On the Outside Now, Watching Fannie Falter
Wednesday, July 16, 2008
In the four years since he stepped down as Fannie Mae's chief executive under the shadow of a $6.3 billion accounting scandal, Franklin D. Raines has been quietly constructing a new life for himself. He has shaved eight points off his golf handicap, taken a corner office in Steve Case's D.C. conglomeration of finance, entertainment and health-care companies and more recently, taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters.
And he's privately smoldered over the events of the past week, when Fannie Mae and Freddie Mac were portrayed as being on the brink of disaster, prompting steep drops in their stocks and a federal intervention.
In his first interview in two years, Raines remained insistent that the mortgage finance giant's problems are not rooted in the company but stem from a time when the Bush administration and the Fed insisted the government-sponsored enterprise carried no explicit federal backing.
Treasury Secretary Henry M. Paulson Jr. has since shifted gears on that stance to prop up the company, drawing praise from Raines, but Raines said more needs to be done to restore confidence in their future.
"The future is what investors care about -- not today -- not just a press release," Raines said.
Watching from outside the limelight has been frustrating, said Raines, who has not spoken publicly about Fannie Mae since being charged by federal regulators with manipulating Fannie Mae's earnings in 2006. Rising from the working-class streets of Seattle to the highest levels of political and corporate life, Raines for more than a decade enjoyed a bully pulpit in Washington, first as head of the White House Office of Management and Budget under President Clinton and then as chief executive of Fannie Mae, where he was the first African American chief executive of a Fortune 500 company.
Raines settled charges brought by the Office of Federal Housing Enterprise Oversight by agreeing this spring to pay $2 million and forfeiting $22.7 million in stock and other benefits. And though none of it will come out of his pocket -- the payment was covered by insurance -- he has not emerged unscathed. He and his wife of more than 25 years, Wendy, are separated. Their house, a 1910 colonial in Northwest Washington, is for sale. An old friend, former Time Warner chairman Richard Parsons, describes him as being "in strong recovery mode."
Which is, perhaps, more than Fannie Mae can say. Its employees have watched the value of their stock holdings drop precipitously, and it is not clear whether the company has reached bottom. Many resent Raines and others who left in better times.
The current Fannie Mae crisis unfolded even faster for the company than it did for Raines.
In October 2003, even as Raines was invited to the Bush White House to receive a leadership award on behalf of Fannie Mae, investigators were about to look into the company's accounting books. A year later, Congress held a hearing on accounting irregularities at the company. By the end of 2004, Raines was forced out by the board, accused by regulators of overseeing accounting manipulations to bolster his compensation.
Even today, some think he contributed to Fannie Mae's slide.
"It's like a Dickensian novel," Raines said, who insisted he broke no laws in settling with the government last April.