Fannie Mae Democratic Liberals – Back to Work In Washington

Jim Johnson – Former Fannie CEO is back with Obama Campaign:


October 14, 2004     

Fannie Mae Liberals

There were many moments of high entertainment during last week’s House hearings on Fannie Mae’s creative accounting. But our favorite was the Mister Magoo performance given by Barney Frank (D., Massachusetts) after learning that Fannie had handed out $245 million in bonuses over five years. Mr. Frank chided Fannie CEO Frank Raines and CFO Tim Howard, saying, “At the level of compensation you get, we ought to be able to count on you to do your very best without additional incentives.”

Here’s a case of misplaced moral outrage if we’ve ever seen one. Mr. Franks is mad about the salaries when he really should be mad at the rigged political game that has made them possible. Fannie’s regulator, the Office of Federal Housing Enterprise Oversight, has reported that Fannie has been cooking its books. Add that to the increasing evidence that Fannie has been ignoring its mission to provide affordable housing, and we wonder if Mr. Frank doesn’t need an eye checkup.

Ditto for the good liberals in the Congressional Black Caucus. Members of this group are often the loudest defenders of Fannie and her brother, Freddie Mac. Can it be that the annual donations made by the Fannie Mae Foundation to the Caucus have blurred their vision too?

Maxine Waters (D., California) cooed all over Mr. Raines, and Clay Lacy (D., Missouri) played the race card by calling the hearings a “political lynching” of Mr. Raines, who is African-American. Are CEOs not supposed to be accountable simply because they’re persons of color? By the way, Roger Barnes, the whistle-blower who was fired by Fannie after complaining about its accounting procedures, is also black. In a more consistent world — where political principles mean something — these liberals would be scorching a company that used a government subsidy to enrich its own executives. Instead, they’re defending it.

The default position for Fannie’s defenders is that the giant mortgage finance company provides more affordable housing. At least that’s Fannie’s declared mission and that’s why the government offers it an implicit subsidy. But as study after study has demonstrated, Fannie does not provide homeowners with significant savings.

The Federal Reserve found that about half of the government subsidy going to Fannie and Freddie is retained by the company. Studies conclude that the tiny amount of subsidy that actually reaches borrowers does not increase homeownership.

To be sure, Mr. Franks is right that Fannie’s executive compensation is rich by any standards. When a government-sponsored company pays its top 21 executives more than $1 million each in 2002 (and three of them are lobbyists), that fact does bear some reflection.

And, aside from the evidence that Fannie was cooking its books to trigger big bonuses, there’s also the issue of performance. Mr. Raines’s 2003 compensation was over $20 million. That’s about $14 million more than the median for CEOs of very large companies. What did Mr. Raines do to deserve this giant sum? Not much. In the five years that Mr. Raines has been at the helm, Fannie’s cumulative shareholder return, including reinvested dividends, has been 4% compared with the 23% achieved by the S&P financial sector.

The evidence is overwhelming that Fannie only pretends to be a tribune of the poor. Not only does the company use its implicit subsidy to enrich its executives, some of that money is funneled into the Fannie Mae Foundation, which, no surprise, motors it back out to favorite charities of Fannie board members. It’s an odd sort of liberal principle that endorses private profits at public risk.

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