Fannie Mae’s Duo of Destruction

Arnold Ahlert is a former NY Post op-ed columnist currently contributing to JewishWorldReview.com, HumanEvents.com and CanadaFreePress.com. He may be reached at atahlert@comcast.net.


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If there is one element of the 2008 financial meltdown that likely unites Americans of every political persuasion it is the idea that some of the worst actors involved remain unpunished for their malfeasance. Moreover these malefactors not only remain unpunished, but have done quite nicely for themselves despite the economic swoon that has battered millions of Americans. Two former Fannie Mae executives, James Johnson and Franklin Raines, are textbook examples of the odious crony capitalist/government nexus which turns a blind eye to greed, incompetence, and arguably criminal behavior for the well-connected.

We begin with James Johnson, a politically astute and well-connected Democratic supporter who was appointed chief executive of Fannie Mae in 1991. As best revealed in the book Reckless Endangerment, Johnson decided his mission was to expand home ownership–and enrich himself and others in the process. As the book explains, for years Fannie Mae’s compensation structure was “a conservative one with executive pay linked to a wide range of performance measures,” including “how well the company managed its cost each year and what its return on assets was, a calculation of how much the company made on the loans it held on its books.” Johnson’s strategy? Tying compensation “almost solely to earnings growth.” As a result, between 1993 and 2000, executive incentive pay more than quadrupled from $8.5 million to $35.2 million. In 1995, the level of greed was palpable: of the $7 billion raised by Fannie largely on the basis that the federal government implicitly guaranteed its debts, Johnson and other executives kept $2.1 billion for themselves and their shareholders.

Much of this money was used to buy influence in Congress via campaign contributions and among activist groups such as ACORN, the Congressional Black Caucus and the Congressional Hispanic Caucus. Tens of millions of dollars were also spent on advertising and a raft of pro-Fannie academic studies. All of it was designed to blunt any criticism of Fannie–more often than not with accusations of racism due to Fannie’s involvement in billions of dollars of minority sub-prime loans–and undermine several attempts to rein in its now well-documented excesses. Excesses which have cost taxpayers more than $153 billion to date.

How could Johnson get away with it? Two paragraphs from a book review of Reckless Endangerment are very illuminating:

The authors are at their best demonstrating how the revolving door between Wall Street and Washington facilitated the charade. As Treasury secretary, Robert Rubin, formerly the head of Goldman Sachs, pushed for repeal of the ­Depression-era Glass-Steagall Act that had separated commercial from investment banking–a move that Sanford Weill, the chief executive of Travelers Group had long sought so that Travelers could merge with ­Citibank. After leaving the Treasury, Rubin became Citigroup’s vice chairman, and “over the following decade pocketed more than $100,000,000 as the bank sank deeper and deeper into a risky morass of its own design.” With Rubin’s protégé Timothy F. Geithner as its head, the New York Federal Reserve Bank reduced its oversight of Wall Street.

A tight web of personal relationships connected Fannie, Goldman Sachs, Citigroup, the New York Fed, the Federal Reserve and the Treasury. In 1996, Fannie added Stephen Friedman, the former chairman of Goldman Sachs, to its board. In 1999, Johnson joined Goldman’s board. That same year Henry M. Paulson Jr. became the head of Goldman and was in charge when the firm created many of its most disastrous securities–while Geithner’s New York Fed looked the other way. As the Treasury secretary under George W. Bush, Paulson would oversee the taxpayer bailout of Fannie Mae, Freddie Mac, Goldman, Citigroup, other banks and the giant insurer American International Group (A.I.G), on which Goldman had relied. As head of the New York Fed, and then as the Treasury secretary, Geithner would also oversee the bailout.

Johnson left Fannie Mae in 1998. During his tenure there he amassed more than $100 million in compensation, as well as millions of dollars in guaranteed consulting fees and other perks, including “an office, two secretaries and a car and driver for himself and his wife,” according to the Washington Post.

