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The blowup and bailout of Fannie Mae and Freddie Mac by taxpayers was foretold so many times in the last three decades by critics of the two federally chartered and subsidized mortgage giants that not even the data-searching powers of Nexis, Factiva, and Google combined can total them.
The Wall Street Journal editorial page deserves a special commendation for hammering these two outposts of corporate socialism, not that the page's many warnings over the years helped avert disaster. Mae and Mac—especially Mae—were just too nurtured by the Washington establishment for any mere pressman to dislodge them from the government's teat. In 1997, the New York Times' Richard W. Stevenson pinpointed Fannie Mae's strength when he wrote of the firm's "influential network that extends from the highest reaches of the Clinton Administration to the ranks of conservative Republicans on Capitol Hill."
The bipartisan network provided the essential cover Fannie Mae needed to run its scam, which the news pages of the Washington Post ably described this week as:
[T]he nearest thing to a license to print money. The companies borrowed money at below-market interest rates based on the perception that the government guaranteed repayment, and then they used the money to buy mortgages that paid market interest rates.
The key to Fannie Mae's survival was the patronage operation it ran. As Wall Street Journal reporter James R. Hagerty wrote two summers ago, "For years, high-level jobs at Fannie Mae were lucrative prizes for lawyers, bankers and political operatives waiting for their next U.S. government post." Now that the jig is up, let's meet some of the bipartisan warriors who fought for Fannie Mae's right to plunder.
At the top of the list we must place Franklin D. Raines, chairman and chief executive officer of Fannie Mae from 1998 to 2004. Raines, who served as director of the Office of Management and Budget under President Clinton, had previously worked at Fannie Mae as vice chairman. Before that, he worked on the Clinton transition team following the 1992 election. Before that, he was a general partner at Lazard Freres & Co. Raines, as the Wall Street Journal reported, was forced to leave Fannie Mae in 2004, when regulators discovered it had broken accounting rules "in an effort to conceal fluctuations in profit and hadn't maintained adequate risk controls." The New York Times reported two year ago that regulators "have said that of the $90 million paid to Mr. Raines from 1998 to 2003 at least $52 million—more than half—was tied to bonus targets that were reached by manipulating accounting." Raines agreed to a $24.7 million settlement with a federal regulator in exchange for charges being dropped, but he admitted no wrongdoing.
Next up is Jamie S. Gorelick, whose official résumé describes her as "one of the longest serving Deputy Attorneys General of the United States," a position she held during the Clinton administration. Although Gorelick had no background in finance, she joined Fannie Mae in 1997 as vice chair and departed in 2003. For her trouble, Gorelick collected a staggering $26.4 million in total compensation, including bonuses. Federal investigators (PDF) would later say that "Fannie Mae's management directed employees to manipulate accounting and earnings to trigger maximum bonuses for senior executives from 1998 to 2003." The New York Times would call the manipulations an "$11 billion accounting scandal." Gorelick, it should be noted, has never been charged with any wrongdoing.
Republicans also proved willing to serve Fannie Mae. Robert B. Zoellick, current head of the World Bank, has served President Reagan, President Bush 1, and President Bush 2 as a trade representative, deputy secretary of state, deputy secretary of the treasury, deputy chief of staff, and so on. Zoellick's first Fannie Mae tour of duty was from 1983 to 1985, when he was a vice president. His second tour was 1993 to 1997, and his title was executive vice president in charge of lobbying, public affairs, and affordable housing. According to a July 23, 1997, report in the American Banker, Zoellick "has used his close ties to Republicans in Congress, such as Speaker of the House Newt Gingrich, R-Ga., to defend Fannie Mae from new taxes."
John Buckley worked at Fannie Mae for almost 10 years (1991-2001) but took a leave of absence to serve as Bob Dole's communications director during his 1996 run for the presidency. Before Fannie Mae, he worked at the National Republican Congressional Committee, served as press secretary to Rep. Jack Kemp, R-N.Y., deputy press secretary during the Reagan-Bush 1984 campaign, and press secretary to Lewis Lehrman when he ran for governor of New York. He hails from the political Buckley family, his uncles being William F. and James.
Moving back across the aisle, let's say hello to Mr. Democrat James A. Johnson, who ran Fannie Mae from 1991 to 1998, served as vice chairman from 1990 to 1991, and earlier worked as a managing director at Lehman Bros. and for Vice President Walter F. Mondale. He currently leads the American Friends of Bilderberg and made news earlier this summer when he had to resign as vice-presidential-candidate vetter for Barack Obama "as new details emerged about loans Mr. Johnson received from mortgage lender Countrywide Financial Corp.," according to the Wall Street Journal. In his 1997 profile of Johnson, "The Velvet Fist of Fannie Mae," by Richard W. Stevenson writes that Johnson "hires lobbyists from both sides of the political aisle—last year the company had 36 registered lobbyists making its case in the hallways and hearing rooms of Congress. ... And Mr. Johnson has made Fannie Mae both a launching pad and a landing strip for officials moving in and out of politics and Government in Washington." According to the voluminous "Report of the Special Examination of Fannie Mae" by the Office of the Federal Housing Enterprise Oversight (warning, extra large PDF!), Johnson earned nearly $21 million from Fannie Mae in 1998.
