Fannie Mae's Financial Fraud

You have to hand it to Congress when it comes to finger-pointing.

Here we have Fannie Mae's erstwhile CEO, Franklin Raines, apparently guilty of brazen financial records manipulation to trigger massive senior executive bonus payments over several years, and Congress is livid over Lee Raymond's retirement package from ExxonMobil.

I find it troubling that we have the Federal government causing its own massive failure of "corporate governance," as well as "CEO compensation" reasonability, yet managing to turn a blind eye to the whole matter.

My friend B emailed me the 6-page abstract of the regulators' report concerning Raines & Co.'s financial chicanery. It was sickening to read. Fannie has extensive regulatory oversight, and with its access to our Federal government's implicit credit guarantees, should be much more tightly supervised. Instead, we have senior executive behavior that compares handsomely with Lay, Skilling and Fastow at Enron.

It's really a shame that the average US equity investor does not realize what went on at Fannie. Nor how complicit Congress is in not shining a bright light on the mess, and appropriately punishing those involved. Once again, we are treated to the sight of Federal government entities taking it easier on themselves and their colleagues than on the taxpaying public, whether individually or as corporations.

Raines was appointed by Clinton, a Democratic president. So it's not something the media and the House and/or Senate Democratic minority leadership can accuse Bush of arranging. Rather, it seems to continue to point up the basic weakness of allowing Fannie Mae and Freddie Mac access to the Treasury on such favorable terms. Then turning around and using that massive financial power to influence Congress, district by district, to continue to support the housing institutions, or explain the presumed dearth of home mortgage funding availability to their constituents.

The whole mess should be ripped out by the roots, while allowing the substantial private mortgage lending sector to step up to replace Fannie Mae with competitive products at competitive prices, breaking the link between individual housing finance and Congressional largesse.