On to Franklin Raines. Mr. Raines was the White House budget director for the Clinton administration during the 1990s. In 1999, he became Chairman and chief executive of Fannie Mae and remained there until 2004, when he was forced to resign less than a week after the Securities and Exchange Commission (SEC) directed the mortgage giant to make “accounting corrections” that would result in $6.3 billion of profits being erased. That figure was amended to $10.6 billion in a 2006 report by Office of Federal Housing Enterprise Oversight (OFHEO) which also alleged that, during Raines’ tenure, Fannie Mae “systematically manipulated accounting estimates, ignored accounting requirements it had lobbied unsuccessfully against and operated with weak internal controls that helped obscure the other problems.” The OFHEO report further noted that the company “delayed booking $200 million of expenses in 1998, which allowed Raines and other top executives (including James Johnson) to receive millions of dollars in bonuses linked to Fannie’s profit.”

The level of executive bonus compensation between the years 1998 and 2004 was huge. $115 million was spread around to “Mr. Raines, chief financial officer J. Timothy Howard, and other members of the inner circle of senior executives at Fannie Mae” due to accounting procedures the OFHEO report labeled as “inconsistent with the values of responsibility, accountability, and integrity.”

The government sued Mr. Raines along with two other company executives, seeking $100 million in fines and $115 million in restitution for bonuses “that were not earned.” In 2008, a settlement was reached in which Raines relinquished company stock options, proceeds from stock sales and other benefits totaling $24.7 million. Yet according to the Seattle Times, people familiar with the deal contended that stock options, worth $15.6 million at the time they were issued to Raines, were of “negligible value” at the time of the settlement, due to Fannie Mae shares being hammered by the housing meltdown. Moreover while the size of the fine seems large, context reveals otherwise: Raines’ total compensation from 1998 through 2004 was $91.1 million, including some $52.6 million in bonuses, according to OFHEO.

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  • Amused

    LOL….that's an easy question – GREED . On BOTH sides of the aisle . Avarice is bi-partisan .

  • Amused

    Anyone remember Keating ? Who facilitated him ? Who attempted to defend him ? How much he got $$$ away with ? The "prison farm " jail term ……which got reduced by " a judge " ??
    OR , the big grin on his face when he got out ? ….lololol / There are parralells to the Madoff thing …the silence of just about EVERYONE as he operated his Ponzi Scheme …there were numerous warning signs , even credible people who literally shouted out well before te robbery went into the double digit BILLIONS !

  • http://www.contextflexed.com Flipside

    Let’s not forget about the team of Hassidic Jews that embezzled all that money from the Pell grant and got their convictions wiped away by Hillary Clinton. Yes, this swindling from FGCs is a terrible thing.

    • Ghostwriter

      You never miss a chance to attack Jews,don't you Flipside? That statement could have been ripped from "Mein Kampf,"one of your favorite books,I think.

      • http://www.contextflexed.com Flipside

        I never miss a chance when Zionists are pointing out that embezzlers exist among the ranks of their enemies that they also exist among the ranks of their friends.

        • Amused

          zionists flipside ? What about anti-semites like yourself ? True zionists are head and shoulders above you , and just remember , the JEWS were on the land 2500 years before the first arabs / muslims came out of the Arabian Peninsula with their blood cult .The Jews OWN the land of Israel .Jews were in Medina before the founder and his band of thieves started plundering the peoples and tribes living there , converting them by the sword [which they still do to this day ]

          • http://www.contextflexed.com Flipside

            Your point is rife with weaseling. I am not an antisemite. I just have the balls to criticize Jews. What’s a true Zionist vs a false Zionist? I dont think your average Zionist is as cogent as Theodor Herzl. So your fallback is the religious race history of Israel? That history includes Palestinians too. Also, Abraham used to live in Iraq. Your cheap reversal doesn’t work.

          • Ghostwriter

            The problem is you only blame Jews,Flipside. You don't blame anyone else. Not Muslims or any other group. Only Jews. That's why people call you an anti-semite. That and many of your statements are so appalling,that they deserve criticism.

          • http://www.contextflexed.com Flipside

            Only Jews are to blame for acts that Jews commit. What am I supposed to do about tha? If a Jew rapes a little boy and murders him, am I supposed to find a Muslim who did the same? Is everything about the Jews codependent with the Muslim? Is everything he does exonerated and justified by the events of 1939 Germany? I really don’t think so.

  • StephenD

    Maybe we should protest this. Perhaps we should stand around on sidewalks and defecate on police cruisers to make our point. In the mean time, D.C. continues as if nothing happened. I would love to see these enemies of the country thrown into prison. I would also have no problem with term limits for Congress and a legal limit to lobbyist access. A breach of ethics from a Congressman should be dealt with harshly. Long prison terms should be the norm until this crap is no more.