Moving down the Democratic Party food chain, we meet William M. Daley, son of former Chicago Mayor Richard J. Daley and brother of current Chicago Mayor Richard M. Daley. Daley worked as special counsel to President Clinton and chairman of Al Gore's 2000 presidential campaign. He also served as a Clinton secretary of commerce from 1997 to 2000, and earlier as president of Amalgamated Bank in Chicago. He is now an executive at JPMorgan Chase & Co. Daley was appointed to the Fannie Mae board in 1993 by President Clinton.
As part of the "leave no Democrat behind" campaign, Johnson's Fannie Mae hired Walter Hubbell, son of Webster L. Hubbell, in 1994. Walter Hubbell got his job, the Times' Stevenson reports, "after Mr. Johnson and other executives received calls from Administration officials—including Mickey Kantor, who was then the United States trade representative—urging them to do so. At the time, the White House had undertaken an effort to help the Hubbell family financially after the senior Mr. Hubbell's resignation from the Justice Department." He got a slot in the marketing department, where Johnson said he was an ''outstanding" employee.
But Fannie Mae is nothing if not ecumenical. According to the Associated Press, Fannie Mae and Freddie Mac have spent $170 million on lobbying in the past decade. "Fannie Mae's 51-member lobbying stable" includes "former Reps. Tom Downey, D-N.Y., and Ray McGrath, R-N.Y.; Steve Elmendorf, a Democratic political strategist and former congressional aide; and Donald Fierce, a longtime GOP operative. Freddie Mac's list of 91 lobbyists includes former Reps. Vin Weber, R-Minn., and Susan Molinari, R-N.Y." The AP notes the Fannie Mae ties enjoyed by McCain campaign manager Rick Davis and Arthur B. Culvahouse Jr., who helped in McCain's veep search. According to Politico, McCain economic adviser Aquiles Suarez worked as Fannie Mae's director of government and industry relations, and McCain finance co-chairman Frederic V. Malek spent time on the Freddie Mac board.
A totally brilliant and prescient Washingtonianarticle from 2002 by Ross Guberman harvests a bunch of politicos who benefited from and supported Fannie Mae. Arne Christenson, a former Newt Gingrich aide, was senior vice president for regulatory policy. Tom Donilon was Fannie Mae's executive vice president for law and policy and secretary to the board of directors until 2005. He worked in the Clinton State Department and as part of the 1992 Clinton-Gore transition. William Maloni worked for Rep. William S. Moorhead, D-Penn., the Federal Home Loan Bank Board, and the Federal Reserve before joining Fannie Mae, where he worked in government relations for more than 20 years. * Of Fannie Mae's board of directors, Guberman writes that it is "political by design."
The company's charter gives the President the right to appoint five of the board's 18 members. The idea was to ensure that Fannie fulfilled its public mission. Today the five appointees, considered big winners in the capital's game of spoils, promote the interests of Fannie's shareholders. Recent directors include Ann McLaughlin Korologos, Ronald Reagan's Labor secretary; Ken Duberstein, Reagan's chief of staff; Bill Daley, former Commerce Secretary and Gore spokesman during the 2000 election controversy; and Jack Quinn, counsel to Bill Clinton and lawyer to pardoned fugitive Mark Rich. [Emphasis added.]
The bipartisan Fannie Mae gang appears to have broken few, if any, laws. Their crime was to have practiced—without any thought of the consequences—"access capitalism," which Michael Lewis defined in the New Republic as "a neat solution for people who don't have a whole lot to sell besides their access, but who don't want to appear to be selling their access."
The easiest way to end this article—and I'll take it—is to cite Michael Kinsley's tidy formulation: "The scandal in Washington isn't what's illegal. It's what's legal."
Addendum, Sept. 17:International Economy magazine identified additional Fannie Mae enablers in its July-August 1999 issue in an article by Owen Ullmann titled "Crony Capitalism: American Style." Ullmann fingers Duane Duncan, a Fannie Mae vice president who previously worked as staff director for Rep. Richard Baker, R-La., who chaired the House banking subcommittee; Ellen Seidman, Fannie Mae senior vice president, who worked as director of the Office of Thrift Supervision; Wendy Sherman, president of the Fannie Mae Foundation, who was counselor to Secretary of State Madeleine Albright; Dan Crippen, who lobbied for Fannie Mae after heading the Congressional Budget Office; Ann Logan, executive vice president, who was a policy adviser to Sen. Edward Kennedy, D-Mass., in the 1980s; Thomas Nides, senior vice president, who served as chief of staff to both U.S. Trade Representative Mickey Kantor and Speaker Tom Foley, D-Wash.; * and Eli Segal, director, who was a senior adviser to President Clinton.
No discussion of Fannie Mae is complete without mentioning how vociferously it denigrated its critics. See this recent column by Wall Street Journal Editorial Page Editor Paul Gigot. He writes, "The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans." What members of the Fannie Mae gang did I neglect to name? Send nominations to email@example.com. (E-mail may be quoted by name in "The Fray," Slate's readers' forum; in a future article; or elsewhere unless the writer stipulates otherwise. Permanent disclosure: Slate is owned by the Washington Post Co.)
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Correction, Sept. 22, 2008: This article originally misidentified William Maloni as former chief of staff for Rep. Richard Baker, R-La. In fact, Maloni worked for Rep. William S. Moorhead, D-Penn., the Federal Home Loan Bank Board, and the Federal Reserve before joining Fannie Mae, where he worked in government relations for more than 20 years. (Return to the corrected sentence.)