SEC Charges Fannie & Freddie CEOs But Not the Worst Culprits

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While we’re talking about greed & corruption at Fannie & Freddie, what about The Untouchables? Eliot Ness wouldn’t be able to get these four, they are protected by the Democratic machine. I’m not saying there isn’t a Republican machine, but what I am saying is that in the case of Fannie and Freddie, it was the Democratic machine at work.

The Securities and Exchange Commission has brought civil fraud charges against six former top executives at Fannie Mae and Freddie Mac, claiming they misled the government and taxpayers about risky subprime mortgages the mortgage giants held during the housing bust.

Two former CEO’s, Fannie’s Daniel Mudd and Freddie’s Richard Syron are the high profile figures charged in the 2008 financial crisis, a crisis which has made both housing entities wards of the taxpayers to the tune of $150 billion and rising.

Mudd worked at Fannie throughout the last decade and was the interim CEO of Fannie Mae in December 2004, after Franklin Raines left, and after the SEC revealed that Fannie had violated accounting rules. From 2005 until 2008, Mudd was the President and CEO of Fannie Mae. He made more than $80 million while at Fannie and was dismissed September 7, 2008.

In December of that year, he testified before the US House Committee on Oversight and Government Reform about Fannie and Freddie.

Richard Syron was the CEO of Freddie Mac. In 2004, David Andrukonis, Freddie Mac risk officer, warned Syron of increasing risk in Freddie Mac’s portfolio. Syron did nothing until December, 2007, when he told financial analysts that Freddie Mac would incur heavy losses because of the weakening housing market and rising mortgage defaults.

Syron took over $19 million in stocks, cash, etc, after that time despite his poor stewardship. He was fired in 2008 and testified that same year before the same House panel as did Mudd.  Mr. Syron was terminated September 6, 2008, under a Federal Housing Finance Agency plan for conservatorship of Freddie Mac.

The SEC now alleges that Mudd and Syron knew and approved of misleading statements claiming the companies had minimal exposure to subprime loans at the height of the housing mortgage bubble.

Barney Frank is coasting into retirement, Chris Dodd sailed off years ago, and Franklin Raines, Jim Johnson, Jamie Gorelick, and Tim Howard go unscathed. While the SEC was investigating Fannie Mae for accounting irregularities, these people skated. I mustn’t forget Maxine Waters and the Maxine ethics probe to nowhere.

The government now admits that the housing crisis, and not Wall Street alone, helped lead us into the worst economic meltdown since “The Great Depression.” They are looking for people to blame. I can’t answer for the guilt or innocence of Daniel Mudd or Richard Syron, but what about the guilt of the Frank, Dodd, Waters, Raines, Johnson, Gorelick, and Howard?

Raines was a poor kid who worked his way through Harvard and became a Rhodes Scholar. He was the WH budget director and finally CEO of Fannie Mae.

On December 15, 2004, the SEC’s top accountant stated that Fannie lied about earnings for 3 1/2 years. That lie, costing $9 billion, wiped out 40% of profits from 2001 -2005.

In 2001, while Raines was CEO, Fannie devised their own sketchy accounting method when they computed the earnings value of Fannie’s trillion-dollar portfolio of derivatives.

The mess became evident by 2003, but Raines was belligerent at any mention of problems, continued the illicit practices, and strongly supported them in fact. Raines “retired” December 21, 2004 in disgrace. Raines is also the inventor of the affordable mortgage program that gave loans to people who did not qualify.

In 2006, OFHEO filed suit against Raines to try to recover the $50 million in payments that were made to him based on the faulty accounting. Raines ended up with a small fine that was paid for by Fannie’s insurance company.

James Johnson, Raines predecessor, left with a $21 million parachute. In the 2011 book Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon, authors Gretchen Morgenson and Joshua Rosner wrote that Johnson was one of the key figures responsible for the late 2000’s financial crisis.

In an NPR interview, Morgenson described Johnson as “corporate America’s founding father of regulation manipulation.”  Also according to Morgenson, he changed Fannie’s executive compensation plan to be based on volume not quality and earned over $200 Million dollars while working at Fannie Mae.

Johnson went on to be Vice Chairman of Perseus LLC. I hope he’s straightened out for Perseus sake.

Tim Howard, Fannie’s CFO, left under pressure in 2004. In the least, he manipulated or lacked oversight of key control and reporting functions.

All three men made millions off Fannie and left unscathed though they put the machinery in place that later brought the housing giant crashing down into the taxpayers’ pockets.

There is also Jamie Gorelick who took home $26 million from Fannie as Vice Chairman from 1997 – 2003. She was given the appointment with no prior training or experience though she is a big Democrat, I mean Clinton-connected BIG!

On March 25, 2002, Bloomberg’s Businessweek interviewed Gorelick about the health of Fannie Mae. Gorelick is quoted as saying, “We believe we are managed safely. We are very pleased that Moody’s gave us an A-minus in the area of bank financial strength – without a reference to the government in any way. Fannie Mae is among the handful of top-quality institutions.” She claimed they were highly regulated and didn’t need any further safeguards.

James Johnson was temporarily on Obama’s panel to pick a VP but resigned when it came to light that he secured $2 million in below market value mortgages through Countrywide, Chris Dodd’s buddies.

Raines had some contact with Obama while he was running for election but how much is unclear.

The Democratic-Socialists’ Congressional Black Caucus, the conscience of Fannie Mae

No crisis at Fannie and Freddie

Definitely no safety and soundness problems – it’s Bush’s fault – Raines and the GSE’s are outstanding

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