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Thread: Barack Obama's ties to Freddic Mac and the mortgage crisis

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    Elite Member tkdgirl's Avatar
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    Angry Barack Obama's ties to Freddic Mac and the mortgage crisis

    New Agency Proposed to Oversee Freddie Mac and Fannie Mae

    By STEPHEN LABATON
    Published: September 11, 2003
    The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

    Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

    The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

    The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac -- which together have issued more than $1.5 trillion in outstanding debt -- is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

    ''There is a general recognition that the supervisory system for housing-related government-sponsored enterprises neither has the tools, nor the stature, to deal effectively with the current size, complexity and importance of these enterprises,'' Treasury Secretary John W. Snow told the House Financial Services Committee in an appearance with Housing Secretary Mel Martinez, who also backed the plan.

    Mr. Snow said that Congress should eliminate the power of the president to appoint directors to the companies, a sign that the administration is less concerned about the perks of patronage than it is about the potential political problems associated with any new difficulties arising at the companies.

    The administration's proposal, which was endorsed in large part today by Fannie Mae and Freddie Mac, would not repeal the significant government subsidies granted to the two companies. And it does not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enables them to issue debt at significantly lower rates than their competitors. Nor would it remove the companies' exemptions from taxes and antifraud provisions of federal securities laws.

    The proposal is the opening act in one of the biggest and most significant lobbying battles of the Congressional session.

    After the hearing, Representative Michael G. Oxley, chairman of the Financial Services Committee, and Senator Richard Shelby, chairman of the Senate Banking Committee, announced their intention to draft legislation based on the administration's proposal. Industry executives said Congress could complete action on legislation before leaving for recess in the fall.

    ''The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,'' Mr. Oxley said at the hearing. ''We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,'' the independent agency that now regulates the companies.

    ''These irregularities, which have been going on for several years, should have been detected earlier by the regulator,'' he added.

    The Office of Federal Housing Enterprise Oversight, which is part of the Department of Housing and Urban Development, was created by Congress in 1992 after the bailout of the savings and loan industry and concerns about regulation of Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them as securities or hold them in their own portfolios.

    At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families. This year, however, the chances of passing legislation to tighten the oversight are better than in the past.

    Reflecting the changing political climate, both Fannie Mae and its leading rivals applauded the administration's package. The support from Fannie Mae came after a round of discussions between it and the administration and assurances from the Treasury that it would not seek to change the company's mission.

    After those assurances, Franklin D. Raines, Fannie Mae's chief executive, endorsed the shift of regulatory oversight to the Treasury Department, as well as other elements of the plan.

    ''We welcome the administration's approach outlined today,'' Mr. Raines said. The company opposes some smaller elements of the package, like one that eliminates the authority of the president to appoint 5 of the company's 18 board members.

    Company executives said that the company preferred having the president select some directors. The company is also likely to lobby against the efforts that give regulators too much authority to approve its products.
    Freddie Mac, whose accounting is under investigation by the Securities and Exchange Commission and a United States attorney in Virginia, issued a statement calling the administration plan a ''responsible proposal.''
    The stocks of Freddie Mac and Fannie Mae fell while the prices of their bonds generally rose. Shares of Freddie Mac fell $2.04, or 3.7 percent, to $53.40, while Fannie Mae was down $1.62, or 2.4 percent, to $66.74. The price of a Fannie Mae bond due in March 2013 rose to 97.337 from 96.525.Its yield fell to 4.726 percent from 4.835 percent on Tuesday.
    Fannie Mae, which was previously known as the Federal National Mortgage Association, and Freddie Mac, which was the Federal Home Loan Mortgage Corporation, have been criticized by rivals for exerting too much influence over their regulators.

    ''The regulator has not only been outmanned, it has been outlobbied,'' said Representative Richard H. Baker, the Louisiana Republican who has proposed legislation similar to the administration proposal and who leads a subcommittee that oversees the companies. ''Being underfunded does not explain how a glowing report of Freddie's operations was released only hours before the managerial upheaval that followed. This is not world-class regulatory work.''

    Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

    ''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

    Representative Melvin L. Watt, Democrat of North Carolina, agreed.
    ''I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,'' Mr. Watt said.
    ---------------------------------------------------------------------

    And this gem from 2004:

    Fannie Mae accountant: I warned CEO Raines

    Mortgage giant's execs defend charges of improper bookkeeping


    WASHINGTON - The former Fannie Mae accountant who raised questions about the mortgage giant’s bookkeeping said Wednesday that he took his concerns directly to chief executive Franklin Raines in 2002 and asked him to investigate.