    • PhillipGaley

      Okay except that, "the leaders" actually follow the people whom they are drawn from; and the people are producing just a whole lotta criminals at the lowest level, and there appears to be a quite enough corruption and vice at the middle levels of Society, . . .

  • Jim_C

    We have people who worked for the big firms in scores saying they were warned not to say anything was amiss. We have testimony before Congress that the leaders of the banks and big companies knew exactly what they were doing. And we know the SEC had a huge staff of ONE looking out for consumer interest while this all went down. We know taxpayer money went right into bonuses for these scumbags, and yes, Raines, Paulson, Summers, et al. are among the scumbags who facilitated all this

    So OWS knows, and the TEA party knows, the fox guarded the henhouse, and we've paid dearly. There were several congressmen (too few) who argued in vain against what was happening. Byron Dorgan's speech was pure prophecy. And he was ignored as a "relic."

    This is about the collusion, access, and ultimate sellout of our government to the gods of wealth and power. It is NOT about "blame the rich." It is about a particular class with no loyalty to country and no ethical compass, which seduced both sides of the aisle with a destructive economic philosophy, and who to this day continue to drive our politics.

  • Amused

    Dont waste you're time on these numbnuts JIM_C, all they know how to do is blame a Democrat , the reast goes down that famous memory hole . They'll never admit that Republicans are just as big a crooks as are the Dems ..Everything wrong i the countr is the fault of the Democrats , BOTH had a hand in the economic problems , BOTH take money from the Big Shots , BOTH sell their arses and votes like a bunch of prostitutes that they are . These deluded imbeciles likew the ones replying to you are in a permanent state of denial . And if they're old enough to operate a computer then they're old enough NOT to have an excuse for their utter bias based STUPIDITY . Just the kinda dupes , the politicians love .

    • Rifleman

      No doubt the GOP congress could have stood up to the dp early on and backed Bush when he wanted to head it off, but the dp were the ones in bed with the scam and they were the ones who actively defended it against those who wanted to do something about it before it was too late.

      • Jim_C

        And no doubt the democratic party could have stood up when….etc. etc. (hence my point about Dorgan). I just don't think the CRA was THE "smoking gun." From what I understand the majority of the so-called "predatory" lending (something like 70-80%) were independent private lenders. At any rate this particular strain of financial industry deregulation was global.

        To say that, by the way, does not mean "deregulation = bad" across the board.

        • AZguy55

          No, greed and corruption are bad across the board and there were plenty of people, organizations, and government bureaucrats involved.

      • Questions

        Bush advocated boosted black and Hispanic lending quotas as much as Clinton did, though for ostensibly "conservative" reasons. Karl Rove was big on this.

        • Amused

          Qustions , you get A MINUS for that one .How dare you hint at the truth !!
          Imagine ,going against the flow of an FPM windup parrot !
          But you got it right brother . The pigs at the troff know no party lines , in fact they werent satisfied until they knocked over the troff ,and destroyed the whole bloody barn . And now they're at it again , looking for more "favorable legislation "

  • Amused

    Oh , and btw nimrod Stephen , insider trading goes on wholesale among the big boys , occaissionaly one gets caught , and the dupes call it a-typical . But afterall that's why I call them dupes. As they cheer the big shots , that have been and will continue to "bend them over " . So Stephen and Chezwick …lol…assume the position , you probably like it anyway .

    • Rifleman

      You sound a little jealous.

      • Amused

        you sound like a teenager rifleman[boy]

        • Rifleman

          Oh, I'm just so devastated, you hurt my weetle feewings.

  • Jim

    A better reason could not have been given for creating the occupiers or 99%.

    Yet this page runs an article proclaiming them uneducated.

  • Amused

    What did you expect from brainwashed partisan schmucks ??? Wind-up parrots truth and reality is not part of their repertoire . Hypocrisy is at the core of this mentality .

  • Kimo

    In the first paragraph you call it odious crony capitalist/government nexus. Why not call it what it is: Another failed experiment in Socialism initiated by the Community Reinvestment Act of 1977 by a democrat congress and president further promoted and defended by Democrat controlled Congresses and Administrations.

    There was nothing Capitalist about the events.

