Begin forwarded message:
From: dasg...@aol.com
Date: March 2, 2009 9:47:53 PM PST
To: ramille...@aol.com
Cc: ema...@aol.com, j...@aol.com, jim6...@cwnet.com, l...@legitgov.org
Subject: [resend] Bush Admin Plotted to Derail Fed'l Agency Handling
Low-Cost Mortgages
Ex-Fannie boss fingers White House
Says Bush Administration orchestrated accounting scandal that led to
his downfall; White House denies wrongdoing.
http://money.cnn.com/2007/12/19/news/newsmakers/fannie.ap/index.htm
December 19 2007: 5:34 PM EST
WASHINGTON (AP) -- The former chief executive officer of Fannie Mae
says the Bush administration helped orchestrate an accounting scandal
that cost him his job and that he wants to use White House documents
to defend himself in a shareholder lawsuit.
Franklin Raines, who served as President Clinton's budget director,
argues in court documents that the Bush administration felt the
government-chartered agency wielded too much power in the mortgage
industry. His attorneys say the White House pushed regulators to
weaken Fannie Mae and triggered a $6 billion accounting scandal.
Raines subpoenaed the White House for documents in July. Justice
Department lawyers will go before a federal judge Thursday to fight it.
Relying primarily on articles by financial journalists and the
testimony of industry analysts, Raines describes in court documents an
unofficial task force dubbed "Noriega" that was formed to weaken
Fannie Mae and drive down its stock price.
Fannie Mae is the largest U.S. buyer and backer of home loans. It was
created by Congress but is publicly traded. Raines says the Bush
administration wanted to undermine confidence in the agency so it
could push for tighter government controls.
Raines names as task force members Assistant Treasury Secretary Wayne
Abernathy; presidential economic adviser Keith Hennessey; Kevin Warsh,
a special assistant to President Bush for economic policy; Jeffrey
Kupfer, who served in 2003 as special assistant to Bush's chief of
staff; Associate White House Counsel Reginald J. Brown; and Stephen S.
McMillin, an official in the president's budget office.
He accuses the task force of influencing an investigation by the
Office of Federal Housing Enterprise Oversight. Raines is also seeing
documents related to former White House Chief of Staff Andrew Card.
In 2004, OFHEO released a report detailing widespread accounting
errors at Fannie Mae. The scandal swept Raines and CFO Timothy Howard
from office and led to a massive shareholder lawsuit. Regulators are
also suing Raines and others, seeking fines and the return of millions
in bonus money.
Raines believes he can show that regulators were aware of -- and
approved of -- the company's accounting practices until the White
House got involved.
The Justice Department is urging U.S. District Judge Richard J. Leon
to throw out the subpoenas. Government lawyers say Raines "seeks a
fishing expedition through the files of the president and the
Executive Office of the President."
The documents Raines is seeking aren't relevant to the shareholder
lawsuit and Raines has offered no evidence they even exist, Bush
administration lawyers argue.
They argue in court documents that conducting a search would be an
enormous burden on the White House, which is "already heavily strained
by responding to numerous congressional inquiries, in addition to
fulfilling their other responsibilities for running the federal
government."
--------------------
http://www.slate.com/id/2107894/#
.... If Fannie Mae is in the American Dream business, Raines is the
American Dream (until a few weeks ago, anyway). He grew up in Seattle,
in a household of seven children. When his father lost his job, the 8-
year-old Raines worked in a grocery store for $2 a week, and his
mother scrubbed bathrooms at Boeing (three decades later, Raines was
elected to Boeing's board).
Raines told the Seattle Post-Intelligencer that his parents provided
"an example of people who worked for everything they got, every day
meeting their responsibilities." He has, to put it mildly, continued
the family tradition. In high school, Raines was student-body
president, quarterback, and state debate champion. Between Harvard and
Harvard Law, he attended Oxford as a Rhodes scholar. Professionally,
he glided between government and the private sector, working for
Nixon, Carter, and Clinton, becoming a partner at Lazard Freres and a
vice chairman of Fannie Mae. Described as the Jackie Robinson of
business, Raines' acceptance of Fannie's top slot in 1999 made him the
first black CEO of a Fortune 500 company. He was mentioned as a
possible vice presidential choice for John Kerry and a candidate for
treasury secretary.
As Clinton's budget director, Raines negotiated the first balanced
budget the government had approved in nearly 30 years. He accomplished
this by doing what he has done since grade school: finding common
ground. At Harvard, in an age of bitter divisiveness, Raines joined
both the Young Democrats and the Young Republicans. This suggests a
Clintonian desire to have it all ways, but also a mature pragmatism
and a genuine eagerness to bridge divides. Twenty years later, in
Washington, D.C., as he worked toward a budget compromise, Raines
visited representatives from both parties, listening carefully,
figuring out what each constituency wanted. After the budget deal, he
became known as the best negotiator in town.
