Cooking the books

"Shocking exposé hit the Street last week about one of the best-loved, all-American companies: Fannie Mae, the mortgage and financial services giant. The report, written by the company's regulator, the Office of Federal Housing Enterprise Oversight, offered a litany of accounting improprieties at the company. You might call it "In the Kitchen With Fannie: How to Cook the Books for Fun and Profit.""

That was the story four years ago, Sept. 26, 2004 in the NYT. But even with this report, Franklin D. Raines, the company's chief executive 4 years ago, and his predecessor, James Johnson, got their bonuses. (NYT Sept 26, 2008)

Then in April of this year, paying much less than the government ask for: "Raines, former Fannie chief financial officer Timothy Howard and former controller Leanne Spencer were accused in a civil lawsuit in December 2006 with manipulating earnings over a six-year period at the company, the largest U.S. financer and guarantor of home mortgages.

Raines, a Seattle native and prominent Washington figure who was President Clinton's budget director, is relinquishing company stock options, proceeds from stock sales and other benefits. His part of the settlement is worth $24.7 million. . ." He'd worked in two different Democratic administrations, made over $91 million from 1998-2004, and blamed the Bush Administration for his problems. [Does anyone in the government from the janitors to the President ever accept the blame for mistakes?] "Raines, the first black CEO of a Fortune 500 company, has been trying to restore his reputation and challenge shareholder suits. Raised in a Seattle family that relied on welfare checks, Raines broke through racial barriers to become an adviser to President Carter and head of the U.S. Office of Management and Budget from 1996 to 1998 under Clinton." (Seattle Times, April 18, 2008 [AP])

Breaking through racial barriers to be a first anything is not necessarily a guarantee of success. And just fining the perps more millions than the rest of us can imagine obviously doesn't solve the problem either.

So what did the Office of Federal Housing Enterprise Oversight report to the Congress [Chris Dodd, Chair of Banking, Housing and Urban Affairs and Barney Frank, Chair of Financial Services, both Democrats, now squawking and pointing fingers at Republicans] this year--four years later? Well, Fannie and Fred were rising to the challenge, the Director said.

"[Fannie and Fred] were able to fulfill their key mission of providing stability and liquidity to the conventional conforming loan market. Their support of the mortgage market grew by 15 percent in 2007 versus 8 percent growth in 2006, to a total of $5.0 trillion in guaranteed mortgage-backed securities outstanding and mortgage investments. Their market share of total mortgage originations grew from 37.4 percent in 2006 to 75.6 percent by the fourth quarter of 2007. There is increasing pressure for Fannie Mae and Freddie Mac to do even more to support the mortgage market, which is problematic in absence of GSE reform legislation to strengthen the regulatory process."

Do you feel stable yet? Did GSE reform legislation [that means Congress has to do something] happen? Did the Chris and Barney dog and pony show just toss the report into the circular file? And the press release explaining how they plan to get to root causes doesn't make me feel any better. Sort of sounds like the Secretary of the Treasury will be the most powerful man in the world. Don't remember electing him, do you?