The Truth About Fannie (2004 Article)

Slate ^ | October 7, 2004 | by Daniel Gross

[library user]

** EXCERPT **

Fannie Mae, the federally chartered company that buys home mortgages and sells them as securities, is receiving a highly public fanny-kicking. After accounting issues arose last summer at Fannie's smaller and younger sibling, Freddie Mac, the Office of Federal Housing Enterprise Oversight began to examine Fannie Mae's accounting practices. The result of the probe, detailed in a 211-page report issued last week, paints Fannie Mae as an Enron-in-the-making. At the company that prides itself on being a cuddly enabler of the American dream, OFHEO unearthed a "pervasive" misapplication of accounting standards, poor internal controls, and—the most headline-worthy charge—a pay structure that rewarded executives for meeting earnings goals, which encouraged executives to manipulate earnings to hit the number.

In contentious hearings yesterday before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Fannie Mae CEO Franklin Raines and other executives, who denied wrongdoing, were raked over the coals. (Click here to read an "Assessment" of Raines.)

The current disputes are couched in the language of financial arcana—accounting standards and the tricky task of valuing derivatives. But at root, Fannie's troubles concern psychology more than bookkeeping.

[library user]

The desire to have earnings conform to some pre-existing plan is a recipe for trouble at a large corporation. One of the most damning segments of the OFHEO report (see Pages 7-12) discusses how, in order to be perceived as low risk, Fannie felt it had to present regular earnings growth. The meeting of earnings goals was so crucial that bonuses for top executives were pegged to them. In 1998, bonuses were based on hitting targets: earnings of $3.13 a share for the minimum bonus, $3.18 for the target bonus, and $3.23 or above for the maximum bonus. "Remarkably the 1998 EPS number turned out to be $3.2309," OFHEO deadpans. In order to meet the target, OFHEO suggests, Fannie Mae may have improperly deferred some $200 million in expenses.

[library user]

Even an OBAMA SUPPORTER on OBAMA'S OWN WEB SITE warned against Raines back in March! Here is photo proof.

[VRWCmember]

In contentious hearings yesterday before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Fannie Mae CEO Franklin Raines and other executives, who denied wrongdoing, were raked over the coals.

That would be the same Franklin D Raines that is Obama's top economic advisor.

[penelopesire]

WE NEED TO START DEMANDING AN INVESTIGATION INTO THE DEMOCRATS CORRUPT TIES TO THE FMFM MELTDOWN!!

http://www.ofheo.gov/

CALL YOUR CONGRESSPEOPLE TODAY TOO!!

[penelopesire]

Here are the names we need to research and contact:

http://financialservices.house.gov/subassignments.html

including the dems...we need to put the fear of god in these folks!!

[Para-Ord.45]

reference ping

[July4]

Franklin Raines and all the others of his ilk took advantage of the STUPIDITY that has nearly sunk this country. Minorities, recent immigrants, people already up to their necks in debt, folks on disability, those with modest retirements, and get-rich-quick-house-flippers apparently were encouraged to buy homes they couldn't afford.

It was politically correct and it made millions of people temporarily happy, but look at America's agony now.

[Anima Mundi]

I found this interesting that those investigating were characterized as revengeful and petty:
“The simplest, and most conspiratorial, is that the Fannie investigation represents a Republican payback for Enron and Halliburton. Conservatives are delighting in the gutting of Raines and Fannie Mae—a Democratic boss of a Democratic-leaning company. Former Fannie CEO James Johnson, who got some of the bonuses OFHEO criticized, has also been shortlisted as a possible Kerry treasury secretary. The accounting investigation, if nothing else, has probably made both Raines and Johnson untouchables to a Democratic president. “

How different things appear in the fullness of time. I
guess when it Raines it Poors?

[Wuli]

some of us are trying to collect all links to FannieGate posts here:

http://www.freerepublic.com/focus/news/2083158/posts?page=1