Raines emerged as a reassuring corporate face early in the wave of
business scandals. As chairman of the Corporate Governance Task Force
of the Business Roundtable, he spoke eloquently and intelligently
about the lessons of Enron. When an accounting flamethrower torched
sibling mortgage-giant Freddie Mac last summer —and Fannie felt the
heat— Raines didn't hide. He didn't declare that Fannie was different.
Instead, he carefully, patiently, explained why it was different.
Asked whether Fannie had circumvented accounting rules or made
accounting judgments that employees or auditors considered debatable,
Raines replied unequivocally, "No" (a statement that the Justice
Department will presumably hang him on if it determines the company
did something wrong). Then, just as relevantly, he added:
I have seen a number of these sort of scandal fests before, where the
issues become of vital importance that were not of any importance
previously. Some people seem to be of the belief that if you manage
your company with an eye to the accounting results, that that is
somehow a suspicious activity. I don't know of any company that is not
managed with an eye to what the accounting is going to say at the end
of the period. So let's be very clear, every company undertakes
business decisions with a view to, is this going to be recorded as a
profit or a loss? That is a normal part of business.
But as Raines could have predicted, what looked like normal accounting
a few months ago is now being viewed as a suspicious. The press and
public are quick to accept the findings of regulatory investigations
as gospel. In Wednesday's hearing, Rep. Richard Baker, R-La., declared
Fannie's accounting practices "abhorrent." Few who read the newspapers
probably imagine that they could have been otherwise.
And maybe they are abhorrent. Maybe Raines got greedy. Maybe, as the
story usually goes, he was so drunk on success, money, and power that
he considered himself above the law. Maybe after a lifetime of hard
work, he cut corners.
Maybe .... But more likely he is the same man of discipline,
intelligence, honor, and integrity that a half-century of actions and
words suggest. If so, we need another explanation for the Fannie
proceedings and the assault on Raines.
The simplest --and most conspiratorial-- is that the Fannie Mae
investigation represents a Republican payback for Enron and
Halliburton. Conservatives are delighting in the gutting of Raines
and Fannie Mae — a Democratic boss of a Democratic-leaning company.
Former Fannie CEO James Johnson, who got some of the bonuses OFHEO
criticized, has also been shortlisted as a possible Kerry treasury
secretary. The accounting investigation made both Raines and Johnson
untouchables to a Democratic president <until recently, with now-
President Barak Obama>.
But there is also a bureaucratic explanation for the scandal.
Accounting rules are complex and the regulators who enforce them are
fallible. Pressures and incentives can shape the judgments of
regulatory employees just as they shape the judgments of executives.
The agency investigating Fannie Mae, OFHEO, is still scarred from the
whipping it received for missing the Freddie Mac debacle and Congress
is perpetually threatening to move its regulatory responsibility
elsewhere.
Practically no company is safe from a determined, powerful government
opponent. OFHEO has concluded that Fannie manipulated earnings. Well,
every company manipulates earnings (the polite word is "manages") —
the only question is to what degree. OFHEO has concluded that Fannie
established a "cookie jar" of reserves. Well, every company
establishes reserves — the only time investors usually hear about them
is when they run out. OFHEO has concluded that "If other companies
used Fannie Mae's logic in applying accounting principles … there
would be no comparability of financial results … even within the same
industry." Well, every company makes different accounting choices,
and there is often little comparability of companies in the same
industry. These findings by themselves are not evidence of dishonesty.
They are evidence that Fannie —and Raines— operated in the real world.
The popular perception of accounting rules is that they are binary:
yes or no, right or wrong. In fact, accounting is often open to as
wide a range of interpretation as interior decorating. One of the two
rules that OFHEO has accused Fannie of violating, for example, is so
complicated that a manual describing how to apply it is hundreds of
pages long.
Given Raines' track record, it seems unlikely that, as OFHEO argues,
Fannie "pervasively and willfully" misapplied accounting rules. It's
possible, of course, but another scenario seems more likely: Raines
and the company believed that their choices were ethical, and the
alleged wrongdoing is a matter of interpretation.
True to character, Raines has taken responsibility for Fannie's
decisions, and, true to character, if the SEC decides that those
decisions were intentionally improper, he will probably fall on his
sword. In the meantime, he deserves the benefit of the doubt.
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