Alan Greenspan: May 19th, 2005 http://www.federalreserve.gov/boarddocs/speeches/2005/20050519/default.htm
” As I testified before the Congress both this year and in 2004, the GSEs need a regulator with authority on par with that of banking regulators, with a free hand to set appropriate capital standards, and with a clear and credible process sanctioned by the Congress for placing a GSE in receivership, where the conditions under which debt holders take losses are made clear. However, if legislation takes only these actions and does not limit GSE portfolios, we run the risk of solidifying investors’ perceptions that the GSEs are instruments of the government and that their debt is equivalent to government debt. ”
Alan Greenspan Again Warns: Sept 2nd 2005: http://prudentinvestor.blogspot.com/2005/09/wsj-greenspan-sternly-warns-of-gse.html
” Today, the US financial system is highly dependent on the risk-managers at Fannie and Freddie to do everything right, rather than depending on a market-based system supported by the risk assessments and management capabilities of many market participants who have different views and different strategies for hedging risk. The concentration of mortgage-backed securities at Fannie and Freddie are well beyond what market forces would normally allow because there are no meaningful limits to the expansions of the GSE’s portfolios, . . . ”
George W. Bush’s Secretary of the Treasury Paul Snow: January 2, 2005 http://www.marketwatch.com/News/Story/Story.aspx?guid={852359E2-8F4A-4C69-8F2F-7DE699044B08}&print=1&siteid=mktw
“. . .and government-sponsored enterprises Fannie Mae must come under a tougher regulator.”
Fannie’s own CEO should have known according to a July 2003 Audit:
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/12/AR2006031200799.htm
“On July 9, 2003, another warning came in a report by Fannie Mae’s internal audit unit, the distribution list for which included Raines, Mudd and other managers.
The document said inconsistencies among various accounting systems at the company required that they be periodically “realigned,” resulting in “adjustments” of as much as $45 million, and that certain assets were being misclassified, leading to a $155 million mistake.
“Controls need strengthening,” the document said. It concluded that management “demonstrated a good level of awareness about control issues and has initiated timely actions to resolve these issues.”
Three weeks after the internal report, Raines held a news conference to address fallout from Freddie Mac’s accounting scandal and gave assurances that Fannie Mae had invested in its systems. “We have centralized our accounting, so we don’t have to go all over the company to find out what the facts are,” Raines said, according to a transcript.”
Senator Obama’s campaign had some conversations via the telephone according to the Washington Post:
http://www.washingtonpost.com/wp-dyn/content/article/2008/07/15/AR2008071502827.html
“In the four years since he stepped down as Fannie Mae’s chief executive under the shadow of a $6.3 billion accounting scandal, Franklin D. Raines has been quietly constructing a new life for himself. He has shaved eight points off his golf handicap, taken a corner office in Steve Case’s D.C. conglomeration of finance, entertainment and health-care companies and more recently, taken calls from Barack Obama’s presidential campaign seeking his advice on mortgage and housing policy matters. ”
Who called for Reform of GSE’s Fannie and Freddie?
Senator John McCain:
http://www.govtrack.us/congress/bill.xpd?bill=s109-190
“Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.
The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.”
