John McCain 2006 – Warning On Current Housing Crisis


The United States Senate

May 25, 2006

Section 16

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

The Deocrats Killed this measure in Committee preventing a full Senate Vote.

Barack Obama voted against this reform.

See the original Senate Record here:

Another Example of Democrats Blocking Reform – McCain’s attempt at reform “Scuttled”

McCain Accounting Proposal Scuttled

Senate Rejects Listing Of Stock Options as A Corporate Expense

By Helen Dewar and David S. Hilzenrath

Washington Post Staff Writers

Friday, July 12, 2002; Page A01


Senate Democrats yesterday blocked a proposal that would have changed the way companies account for stock options, an initiative vehemently opposed by high-tech companies that have used such grants to award billions of dollars in compensation to their executives and employees.

Sen. John McCain (R-Ariz.) tried unsuccessfully to attach to a broader corporate accountability bill a requirement that companies subtract the cost of stock option grants from their reported profits. But the Democratic leadership prevented McCain’s amendment from reaching a vote.

 “The fix is in,” said McCain, vowing to try to force a vote on the measure in the future. McCain’s proposal faced bipartisan resistance in the Senate.

Unlike salaries and cash bonuses, option grants to executives and employees are not counted as an expense on corporate statements. If they were, many companies would report weaker profits, and some companies that now appear profitable would post losses.

The ability of companies to dispense options as if they had no cost has led to huge executive grants, giving corporate leaders added incentive to cook the books and artificially inflate stock prices, some politicians and business analysts say.

After Republicans used parliamentary maneuvers to block Democrats’ amendments, Assistant Majority Leader Harry M. Reid (D-Nev.) outflanked McCain. As a result, Reid spared senators the potential discomfort of going on record with a vote against the stock option amendment.

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