Fannie Mae Was, and Still Is, Out of Control
From CNN Money:
Fannie report lays blame at the top
WASHINGTON (Reuters) - Fannie Mae’s “arrogant and unethical” corporate culture led employees to massage earnings to trigger bonuses for senior executives, and the board of directors contributed by failing to act independently, the company’s regulator said Tuesday.
The U.S. Office of Federal Housing Enterprise Oversight, in its report on Fannie’s nearly $11 billion accounting scandal, said it was going to announce a settlement with the mortgage finance giant. Sources have said the settlement would total $400 million.
“A combination of factors led Fannie Mae senior management, through their actions and inactions, to commit or tolerate a wide variety of unsafe and unsound practices and conditions,” the report said.
“Fannie Mae’s board of directors contributed to those problems by failing to be sufficiently informed and to act independently of its chairman, Franklin Raines, and senior management, and by failing to exercise the requisite oversight over the enterprise’s operations.”
If this were an ordinary public company, it would have been delisted and shut down long ago.
And is anyone going to demand that Frank Raines return his ill-gotten gains? This article makes it clear that “clawbacks,” the term used for trying to recover bonuses subsequently determined to be undeserved, are difficult to achieve.
More accounting woes for Fannie Mae
Mortgage finance company said the restatement process will likely cost more than $800 million this year.
May 9, 2006Fannie Mae, which is still investigating $11 billion worth of accounting problems, Tuesday said it identified new errors in two areas, but that it still expects to meet capital requirements set by regulators.
The company also said it has substantially completed its analysis of accounting problems, and the restatement process will likely cost more than $800 million this year.
If I’m reading this correctly, Fannie Mae is spending $800 mil just to correct its records (if I’m not reading it correctly, it’s very poorly written copy).
The idea that the mortgage market is more than a little dependent on the continued existence of Fannie Mae is a scary thought indeed, and that has nothing to do with whether or not the housing market is overvalued.
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UPDATE: This first para from the AP report is much more on point –
Employees at mortgage giant Fannie Mae manipulated accounting so that executives could collect millions in bonuses as senior management deceived investors and stonewalled regulators at a company whose prestigious image was phony, a federal agency charged Tuesday.
UPDATE 2: Announced just after 11 AM, from a subscriber link at The Wall Street Journal — “The report from the Office of Federal Housing Enterprise Oversight, or Ofheo, came as the mortgage-finance company prepared to announce a settlement with Ofheo and the Securities and Exchange Commission under which Fannie is expected to pay a fine of about $400 million.” Remind me again why Frank Raines’ bonuses shouldn’t be recovered. Also, here is a free Reuters link at the ABC News web site.
UPDATE 3, May 24: The Business & Media Institute notes that only CBS covered the story in its evening newscast, and even they failed to note the Democrat Party connections of its former leading lights. BMI characterizes Fannie Mae as the “government-sponsored Enron,” and it’s hard to disagree with them.
