Culture of Corruption
Thank you Mrs. “face-lift” of America Peolsi for that sound bite that aptly describes the mess at Fannie Mae, for which that organization will pay a record fine of $400 million. According to a Washington Post article, “Examining Fannie Mae” http://www.washingtonpost.com/wp-dyn/content/article/2006/05/23/AR2006052301751.html, executives at the shareholder owned, but quasi government operation that was set up to handle mortgages and facilitate the American housing industry “...allegedly rearranged the math,...even after accounting problems were found” to continue paying themselves the big bonuses and stock options previous managers had gotten. Despite a warning from then Fed Chief Alan Greenspan, who warned in testimony before Congress that “a sudden meltdown...could bring financial markets [down] with it,” and a multi-year haranguing by the Wall Street Journal, the top executives used their political clout, which the Post calls “one of the most sophisticated political machines” to “fend off closer regulation.”
A graph in the article titled ‘An Uncanny Coincidence’ shows that “...Fannie Mae’s reported earnings per share closely tracked the targets set for executives to receive maximum bonus payouts.” Another graph displays who got what. The teeny tiny black bit at the bottom represents their base salary—the remainder of the bar their options and bonuses. The biggest slice went to Franklin D, Raines, Chairman, chief executive officer and vice chair from 1998-2004, when he was forced to resign as the investigation proceeded, despite his best efforts to squash it. It looks as though his base salary was a couple hundred thousand, but the total payoff amounted to $24.2 million. Investigators said, “...those bonuses played a key role in the $10.6 billion accounting scandal...”
So just who are these people and how did they manage this three year rip-off? First the how. James A. Johnson, the former CEO and former aide to Walter Mondale, set up satellite offices throughout the country in order to be closer to where their business was being done. This arrangement could have been modeled after the way the Defense Department handles their big military contracts. In order to insure that they will continue, sub-contracts are let in every congressional district giving every national politician a stake in the success of the program. These satellite offices also served two other functions. They were early warning systems of possible criticism and they were effective as lobbying tools. “When [they] got wind in late 1998 about an idea among some Clinton staff members to require the company to pay to register its securities,” the company mobilized local officials who deluged the White House with protest calls. The matter was dropped. Mr. Johnson left the organization in 1999. The alleged illegal activity apparently took place after his departure and he is not accused of being involved.
Now, most importantly, the who. Mr. Johnson hired several people from the Reagan administration to handle publicity and lobbying. Robert Zoellick was executive vice president for affordable housing and left in 1997. Duane Duncan, who is currently the director of government and industry relations, was chief of staff to Republican Representative Richard Baker of Louisiana. According to the Post, Rep. Baker is Fannie Mae’s chief critic in the House. Can you say inside information?
Franklin D. Raines worked in the Carter administration and was the director of the Office of Management and Budget in the Clinton administration. That’s right-he handled the nation’s budget. YIKES!
Jamie Gorelick, vice chair for operations resigned in 2003. Now here’s a familiar name. When Ms Gorelick was the Inspector General at DOD she was, in the words of my Favorite Veteran (FV), universally hated. He said, “She didn’t listen.” From there she went to the number two position at Justice, where her most famous accomplishment was authoring the rule forbidding contact between intelligence gathering operations and FBI investigations. This turned out to be one of the main obstacles to dot connecting leading up to 9/11. She wasn’t listening to warnings regarding terrorism. She next appeared on the 9/11 Commission, part of whose job was to protect Ms. Gorelick from mean ole Attorney General John Ashcroft, who testified about that rule and its deleterious affects on national security. Now she, along with other Fannie Mae officers are going to be required to give back some of their ill-gotten bonus gains. Apparently, she wasn’t listening there either.
Others were profiled in the Post, but one of the more interesting is Walter Hubbell, who is currently a Senior Business analyst. He is a former intern in the Clinton administration, and wonderfully, the son of ex-con, ex Clinton Attorney General Web Hubbell.
The same edition of the Post has an article about the Enron case. Certainly if Ken Lay goes to jail, then so should the folks who were in on this scam. You can feel sympathy for people who invested and lost all their money with Enron, but at bottom the decision to do so was theirs. If Fannie Mae, Freddie Mac, or their sister Sallie were to fail, the U.S. tax payer would be on the hook. We who had no responsibility for the mess would have no recourse but to pay. It would be a debacle that would make the savings and loan thing in the late eighties look like child’s play.
I cannot say I am surprised by all this. Two things I learned traveling around the world substitute teaching was that the character of an organization comes from the top, and the top normally hires like-minded personnel. I knew the day I walked into one school and the Principal and the Vice Principal were actually having a fistfight in the office, I was in for a bad day. Similarly, the nation was warned during the ’92 campaign, what with bimbo-alerts and promises of universal health care while failing to mention that federal taxes would have to be doubled. But, we collectively decided to take a vacation from history and hire a group of people who believed and still believe that the ends justify the means; that anything goes to stay in power. The ends at Fannie Mae wasn’t mortgage facilitation it was big bucks for the big guys. We should all be thankful to those who persisted in looking into this before those Clintonista means did us all in ---again. And oh yes, thanks again to Ms Pelosi who was so close to the Clinton administration we have to believe she knows what she’s talking about.
