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Dash of Pepper

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Obama & the
Fanny/Freddie Connection
The Gazette Staff
An embarrassment of villains
The Gazette Staff
By the time this is printed, I have no idea how the current financial crisis will be panning out nor do I have anything more than average knowledge about the financial markets.
So, both fearful and curious, I have sought out people with expertise who are publishing their views.
There seems to be some agreement that the collapse of Lehman Brothers, and the troubles at AIG, can be traced back to the disaster at Freddie Mac and Fannie Mae, the two-headed monsters that were private institutions enjoying the backing of the U.S. taxpayer.
In the Clinton years, it was decided that these two entities could be used to enhance home ownership opportunities for those who otherwise could not qualify for a mortgage.
What some saw as good intentions soon became the land of unintended consequences.
People were given mortgages they couldn't really afford, failed to pay their payments and many lost their homes. (Although there is one statistic that indicates of the 19 percent of the mortgage market that was sub-prime, many that went under were people who were flipping houses for quick profit and being caught short.)
Making this sorry situation worse, Fannie Mae and Freddie Mac "packaged" these bad loans and passed them along to sub-prime lenders. By this time, smelling money, even some reputable banks opened sub-prime units, so some on Wall Street got greedy and got badly burned.
Apparently, Freddie Mac and Fannie Mae also functioned as places to reward retired political appointees. Franklin Raines, who served as budget director for the Clinton White, became CEO of Fannie Mae and pocketed about $49 million. The institution went through a bad accounting scandal, and Raines was subsequently fired. Jamie Gorelick, a former official with the Clinton Justice Department, also went to Fannie Mae and took home about $26 million. Who says government service does not pay?
Raines is reported to be an Obama advisor on housing policy.
Democrat Jim Johnson, who recently headed up the team to pick Sen. Obama's vice president nominee, also hauled in millions from his Fannie Mae CEO term.
At least two people, John McCain and George W. Bush, sounded alarms in the past several years about big troubles at Freddie Mac and Fannie Mae. They were voices in the wilderness. Congress paid no attention. McCain put together legislation and it died in committee.
Fannie Mae and Freddie Mac were exceptionally successful at lobbying against any reforms or even the enforcement of the existing oversight rules. They did this, of course, with money. A group called the Center for responsible Politics kept track of which politicians got Fannie Mae political contributions.
The top three senators getting the big bucks were Sen. Chris Dodd, head of the Senate Banking Committee, Sen. Barack Obama was number two, ahead of number three, John Kerry, although Obama had only served a brief time in the Senate.
I have no idea how the bailout and "bridge" loans will turn out - but one thing I believe will come out of this mess: we have got to stop rewarding CEOs and other officials with multi-millions of dollars for ruining their companies and institutions.
I don't know if the push for this will come from shareholders, the taxpayers/voters, or from sane minds (if any) in Congress, but it needs to happen. Those who squander other people's money need to feel the pain.
Last Updated on Friday, 12 June 2009 14:30  

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