Thread: Cover-ups Led to Financial Crisis

Cover-Ups Led to Financial Crisis

Tuesday, September 30, 2008 3:07 PM

By: Charles R. Smith Article Font Size




One does not have to look very far to find the root cause of our current financial dilemma.


Despite the partisan political spin that it’s "all George Bush's fault," the facts were well documented in 2006 by the audit report of the Office of Federal Housing Enterprise Oversight (OFHEO).


It is the failure of the mainstream media to kick the spin and put out the facts before the American people.


According to the auditors, "During the period covered by this report — 1998 to mid-2004 — Fannie Mae reported extremely smooth profit growth and hit announced targets for earnings per share precisely each quarter. Those achievements were illusions deliberately and systematically created by the Enterprise’s senior management with the aid of inappropriate accounting and improper earnings management."


The audit report is specific — telling why the Fannie Mae folks inflated their books and who was responsible for the systematic mirrors and smoke game to inflate earnings.


"By deliberately and intentionally manipulating accounting to hit earnings targets, senior management maximized the bonuses and other executive compensation they received, at the expense of shareholders. Earnings management made a significant contribution to the compensation of Fannie Mae Chairman and CEO Franklin Raines, which totaled over $90 million from 1998 through 2003. Of that total, over $52 million was directly tied to achieving earnings per share targets."


So while Franklin Raines, currently adviser to Senator Obama, walks free with millions in his pockets, homeowners and taxpayers all over America are paying the price of his failed leadership.


How did this happen? The answer again comes from the audit report: Basically, the management at Fannie Mae hid the payouts from public view.


"Enterprise executives purposely obscured their official disclosures of executive compensation and failed to provide complete information on the post-employment compensation awarded to former CEOs," noted the audit report.


The whole story, as documented by the audit report, goes from one tale of falsehoods followed by another chapter on cover-ups.


"Fannie Mae senior management achieved those earnings targets by regularly manipulating earnings," notes the report.


"During the period covered by this report, Fannie Mae senior management systematically withheld information about the Enterprise’s operations and financial condition from the board of directors, its committees, its external auditors, OFHEO, the Congress, and the public, or disclosed information that was incomplete, inaccurate, or misleading," states the audit report.


While the books looked great — good enough to pay out millions to Raines and others at Fannie Mae — the facts behind the scenes pointed to a crumbling empire ready to collapse.


"Fannie Mae consistently took a significant amount of interest rate risk and, when interest rates fell in 2002, incurred billions of dollars in economic losses," states the report.


Worse still, when it appeared the cover-ups were failing and the auditors were closing in on the truth, the executives at Fannie Mae combined forces with Democrats in Congress to try to replace the auditors.


"Fannie Mae senior management sought to interfere with OFHEO’s special examination by directing the Enterprise’s lobbyists to use their ties to Congressional staff to 1) generate a Congressional request for the Inspector General of the Department of Housing and Urban Development (HUD) to investigate OFHEO’s conduct of that examination and 2) insert into an appropriations bill language that would reduce the agency’s appropriations until the Director of OFHEO was replaced," noted the report.


So who helped out the Fannie executives?


In 2007, Sen. Dodd, D-Conn., the chairman of the Senate Banking, Housing and Urban Affairs Committee, called on Fannie Mae and Freddie Mac's regulators to lift the portfolio caps. He argued that allowing the two firms to buy more subprime mortgages, at least temporarily, would inject much needed liquidity into the market and calm the financial markets. Of course, that was like offering heroin to an addict.


Sen. Dodd called Bush's proposed stronger regulations on Fannie Mae "inane" and recommended the president "Immediately reconsider his ill-advised" proposals."


In 2000, when Republicans introduced a reform act for Fannie, Rep. Frank dismissed the bill, saying concerns were "overblown" and that there was "no federal liability there whatsoever."


In 2002, as alarm bells were ringing, Frank dismissed them with "I do not regard Fannie Mae and Freddie Mac as problems," according to a Sept. 10 Wall Street Journal article.


When the accounting scandal finally broke open, Rep. Frank acted quickly . . . to cover the whole thing up.


"I do not think we are facing any kind of a crisis," stated Frank.


When the scandals began to engulf Fannie Mae and Freddie Mac sending them spiraling down the tubes, Frank reacted with a comment that is enough to make one's head spin.


In the same article, Frank noted, "I think Wall Street will get over it if the two collapsed."


Oh, and where was Obama? In his short term in Congress, Obama has raked in more Fannie Mae donations than any other member of Congress in 20 years except Dodd. Obama has sought the campaign advice of two former Fannie Mae CEOs who took money based on the "purposely obscured" accounting documented by the audit report. Obama has bundlers and advisers from the collapsed institution sprinkled over his campaign like sugar over cookies.


Where was John McCain? In 2005, Sen. McCain proposed legislation that could have prevented this whole mess to reform Fannie and Freddie.

http://www.newsmax.com/smith/financial_ ... 35975.html

McCain's legislation was defeated by Dodd and the Senate Democrats. Since then Dodd along with Democrat Sens. Obama, John Kerry, and Hillary Clinton — the top four recipients of Fannie and Freddie campaign contributions from 1988 to 2008 — actively opposed any reform measures and supported weakening existing regulations.


So while the mass media spins it all George Bush's fault, the very same people who oversaw the disaster at Fannie Mae and Freddie Mac are now in charge of the rescue effort.

I doubt anyone would have a problem believing there was some skullduggery going on and that high ups were lining their pockets.

Using this however, to suggest that this President had no part, or shares no blame, in this housing blunder doesn't wash.

Watch this - he pushed for more and more houses for minority, low income and those who couldn't come up with a down payment.

http://www.youtube.com/watch?v=vLUbb2DUYGk

There is plenty of blame to go around - it was bipartisan and it was a collusion between government and business.

We no longer have the luxury of believing that our party or our man is good. We can't continue to try to delude ourselves - we don't have enough time.