    The disclosure by Roger Barnes, who left Fannie Mae last November, came as Raines and chief financial officer Timothy Howard defended the company’s accounting and told Congress that regulators’ allegations of earnings manipulation represent an interpretation of complex rules.
    The regulators have said that information provided by Barnes was important to their investigation of the government-sponsored company’s accounting.


    “I urged Mr. Raines and Mr. Howard to investigate the issues identified,” Barnes said in written testimony submitted for a hearing by the House Financial Services subcommittee that oversees Fannie Mae and Freddie Mac, its smaller rival in the multitrillion-dollar home mortgage market.

    “Neither Mr. Raines nor Mr. Howard, nor anyone from their staffs, investigated these concerns or took corrective action,” he said. “Thus, the practices I had identified continued, and I faced continuing reprisal for raising concerns about these issues.”

    Barnes, who was a manager in the Controller’s Division, said that he anonymously sent the two executives a memo on Sept. 23, 2002, calling himself a Finance Division Manager. The information he provided was “easily traceable” to him because he was among only a handful of managers who had detailed data on the company’s process for accounting for expenses over time, said Barnes.

    At Fannie Mae, he said, “The atmosphere and culture, particularly within the Controller’s Division, is one of intimidation, restraint of dissenting opinions and pressure to be part of the ’team,”’ giving Raines and Howard the numbers they sought to please the markets.

    Raines and Howard were making their first public appearance since news of the allegations and a Securities and Exchange Commission inquiry into government-sponsored Fannie Mae surfaced on Sept. 22.

    “These accounting standards are highly complex and require determinations over which experts often disagree,” Raines said in testimony prepared for his appearance before the panel.

    In his written testimony, Raines noted that Fannie Mae’s outside auditor, KPMG, had endorsed the company’s application of accounting rules.
    Some of the findings by the Office of Federal Housing Enterprise Oversight “involve highly detailed issues that I would not normally focus on in my role as CEO,” Raines said.

    OFHEO Director Armando Falcon, testifying under oath at the hearing, asserted that Fannie Mae improperly put off booking income to a future reporting period “to create a ’cookie jar’ reserve that it could dip into whenever it best served the interests of senior management.” Those interests included smoothing out volatility in earnings from quarter to quarter and meeting earnings-per-share targets linked to bonuses for executives, Falcon said.

    Raines disputed the regulators’ allegation that in one instance in 1998, accounting rules were deliberately violated so that top executives could get full bonuses.

    “This is a serious allegation, and we strongly disagree with it,” said Raines.
    Lawmakers have cited his assurances to investors a little over a year ago that Fannie Mae, which finances one of every five home loans in America, had not “undertaken any transactions to distort our true financial condition.”

    Raines and Howard have been put on the defensive by a recent government report that criticized Fannie Mae’s “culture and environment” for making “these problems possible.” The Washington-based company, which is the second-largest financial institution in the United States, is also facing a criminal investigation by the Justice Department.

    OFHEO has singled out Howard for blame in the scandal, saying in a report of the regulators’ ongoing investigation that he failed to provide adequate oversight.

    In his prepared testimony, Howard said, “All of my judgments regarding accounting issues were made in openness and good faith, with the goal of providing investors with the most meaningful and understandable information possible.”

    No specific finger has been pointed at Raines, a prominent Washington and business figure who was a White House budget director under President Clinton. Regulators have raised the possibility of a management overhaul, however.

    It is “difficult to assert ... confidence” in management’s ability to change the company’s culture and operations, OFHEO’s Falcon told the Fannie Mae board last month.

    Fannie Mae shares have tumbled 17 percent in recent weeks, and some in Congress and on Wall Street have called for the removal of Raines and other senior executives.

    As CEO, Raines certified in writing the accuracy of Fannie Mae’s financial results, so he would have violated a law — enacted in response to the 2002 corporate scandals — had he been aware of the accounting irregularities when he signed off.

    In mid-2003, after the accounting scandal erupted at Freddie Mac, Raines said his company didn’t “have any of the same issues” and hadn’t “undertaken any transactions to distort our true financial condition.”
    Freddie Mac restated some $4.5 billion in earnings last year, ousted top executives and was fined a record $125 million in a settlement with regulators.

    The result of the inquiries by Congress and the government could eventually ripple out to millions of Americans if they have to pay higher rates for new home mortgages or for refinancing, some analysts say. Those could be among the consequences if Fannie Mae is required to scale back its purchases of mortgages and forced to pay higher rates on its nearly $1 trillion in debt held by investors in the United States and worldwide.
    Fannie Mae and Freddie Mac, while not directly guaranteed by the government, have special privileges including the ability to borrow directly from the U.S. Treasury. In return, they are charged with enabling more low-income and minority people to buy homes.

