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For his part in the “irregularities,” Raines remained unrepentant. “While I long ago accepted managerial accountability for any errors committed by subordinates while I was CEO, it is a very different matter to suggest that I was legally culpable in any way,” Raines said in a statement. “I was not. This settlement is not an acknowledgment of wrongdoing on my part, because I did not break any laws or rules while leading Fannie Mae. At most, this is an agreement to disagree.”
Another troubling aspect of the government-led lawsuit against Raines, along with CFO and vice chairman Tim Howard and company controller Leanne Spencer, was the fact that the taxpayers paid the defense costs for the litigation. By the beginning of this year those costs totaled $24.2 million for the three executives–and a staggering $132 million to defend all of the other Fannie Mae officials involved in various securities lawsuits and government investigations.
Where did Johnson and Raines go after Fannie Mae? In 2008, Johnson became part of then-Sen. Barack Obama’s vice presidential search committee, but was forced to resign four days later when the Wall Street Journal revealed that he had received questionable loans from Countrywide Financial, which had been the leading purveyor of sub-prime loans during Johnson’s tenure at Fannie. Currently he is vice chairman of Persus LLC, an investment firm which saw one of the companies in its portfolio, Vehicle Production Group, awarded $50 million in clean energy loans from the Department of Energy (DOE). Perseus chairman Frank Pearl characterized it as an “absurd idea” that Johnson, listed as a campaign bundler for Obama’s 2008 presidential run in which he was committed raising $200,000 to $500,000, used his political influence to help secure the deal. “I doubt there was anybody at DOE that even considered the fact that Jim was part of this firm. We went straight through the proper channels of the [loan] program,” said Pearl.
As for Raines, in 2008 he reportedly took calls from the Obama presidential campaign “seeking his advice on mortgage and housing policy matters.” He is currently on the board of directors of Exclusive Resorts, a high-end vacation club. His bio describes him as a “retired Chairman and Chief Executive Officer of Fannie Mae, one of the largest financial institutions in the United States. Mr. Raines has served in President Jimmy Carter’s administration and President Bill Clinton’s cabinet as the Director of the Office of Management and Budget, during which time he led the first balanced federal budget in 30 years.” He is also listed as a board of trustee member for Enterprise, a company that calls itself “a leading provider of the development capital and expertise it takes to create decent, affordable homes and rebuild communities.” One is left to ponder the expertise of a man who helped saddle taxpayers with Fannie’s $153 billion bailout.
Yet perhaps the saddest, as well as the most telling aspect of these revelations is the fact that the American public knows so little about them. While much of the public understands the housing meltdown precipitated the worst economic crisis since the Great Depression, it is more than likely that these two men, both of whom walked away with millions of dollars in compensation even as they sowed the seeds of Fannie Mae’s demise, remain anonymous figures to the vast majority of the public.
Yet none of their actions or those of the other players involved in the mortgage meltdown would have been possible without government enablers. Government enablers like Reps. Barney Frank (D-MA) and Maxine Waters (D-CA), both of whom remain in positions of power. And incredibly, revealed as recently as July, the Department of Justice (DOJ) is still hectoring lending institutions to make mortgages available to minority applicants who wouldn’t otherwise qualify for them.
The Tea Party movement and the OWS movement couldn’t be further apart politically if they tried. Yet in one sense they are intrinsically linked in that both groups understand that something is fundamentally wrong with the American experience–and both groups are angry about it. Unfortunately, only the Tea Partiers get it right: Wall Street is beholden to government, not the other way around. That is not to say Wall Street is innocent, only that it is forced to operate within the parameters, no matter how reckless and tainted by corruption, government sets for it.
The order of culpability is critical in that it may determine the winner of the presidential election in 2012. It is no secret that Barack Obama and much of the Democratic Party is engaged in a campaign of class warfare designed in large part to flip that order on its head, blaming “fat cat” bankers and Wall Street in general for the nation’s woes, and offering government as a “solution.” It behooves whichever Republican emerges as that party’s presidential candidate to point out the obvious: men like Johnson and Raines couldn’t have gotten as far as they did without the heavy hand of government clearing the way. Moreover, it is absolutely essential for that candidate to make the distinction between crony, and free market, capitalism.
Erecting barriers to competition is a key to maintaining advantage and market share. With Washington leading the way, it makes sense for the big boys to redirect their resources to their lobbying shop and government affairs office.
What should Republicans do? “For every encroachment into the market by the federal government–under the guise of ‘reform’–there exist pro-market alternatives that Republicans must articulate and passionately defend,” says Ryan. He concludes with something every reasonable American can understand. “This is not a contest for one political party, one sector of our economy, or one segment of the population. We all stand to lose as crony capitalism drains the life from our economy; but we all stand to gain from the fruits that genuine, vigorous, free market competition provides.”
Genuine, vigorous, free market competition — that is the best antidote to men like James Johnson and Franklin Raines.
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