so hard to get bills to move out of committee. But Fannie Mae executives came from both sides of the aisle, as this roster from 2002 shows:
- Arne Christenson - R: former aide to Rep. Newt Gingrich (R-GA)
- Tom Donilon - D: prepared Michael Dukakis and Bill Clinton for campaign debates
- Duane Duncan - R: former chief of staff to Rep. Richard Baker (R-LA)
- Jamie Gorelick - D: Fannie Mae vice chair; formerly counsel to the Defense Department and deputy to former attorney general Janet Reno
- Chuck Greener - R; senior vice president; former communications director of the Republican National Committee
- Jim Johnson - D: CEO prior to Raines; ran Walter Mondale's 1984 campaign
- Franklin D. Raines - D: 1991-1996, vice chairman; 1999-2004, CEO, Fannie Mae. He was also the White House budget director, 1996-1998
- Robert Zoellick - R: former general counsel; prepped George W. Bush for campaign debates
Photo: Getty Images
Fannie Mae CEO Franklin Raines testifies before Congress in 2004.