It was a perilous moment for Fannie Mae chairman and chief executive Franklin D. Raines. With regulators accusing the company of cooking its books and the Justice Department conducting a criminal investigation, Raines was called to testify under oath before a congressional panel.
But politicians of both parties, some of whom had been fed questions by Fannie Mae in advance, rallied to the defense of Raines and his company. They turned the Oct. 6 hearing into an interrogation of the accusers, challenging the regulators' methods and findings.
Franklin D. Raines and J. Timothy Howard deny allegations of accounting manipulations at a House Financial Services Committee in October.
(Susan Biddle -- The Washington Post)
Fannie Mae's Directors The company's board includes a host of well-known members with backgrounds in business and academia.
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Rep. William L. Clay Jr. (D-Mo.) argued that lawmakers had no business holding the hearing -- "unless this is truly a witch hunt."
The scene in the hearing room symbolized the deep support Raines had developed on Capitol Hill -- support that had long blunted efforts to impose tighter regulation on Fannie Mae and rein in the company's power over housing finance.
As Raines went out on a limb to deny the allegations of accounting manipulations, Fannie's ability to mobilize political support in battle after battle over the past several years gave him reason to feel confident. Over the past year, for instance, Fannie's political action committee gave $121,000 in campaign contributions to members of the subcommittee.
Looking up at the dais, Raines saw Rep. Spencer Bachus (R-Ala.), who had attended a boat ride brunch Fannie Mae hosted for Alabama lawmakers at the Republican convention. He saw Rep. Maxine Waters (D-Calif.), who had received a "Homeownership Hero" award from a housing industry alliance that Fannie helps sponsor. He saw Rep. Joseph Crowley (D-N.Y.), in whose district Fannie had helped provide mortgage assistance for union members.
And, behind the dais, Raines saw a portrait of former committee chairman Jim Leach (R-Iowa), for which Raines had led the private fundraising effort.
Not part of the hearing but part of the backdrop was Sen. Christopher S. Bond (R-Mo.), chairman of the Senate subcommittee that handles the budget of Fannie's regulator, the Office of Federal Housing Enterprise Oversight.
In the months before the hearing, Bond had advanced legislation to withhold $10 million of OFHEO's funding until its director was replaced and had asked the inspector general at the Department of Housing and Urban Development to investigate possible political bias in the way the agency was probing Fannie's accounting.
Raines, a Democrat and a resident of the District, had joined other Fannie Mae employees in contributing campaign money to the Missouri Republican. When the Fannie Mae Foundation donated $25,000 to the St. Louis chapter of the American Red Cross in 1993, the foundation issued a news release headlined, "SEN. BOND AND FANNIE MAE FOUNDATION PRESENT A GRANT FOR FLOOD VICTIMS IN ST. LOUIS."
One of the few hostile politicians in the hearing room was Rep. Christopher Shays (R-Conn.), whose district is home to one of Fannie's biggest rivals, the manufacturing and financial services giant General Electric.
"I am tempted to ask how many people in this room are on the payroll of Fannie Mae, because what they do is they basically hire every lobbyist they can possibly hire -- they hire some people to lobby and they hire some people not to lobby so that the opposition can't hire them," Shays said.
Rep. Richard H. Baker (R-La.), chairman of the House subcommittee that watches Fannie Mae, riled some of his colleagues by distributing a chart that showed the 2002 compensation of 22 top Fannie Mae executives, including executives with political and lobbying portfolios.
Among the names on the list were Arne Christensen, who had been a top aide to former House speaker Newt Gingrich (R-Ga.) and received compensation of $1,521,631 but had since left the company, and Duane Duncan, who had been a top aide to Baker and received compensation of $920,144.
Despite Duncan's presence on Fannie's lobbying squad, Baker has remained one of the company's toughest critics, and he opened the hearing by arguing that if Fannie foundered, taxpayers could shoulder the cost of a government bailout.
Clay cast the event in a different light.
"This hearing is about the political lynching of Franklin Raines," Clay said in an opening statement, before the questioning of the witnesses had begun.
One week earlier, Fannie Mae had issued a news release announcing that Clay joined the company in celebrating Fannie's investment of more than $50 million in a downtown St. Louis housing project. Before the month was out, Fannie had issued another news release on an initiative to make it easier for St. Louis, Mo., residents to buy homes near public transportation. That release noted Clay's participation in an event announcing the initiative.
As one of the most prominent African Americans in corporate America and a senior member of the Clinton administration, Raines had an affinity with the overwhelmingly Democratic Congressional Black Caucus that transcended local politics. At a ceremonial swearing in for members of the caucus in 2001, Raines delivered a speech on the history of African Americans in Congress -- and drew at length from a book by Clay's father, who preceded him in the House.
After the hearing, Clay backpedaled from his "lynching" comment.
"That was the emotion, in words, that the proceedings provoked," Clay, who is African American, said in a written statement. "The fact that Mr. Raines is a black man is not the whole of the story."
Waters, another member of the Black Caucus, is not a member of the subcommittee that held the hearing, but she attended and asked OFHEO director Armando Falcon Jr. whether he had gotten advice from House members such as Baker on how to investigate Fannie Mae. With the presidential election weeks away and Raines mentioned as a possible appointee in a Democratic administration, she also asked Raines how the accounting controversy might affect his prospects.
Crowley, chief deputy whip for House Democrats, used some of his time at the hearing to echo a main theme of Raines's defense.
Addressing the OFHEO director, Crowley said, "[I]t is the SEC, I believe, and not OFHEO, who has the final say over whether or not Fannie Mae must restate past earnings. Is that correct?"
When the regulator agreed, Crowley added: "Some have argued to me that there's more than an even chance the SEC may disagree with some of the most damaging allegations."
Raines told the subcommittee that he wished OFHEO had taken its allegations about Fannie Mae's accounting to the SEC for resolution before issuing its report criticizing the company.
"Then we will have the answer," Raines said. "We won't be having a debate about who is right and who is wrong."
Last week, the SEC's top accountant ended the debate.
(Staff researcher Madonna Lebling contributed to this story.)