    The implicit links with the government allow Fannie Mae and Freddie Mac to typically borrow money at lower rates than the competition. Those funds are then used to purchase and guarantee billions of dollars of mortgages from banks, many of which are then packaged into securities that are resold on Wall Street.


    -----------------------------------------------------------------------

    The Bush Admin saw this coming 5 years ago, and it was the democrats who stopped any help. Barney Frank should be bounced out of his job.

    Oh, and guess who is one of Obama's advisors? You got it, Franklin D. Raines- the man who's waste single handedly screwed the company and millions of homeowners.

    Top Recipients of Fannie Mae and Freddie Mac Campaign Contributions, 1989-2008
    Name Office / State / Total
    1. Dodd, Sen Christopher J D-CT $133,900
    2. Kerry, Sen John D-MA $111,000
    3. Obama, Sen Barack D-IL $105,849
    4. Clinton, Sen Hillary D-NY $75,550
    5. Kanjorski, Cong Paul E D-PA $65,500


    New Agency Proposed to Oversee Freddie Mac and Fannie Mae - New York Times

    Fannie Mae accountant: I warned CEO Raines - Corporate scandals - MSNBC.com

    A government big enough to give you everything you want,
    is strong enough to take everything you have. ~Thomas Jefferson

  2. #2
    Elite Member kingcap72's Avatar
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    Obama got campaign donations from Freddie Mac & Fannie Mae. How does that tie him to the mortgage crisis?

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    Elite Member ana-mish-ana's Avatar
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    McCain also got donations from them as well- and his financial advisor was the guy who helped to deregulate this mess in the first place.

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    Elite Member *DIVA!'s Avatar
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    Bullshit, misleading title
    Baltimore O's ​Fan!

    I don''t know if she really fucked the board though. Maybe just put the tip in. -Mrs. Dark

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    Elite Member witchcurlgirl's Avatar
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    It's pretty clear....

    Obama's chief economic advisor, Franklin D. Raines- was the CEO of Fannie Mae. And got in BIG trouble...

    On December 21, 2004 Raines accepted what he called "early retirement" from his position as CEO of Fanniewhile U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities. He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses.

    In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $50 million in payments made to Raines based on the overstated earnings initially estimated to be $9 billion but have been announced as 6.3 billion.

    Civil charges were filed against Raines and two other former executives by the OFHEO in which the OFHEO sought $110 million in penalties and $115 million in returned bonuses from the three accused. On April 18, 2008, the government announced a settlement with Raines together with J. Timothy Howard, Fannie's former chief financial officer, and Leanne G. Spencer, Fannie's former controller. The three executives agreed to pay fines totaling about $3 million, which will be paid by Fannie's insurance policies. Raines also agreed to donate the proceeds from the sale of $1.8 million of his Fannie stock and to give up stock options. The stock options however have no value. Raines also gave up an estimated $5.3 million of "other benefits" said to be related to his pension and forgone bonuses.

    To be fair, everyone likes to point out the scumbags around McCain....Obama's chief economic advisor is another one of those scumbags. They come in all stripes.
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    Elite Member tkdgirl's Avatar
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    They do, WCG, but it only matter when the stripes look like elephants.

    As for misleading titles, if you read both the articles posted, the title is obvious: Obama's economic advisor is Franklin Raines.

    A government big enough to give you everything you want,
    is strong enough to take everything you have. ~Thomas Jefferson

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    Hit By Ban Bus! AliceInWonderland's Avatar
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    Quote Originally Posted by kingcap72 View Post
    Obama got campaign donations from Freddie Mac & Fannie Mae. How does that tie him to the mortgage crisis?
    it doesn't. in fact that is a very tiny amount of money compared to the amount they raise alltogether, the amount these companies have and the amount their top executive recieve A MONTH IN PAY!!!

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    Elite Member Fluffy's Avatar
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    Exclamation Fannie & Freddie did NOT cause the subprime mortgage crisis!

    Quote Originally Posted by tkdgirl View Post
    They do, WCG, but it only matter when the stripes look like elephants.

