The intricacies and political connections of the bad-debt meltdown are, beginning to sound like - well, like Chicago. Take this, for example:
"Unqualified home buyers were not the only ones who benefited from Massachusetts Rep. Barney Frank’s efforts to deregulate Fannie Mae throughout the 1990s.Although many, both Republicans and a few Democrats, warned of an impending financial earthquake with Fannie Mae at its epicenter, regulatory action was (and is) blocked by Democrats.
So did Frank’s partner, a Fannie Mae executive at the forefront of the agency’s push to relax lending restrictions.
Now that Fannie Mae is at the epicenter of a financial meltdown that threatens the U.S. economy, some are raising new questions about Frank's relationship with Herb Moses, who was Fannie’s assistant director for product initiatives. Moses worked at the government-sponsored enterprise from 1991 to 1998, while Frank was on the House Banking Committee, which had jurisdiction over Fannie."
Although Frank now blames Republicans for the failure of Fannie and Freddie, he spent years blocking GOP lawmakers from imposing tougher regulations on the mortgage giants. In 1991, the year Moses was hired by Fannie, the Boston Globe reported that Frank pushed the agency to loosen regulations on mortgages for two- and three-family homes, even though they were defaulting at twice and five times the rate of single homes, respectively.We all know that drill. Create a crisis to shake loose some government cash (read the tax payers' cash). Give a Chicago-style blessing to friends and political allies with a generous portion of the resultant windfall. Easily deal with unintended consequences: blame the Republicans, blame Bush, blame evil fat-cat laissez faire capitalists, the weather, whatever. (Use the resultant anger as a plank in your next campaign platform.)
And even when the consequences are a massive worldwide banking crises, hopefully, the part played by this barely regulated quasi-government banking entity - an entity created and protected by Democrats - will escape notice. No worries. The folks who have campaign chants confused with critical thinking are blind to complicated cause and effect. The media will help to "dumb it down". There's every chance you'll come out smelling like a rose, even when the "little guy" constituency is badly hurt by this current round of political self-promotion.
As in Chicago, the complex web of political favors and "pay to play" is very difficult (I would imagine) to report, let alone follow. So, maybe these Fannie Mae and Freddie Mac political contributions to Illinois politicians - both individual and PAC - will escape notice, too. But just for fun, let's see if we can follow some of the money. (Barack Obama's receipts - the highest on the list - are second only to Chris Dodd, who tops the contribution list at $165,400.) Top 10 recipients from Illinois:
Barack Obama (D) - $126,349I guess if we're following the money, we can't forget Franklin Raines, CEO of Fannie Mae from 1999 to 2004.
Rahm Emanuel (D) - $51,750
Melissa Bean (D) - $41,249
Dick Durbin(D) - $23,750
Judy Biggert (R) - $17,750
Jesse Jackson Jr. (D) - $14,000
Peter Roskam (R) - $11,650
Jerry Weller (R) - $5,000 (Individual contributions only - no PACs)
Danny K. Davis (D) - $4,950
Luis V. Gutierrez (D) - $3,250 ($2500 from PACs)
On December 21, 2004 Raines accepted what he called "early retirement" from his position as CEO [of Fannie Mae] while 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.Now that's a sweet insider deal. Franklin Raines' political contributions were almost exclusively to Democrats. (Of $96,500, he contributed $68,500 to Democrats, $22,000 special interest, and $6,000 total to Republicans. Not much for a guy who pulled down $20 million, and whose sins are covered on the backs of taxpayers, come to think of it. But of course, he can't be a "fat-cat", because he's clearly not a Republican.)
In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $90 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.
An editorial in The Wall Street Journal called it a "paltry settlement" which allowed Raines and the other two executives to "keep the bulk of their riches." In 2003 alone, Raines's compensation was over $20 million.
Sadly, there are those who are ininformed enough, or agenda-driven enough to see Republicans, Bush, and capitalism as the red herring "Trinity of Evil" in this and every other problem we face. Whether or not the "bailout" is effective remains to be seen, but in the end, it won't be irresponsible lawmakers, lenders, and borrowers (including the widely ignored flippers) that pay the piper. Just like in Chicago, it will be you.
(H/T Marge for the heads-up.)