A $25 billion bailout of government-backed mortgage giant Fannie Mae is now planned. But Fannie Mae has such political power that its crooked managers will probably never be held accountable for their fraud in any way, unlike the Enron executives who went to jail. Instead, its lending authority will likely expand under federal mortgage bailout bills.
Paul Gigot, a Wall Street Journal editor, describes the personal vilification he has received over the years after the Journal began warning, prophetically, that Fannie Mae was engaged in fraudulent accounting, and that the taxpayers might some day have to pick up the tab. (To award themselves millions of dollars in bonuses, Fannie Mae’s managers used Enron-style fraudulent accounting). Fannie Mae’s managers, he notes, were “unique in their thuggery” and arrogance.
When conservative Congressmen tried to rein it in, Fannie Mae responded with an avalanche of lies and political reprisals. It told Wisconsin Congressman Paul Ryan’s constituents that he wanted to raise the rates on their existing mortgages, a complete fabrication. And when Florida Congressman Cliff Stearns began investigating its fraudulent accounting, it got jurisdiction over its accounting practices transferred to another committee run by Michael G. Oxley, who worked in tandem with liberal stalwart Barney Frank to cover up the abuses at Fannie Mae and kill any reform legislation.
(Congressman Michael Oxley was the co-author of the devastatingly-costly and wasteful Sarbanes-Oxley Act, which “created more busywork for accountants than real protection against abuses,” according to David Ignatius in the Washington Post. Oxley received generous donations from the big accounting firms, which were responsible for failing to detect Enron’s fraudulent accounting. The Sarbanes-Oxley law has made those firms fabulously wealthy, increasing the volume of work they receive by making auditing of public companies needlessly complicated. The big accounting firms now must be paid to evaluate and supervise companies’ “internal controls,” such as which employee has access to which computer password. The Sarbanes-Oxley Act has cost the stock market over a trillion dollars in value, and imposed ongoing compliance costs exceeding $35 billion per year, while diverting attention away from corporate incompetence at mortgage lender Countrywide Financial, a close Fannie Mae ally. It also created an unaccountable agency, the Public Company Accounting Oversight Board, to create mountains of red tape to enrich big accounting firms at the expense of productive businesses. Like Fannie Mae, it is nominally “private” to evade accountability and open-government laws (even though in reality, it is a governmental agency, and unlike Fannie, qualifies as such under the Supreme Court’s Lebron decision).
Fannie Mae was run by liberal power brokers like Franklin D. Raines who even now are unrepentant about their thuggery and accounting fraud. Franklin Raines recently took to the pages of the Washington Post to attack as “ideologues” the banking experts in the Bush Administration who had long and prophetically warned about the dangers of Fannie Mae’s risky practices. I published a letter to the editor in response criticizing Raines for his utter gall in lecturing whistleblowers about how Fannie should be managed. But amazingly enough, he continues to be treated like a financial hotshot. Law Professor James Lindgren has a post about Fannie Mae aptly entitled “Fannie Mae’s Thugs.”