    As for misleading titles, if you read both the articles posted, the title is obvious: Obama's economic advisor is Franklin Raines.
    And yet, Phill Gramm is McCain's economic adviser. Phill Gramm who worked to get rid of Glass-Stegal. If McCain is elected, Phil Gramm would likely be the next Secretary of the Treasury. Both McCain and Gramm have done everything in their power to deregulate Wall Street, which has led to this mess!
    Thursday, Sept. 18, 2008 12:53 PDT
    McCain: How not to explain a meltdown

    John McCain is correct: The current financial crisis is "difficult to understand." Judging by the opening paragraphs of the speech he delivered in Cedar Rapids, Iowa, today, on financial reform, we can include his speechwriters in the category of "those who fail to comprehend it."
    I know that the events unfolding can be difficult to understand for many Americans. The dominoes that we have seen fall this week began with the corruption and manipulation of our home loan system. The reason this crisis started was the abuses that took place within our home loan agencies, Fannie Mae and Freddie Mac and within our home loan system.
    Wrong.

    Ever since the government seizure of Fannie and Freddie, it has been a tenet of right-wing talking points to assert that that "the home loan agencies" are the root of the subprime mortgage crisis. Since Republicans have long wanted to privatize Fannie and Freddie, they are now eager to claim that by obstructing that privatization, the Democrats are the party responsible for the current crisis.

    Except: Fannie and Freddie did not cause the subprime mortgage crisis. The private sector, acting on its own initiative, serenely confident in its own financial manipulations, spawned the greatest Wall Street conniption since the Great Depression. Fannie and Freddie got into the game late, after watching in dismay as their market share in the lucrative business of originating and selling off pools of mortgage-backed securities began to shrink.

    There are many bit players in this drama who bear blame, from home-buyers to government regulators, but the two biggest culprits live on Wall Street.
    First: The innovative financial products that allowed bankers to pool together risky loans into packages that could earn high enough credit ratings so as to be sold to investors who would normally deem risky loans made to people with bad credit, well, risky.

    Second: The proliferation of credit derivatives that allowed financial players, banks, hedge funds, insurance companies, mortgage lenders, etc., to buy protection against the risk that those pools of mortgage-backed securities (and any other kind of bond) would default.

    These two innovations dovetailed nicely, allowing Wall Street to gorge itself on risky bets, while comforting itself that all bases were covered.

    There were people, like the former investment banker Frank Partnoy, who saw this as it was happening and warned of potential disaster. From my review of his 2003 book, "Infectious Greed":
    What does it all add up to? In a worst-case scenario: quite a bit of trouble. In the long run, "risk" is being sold off by people who know best how to evaluate it to people who don't know what they're in for. As government for the most part looks the other way, the stability of the financial markets is increasingly an illusion. In the last decade alone, the markets have come closer than most people realize to collapsing. Unless serious steps are taken to change the status quo, disaster could be imminent. We haven't seen the last of the bubbles, by any stretch of the imagination. We seem, in fact, to be addicted to them.
    Wall Street's best, brightest and filthy richest scoffed at the critics. We were shouted down by those who told us that we just didn't understand how modern finance worked -- how these new products really made the whole global financial system safer, how risk was more widely distributed than ever before, making the chances of any one disastrous economic event bringing down the system, less than ever before.

    And for awhile, I will concede, it did look like Wall Street had a pretty good case. Titans like Enron and Worldcom collapsed, and the world kept on chugging along. Sept. 11 shocked the markets, but did not appear to do serious damage. Derivatives markets flourished, and a lot of people made a lot of money.

    But now we know that the critics were right, that instead of distributing risk more widely, we achieved the opposite. We have indisputable evidence that the edifice constructed out of state-of-the-art financial innovation was actually weaker and more prone to collapse than we ever imagined. Sure, it's a complicated story to explain -- but it is most definitely not a case of "corruption" or "abuses" at government-sponsored enterprises such as Fannie Mae and Freddie Mac. What we have witnessed over the last 18 months is a self-inflicted wound delivered by the private sector unto itself, by people who were adamant that government should stay out of their business, because the private sector simply knew better.

    Government regulators agreed. And I think we're going to wait a long time before we get a complete explanation from John McCain on how this all happened, because it would have to include the role played by his friend and economic mentor (not to mention fellow deregulator!) Phil Gramm, who did so much to make sure that the credit derivative market remained unregulated.

    If you are looking for an abuse of power, that's where to start.
    ― Andrew Leonard
    McCain: How not to explain a meltdown - How the World Works - Salon.com

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    Hit By Ban Bus! AliceInWonderland's Avatar
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    ^ The Title Of Your Post Is A Good Point Too :p

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    Elite Member kingcap72's Avatar
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    Quote Originally Posted by tkdgirl View Post
    They do, WCG, but it only matter when the stripes look like elephants.

    As for misleading titles, if you read both the articles posted, the title is obvious: Obama's economic advisor is Franklin Raines.
    It still doesn't explain Obama's ties to the mortgage crisis. While having Raines as an economic adviser may be suspect it doesn't tie Obama to the mortgage crisis, and that's where your title was misleading.

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