A graph in the article titled ‘An Uncanny Coincidence’ shows that “...Fannie Mae’s reported earnings per share closely tracked the targets set for executives to receive maximum bonus payouts.” Another graph displays who got what. The teeny tiny black bit at the bottom represents their base salary—the remainder of the bar their options and bonuses. The biggest slice went to Franklin D, Raines, Chairman, chief executive officer and vice chair from 1998-2004, when he was forced to resign as the investigation proceeded, despite his best efforts to squash it. It looks as though his base salary was a couple hundred thousand, but the total payoff amounted to $24.2 million. Investigators said, “...those bonuses played a key role in the $10.6 billion accounting scandal...”
So just who are these people and how did they manage this three year rip-off? First the how. James A. Johnson, the former CEO and former aide to Walter Mondale, set up satellite offices throughout the country in order to be closer to where their business was being done. This arrangement could have been modeled after the way the Defense Department handles their big military contracts. In order to insure that they will continue, sub-contracts are let in every congressional district giving every national politician a stake in the success of the program. These satellite offices also served two other functions. They were early warning systems of possible criticism and they were effective as lobbying tools. “When [they] got wind in late 1998 about an idea among some Clinton staff members to require the company to pay to register its securities,” the company mobilized local officials who deluged the White House with protest calls. The matter was dropped. Mr. Johnson left the organization in 1999. The alleged illegal activity apparently took place after his departure and he is not accused of being involved.
Now, most importantly, the who. Mr. Johnson hired several people from the Reagan administration to handle publicity and lobbying. Robert Zoellick was executive vice president for affordable housing and left in 1997. Duane Duncan, who is currently the director of government and industry relations, was chief of staff to Republican Representative Richard Baker of Louisiana. According to the Post, Rep. Baker is Fannie Mae’s chief critic in the House. Can you say inside information?
Franklin D. Raines worked in the Carter administration and was the director of the Office of Management and Budget in the Clinton administration. That’s right-he handled the nation’s budget. YIKES!
Jamie Gorelick, vice chair for operations resigned in 2003. Now here’s a familiar name. When Ms Gorelick was the Inspector General at DOD she was, in the words of my Favorite Veteran (FV), universally hated. He said, “She didn’t listen.” From there she went to the number two position at Justice, where her most famous accomplishment was authoring the rule forbidding contact between intelligence gathering operations and FBI investigations. This turned out to be one of the main obstacles to dot connecting leading up to 9/11. She wasn’t listening to warnings regarding terrorism. She next appeared on the 9/11 Commission, part of whose job was to protect Ms. Gorelick from mean ole Attorney General John Ashcroft, who testified about that rule and its deleterious affects on national security. Now she, along with other Fannie Mae officers are going to be required to give back some of their ill-gotten bonus gains. Apparently, she wasn’t listening there either.
Others were profiled in the Post, but one of the more interesting is Walter Hubbell, who is currently a Senior Business analyst. He is a former intern in the Clinton administration, and wonderfully, the son of ex-con, ex Clinton Attorney General Web Hubbell.
The same edition of the Post has an article about the Enron case. Certainly if Ken Lay goes to jail, then so should the folks who were in on this scam. You can feel sympathy for people who invested and lost all their money with Enron, but at bottom the decision to do so was theirs. If Fannie Mae, Freddie Mac, or their sister Sallie were to fail, the U.S. tax payer would be on the hook. We who had no responsibility for the mess would have no recourse but to pay. It would be a debacle that would make the savings and loan thing in the late eighties look like child’s play.
I cannot say I am surprised by all this. Two things I learned traveling around the world substitute teaching was that the character of an organization comes from the top, and the top normally hires like-minded personnel. I knew the day I walked into one school and the Principal and the Vice Principal were actually having a fistfight in the office, I was in for a bad day. Similarly, the nation was warned during the ’92 campaign, what with bimbo-alerts and promises of universal health care while failing to mention that federal taxes would have to be doubled. But, we collectively decided to take a vacation from history and hire a group of people who believed and still believe that the ends justify the means; that anything goes to stay in power. The ends at Fannie Mae wasn’t mortgage facilitation it was big bucks for the big guys. We should all be thankful to those who persisted in looking into this before those Clintonista means did us all in ---again. And oh yes, thanks again to Ms Pelosi who was so close to the Clinton administration we have to believe she knows what she’s talking about.
posted by Gunston Hall Moderator at 12:01 PM
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