Fannie Mae: the story so far
Are you new to the Fannie Mae scandal? Disoriented? Feeling trapped?
Where am I?
In the GSE mess.
What do you want?
Explanation. We want … explanation.
Feel like you’re arrived halfway through the movie and you don’t know who is who? Need a condensed and hyperlinked summary? Here it is, in six acts and nearly fifty scintillating blog posts.
1. The scandal breaks
In December, 2004, Fannie Mae announced roughly $9 billion in writedowns (
· More accounting boo-boos were still surfacing (
· Including revelations of artificial earnings smoothing (
· This week’s bombshell OFHEO report (
Being investigated by OFHEO.
2. The dirty laundry airs
Said Emperor Claudius, late in his imagined reign, “Let all the poisons that lurk in the mud, hatch out.” The scandals triggered an OFEHO investigation (
- Accountant disquietude (
12-29-04, Closing the books … or not?)
- Claims that the executives were overpaid because their performance bonuses were based on earnings that OFHEO later called “an illusion” (
01-06-05, Fannie Mae: Was it just enrichment?)
- Exposes and critiques of the distorting effect of bonus formulas (
01-20-05, GSE executive bonuses and corporate culture)
- SEC claims of inappropriate accounting (
02-10-05, GSE accounting: Clear to you ain’t clear to me)
- Class-action shareholder litigation (
02-24-05, First, you sue)
- Lax or questionable internal financial controls (
02-25-05, More bad news for Fannie Mae)
- False signatures on accounting transactions (
04-08-05, Fannie Mae: “False signatures”)
- Sharing lobbyists with their competitor, Freddie Mac (
02-23-06, There’s no G, S, or E in duopoly, is there?)
- Ignoring flags raised within the organization (
03-31-06, Fannie Mae: Warnings, what warnings?)
3. The penance begins
Immediately after the scandal broke, Fannie Mae sought to repair the damage and do public penance, starting with the departure of CEO Franklin Raines and CFO Timothy Howard (12-22-04, Heads roll at Fannie Mae), although whether these were firings or resignations was disputed (12-29-04, Fannie Mae: did he fall or was he pushed?). In short order three more senior executives left (
Meanwhile, the company:
· Suddenly needed cash to plug an OFHEO capital-sufficiency gap (
· Was urged to reduce its portfolio exposure (
· Signed a supplementary agreement with OFHEO (
· Rethought its big salaries (
· Endured some sharp words from the Treasury secretary (
In response, Fannie Mae’s new CEO verbally genuflected (
4. Regulators huddle
A massive scandal at a publicly-chartered and publicly-supported private corporation naturally demands a review of its oversight, so immediately the question arose (
What moves can we make?
Confronted with differing views from the Administration (05-30-05, GSE regulation: read the menu!), the Senate bestirred itself (07-20-05, Political doldrums and Fannie Mae), although with summer adjournment, activity stalled (07-26-05, GSE regulation: a breath of hot air?).
5. Thinkers weigh in
The GSEs receive huge Federal benefits (
Get me our lobbyists!
More importantly, because the GSEs have a unique status as a Federal stepchild, when they falter, taxpayers may be at risk (03-22-05, GSEs: risks that flesh is heir to), so many were curious to see how the respected Federal Reserve chairman would view them (04-06-05, Fannie Mae: What Will Greenspan Say?); unsurprisingly, he was critical (04-07-05, GSEs: Greenspan frowns … clearly), and before leaving office, Mr. Greenspan de-cloaked his feelings (02-16-06, GSEs: Greenspan’s last testament).
6. Why should you care?
Is this just housing’s Enron? Does it have any impact on normal folks? Or in public-policy terms?
The GSEs benefit from unique Federal legislation, their charters, that confer upon them billions of dollars annually (
Everybody loves a large market cap!
In this debate, the GSEs have many partners and beneficiaries who advocate their cause (
7. What happens now?
Whose side are you on?
That would be telling. We want … regulation … regulation … regulation.
You won’t get it!
By hook — or by crook — we will.
“Be seeing you.”