| Page 4 of 5 < > |
How Washington Failed to Rein In Fannie, Freddie
In 2003, Richard Baker, left, obtained executive pay information on Fannie and Freddie but was pressured not disclose it. In 1999, Treasury Secretary Lawrence Summers publicly signaled that Fannie, Freddie could be a hazard.
(By Susan Walsh -- Associated Press)
TOOLBOX
   Resize
COMMENT
 Discussion Policy
 CLOSE
Comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions. You are fully responsible for the content that you post.
Who's Blogging  |
In tying itself to politicians and wrapping itself in the American flag, Fannie Mae went out of its way to share credit with politicians for investments in their communities.
"They have always done everything in their power to massage Congress," Leach said.
And when they couldn't massage, they intimidated. In 2003, Richard H. Baker (R-La.), chairman of the House Financial Services subcommittee with oversight over Fannie Mae and Freddie Mac, got information from OFHEO on the salaries paid to executives at both companies. Fannie Mae threatened to sue Baker if he released it, he recalled. Fearing the expense of a court battle, he kept the data secret for a year.
Baker, who left office in February, said he had never received a comparable threat from another company in 21 years in Congress. "The political arrogance exhibited in their heyday, there has never been before or since a private entity that exerted that kind of political power," he said.
A Bombshell
In June 2003, Freddie Mac dropped a bombshell: It had understated its profits over the previous three years by as much as $6.9 billion in an effort to smooth out earnings.
OFHEO seemed blind. Months earlier, the regulator had pronounced Freddie's accounting controls "accurate and reliable."
Humiliated by the scandal, then-OFHEO director Armando Falcon Jr. persuaded the White House to pay for an outside accountant to review the books of Fannie Mae. The agency reported in September 2004 that Fannie Mae also had manipulated its accounting, in this case to inflate its profits.
The companies were humbled. The flaws of their business practices were laid bare.
The companies soon faced new bills in both the House and the Senate seeking increased regulation. The Bush administration took the hardest line, insisting on a strong new regulator and seeking the power to put the companies into receivership if they foundered. That suggested the government might not stand behind the companies' debt.
Fannie Mae and Freddie Mac succeeded in escaping once more, by pounding every available button.
The companies orchestrated a letter-writing campaign by traditional allies including real estate agents, home builders and mortgage lenders. Fannie Mae ran radio and television ads ahead of a key Senate committee meeting, depicting a Latino couple who fretted that if the bill passed, mortgage rates would go up.
The wife lamented: "But that could mean we won't be able to afford the new house."