  • StephenD

    Come to think of it, wasn't one of Barney's boyfriends an executive at Fannie? Talk about corruption. Gives a whole new meaning to "insider trading" LOL

  • Rifleman

    Lax lending standards like these?
    http://news.investors.com/Article/589858/20111031

    Barney said he wanted to "Roll the dice again," and crapped out. The commercial banks making the coerced loans were assured they were backed by the government, but that wasn't what barney meant when he said he had their back and they were just scapegoated, and used for an excuse for the frank-dodd takeover act.

  • Jim_C

    Don't start with this "real villains" business. Think I'm going to argue that Barney and Dodd got to go? Heck no…they're not my state, but I don't let anyone I know act like either of those guys are indispensible legislators. If it weren't sad, it is kind of amusing watching Frank do his "told ya so" shtick now.

    There are indeed "real villains" and they are on record, on tape, on paper and on email showing their true colors. The fact that what many of them did was LEGAL–thanks to expert lobbying–should make us all puke.

  • Rifleman

    No prob, CW, I have left-leaning siblings too.

  • Rifleman

    Mea culpa on the juvenile quips, but you're right.

  • Amused

    dont try to mitigate your own stupidity chez ……you know what I said is true .I knoiw it's hard not to show it , with your limited vocabulary , but guess what ….Republicans are exactly the same as Democrats , when it comes to politicians , both are greedy , both abhorr the thought of working for a living , both take money for their favors [like any good prostitute ].The highest crime demographic of ANY group in the US – is among the 500 or so politicians in Wahington .But you've got one way tunnel vision Chez , you can't or wont accept reality , so that makes you stupid or damaged ….which is it ……perhaps you may wanna blame those 60's people for your pathetic state of mind ?

  • Jim_C

    Ah, that explains why you guys seem relatively sane. ;-)

  • Rifleman

    Lol, could be, Jim.

  • Amused

    Dumb rifleman , lol….he was talking about me you dullard . Looks like you could use some help in reading comprehension ……btw ….that was a juvenile remark , especially in view of the fact that it's true , both have been bent over , and go willingly for the next round …lol.probably screaming " liberals " !!! all the way .

  • Amused

    yea , and Bush and the Republicans had 8 years to sound an alarm , and please don't make me laugh about Bush' appointee to the SEC , who did absolutely NOTHING and knew even less .He had Madoff under his nose with a credible critic providing the information …what happened ?
    Truth is , the bi-partisan pigs were all at the trough stuffing themselves .

  • AZguy55

    That's why prison would be too kind for their types…….

  • Amused

    Oh ….those were the ONLY TWO ??? You've got the mentality of a 5th grader Chez . Just like the author above . You wouldn't be willing to bet everything you've got in the Bank on that would you ? Damn right you wouldn't .Because to say that is just more of the same partisn B.S. that splatters the walls around here …and you know it ,
    Grow up man .

  • Rifleman

    Lol, speak for yourself. I was just acknowledging my quips are sometimes juvenile too. You stepped in your own insult, LMAO.

    Yep, you’re definitely jealous. Don’t worry, someone out there has low enough standards to plumb ya.

  • Amused

    insult from you rifleman , is a compliment . and yes you are right , most of your comments are juvenile , just like your screen name . and just so you dont get your homosexual tendencies excited by my words , the "bent over " I alluded to was , not your favorite passtime , but colloquial term for getting screwed by the thieves on Wall Street .
    Oh and BTW , looks like your boy Glenn Beck has been hawking for another bunch of thieves and fraudsters , that Gold Firm got indicted on 19 counts . But then again Becks one of your own aint he ?

  • Rifleman

    The fact that you took my quip as an insult says a lot, it seems I struck a nerve or two. Lol, you act like I care what you think or say. I’m not the one that’s in a snit and lashing out in frustration and anger. Why should I bother insulting you, when you're doing such a great job of that yourself? And you call ME juvenile, lol.

    Some of my friends will be real excited to hear I have homosexual tendencies after all, but why is an open-minded, compassionate, and tolerant ‘liberal’ like yourself so down on them? Oh well, I hope you make peace with it. I gotta go, I’m feeling this strange urge curl up with some quiche and a Judy Garland movie.

  • Rifleman

    Oh, BTW, I don't have a boy, but I guess I need one now, don't I? I've never caught his show, but I guess I should have, so I could make him my own, and tell you to "Thay away from him, Blanch, he'th mine!"