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Franklin Raines Must Have Amnesia

Posted by Larry Doyle on August 4, 2010 1:25 PM |

Former Chairman and CEO of Fannie Mae, Franklin Raines

Whatever happened to the virtues of taking responsibility and ownership for issues? Why do I hold so many senior executives in our financial industry in disdain? For the very simple reason that I have seen very few of these execs stand up and be counted. All too many of them point the finger elsewhere, use the convenient excuse of ‘the perfect storm,’ or develop a convenient case of amnesia.

Who is a fine examplar of the last category? Former Chairman and CEO of Fannie Mae Franklin Raines who wrote into The Wall Street Journal yesterday on the topic of the demise of our two step-children, Fannie and Freddie. Raines promotes that the downfall of these organizations and the enormous burden they now put on American taxpayers were simply the result of the excessive credit risks taken by Freddie and Fannie from 2005-2007. Raines writes, Poor Credit Judgments Sank Fannie and Freddie:

The facts about the financial collapse of Fannie and Freddie are pretty clear and a matter of public record.

The company managers, their regulator and the Treasury have all said that the losses which crippled the companies were caused by the purchase of loans with lower credit standards between 2005 and 2007. The companies explicitly changed their credit standards in order to regain market share after Wall Street began to define market credit standards in 2004. As proved to be the case for most other investors in Alternative-A and sub-prime mortgages, this was a very bad idea.

So the companies said this, and we are supposed to believe them? Be mindful of the fact that company executives at both Fannie and Freddie have always been very closely aligned with the Washington power base both on and off the Hill. Regulators? Fannie and Freddie ran roughshod over their regulator who was ill-equipped to monitor their activities in the first place. Treasury? We’re supposed to take Tim and team at face value? Can you say “self-serving?”

So the cause of the financial problems for Fannie and Freddie was bad decisions, not their government sponsored status. Had the companies maintained their credit standards they would have fared much better. The same is true for Wall Street. Bad decisions, not bad government charters, caused the financial crisis.

The Journal had been warning for years that the on-balance sheet portfolios of Fannie and Freddie would lead to their demise. Mr. Carney suggests that excessive leverage was the culprit. Unfortunately, neither of these were involved. Nope. Just bad credit judgments. Decisions made, by the way, while operating under close regulatory scrutiny.

Do you detect a not so subtle haughty sense of condescending grandeur? I do. Yes, this from the very individual who ramped up Fannie’s internal investment portfolio and cooked the books while he did it. While Franklin incurred a hefty fine, the fact is his friends in Washington protected him. Given the accounting fraud at Fannie under his watch, I personally thought he was a strong candidate for time in the sin bin.

Perhaps one reason Congress and the administration are being careful before eliminating Fannie and Freddie is that they have noticed that Wall Street and the commercial banks have virtually abandoned the mortgage market leaving only Fannie, Freddie and the Federal Housing Administration to keep housing finance flowing. They may also be pondering just how the private-market players or any new entities created to replace Fannie and Freddie would be able to avoid bad credit decisions in the future.

Well, when entities such as Freddie and Fannie are provided blank checks to write off losses and then redistribute wealth, that is a tough model with which to compete. I say that with little regard for the banks, as well.

It seems reasonable to some of us that they think about those issues before acting.

Franklin D. Raines


Mr. Raines was chairman and CEO of Fannie Mae from 1999 to 2004.

Wow, what a set of balls. Perhaps Franklin has been getting too much sun or has been preoccupied with counting his money from his days laying the foundation for Fannie’s demise. The selective amnesia displayed in his letter is just another of the ‘in your face’ acts of cowardice seen all too often in our nation these days.

Franklin remains a charter member of the Sense on Cents Hall of Shame.


Related Sense on Cents/Commentary
Sense on Cents/Franklin Raines

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  • Barney

    Why are you giving my pal Franklin such a hard time?? He’s not such a bad guy, plus his firm gave me and my friends on the hill lots of dough…and my friend worked for him.


  • Bruce

    raines is first and foremost a crook. he should be drawn and quartered

    • LD

      How do you really feel??

      • Rockie

        LD……this MF has balls……

        Raines’ total compensation from 1998 through 2004 was $91.1 million, including some $52.6 million in bonuses, according to OFHEO. Howard earned $30.8 million during the period, including $16.8 million in bonuses;

        I copied the below from Wikipedia…..the highlight provides context …..God help us……

        Keep up the good work…..we have to get back political and business leaders with ethics…running our institutions…..when are you running….

        In 1969, Raines first worked in national politics, preparing a report for the Nixon administration on the causes and patterns of youth unrest around the country related to the Vietnam War.[2]

        He served in the Carter Administration as associate director for economics and government in the Office of Management and Budget and assistant director of the White House Domestic Policy Staff from 1977 to 1979.

        Then he joined Lazard Freres and Co., where he worked for 11 years and became a general partner. In 1991 he became Fannie’s Mae’s Vice Chairman, a post he left in 1996 in order to join the Clinton Administration as the Director of the U.S. Office of Management and Budget, where he served until 1998.

        In 1999, he returned to Fannie Mae as CEO, “the first black man to head a Fortune 500 company.”[3]
        On December 21, 2004 Raines accepted what he called “early retirement”[4] from his position as CEO while U.S. Securities and Exchange Commission investigators continued to investigate alleged accounting irregularities.

        He is accused by The Office of Federal Housing Enterprise Oversight (OFHEO), the regulating body of Fannie Mae, of abetting widespread accounting errors, which included the shifting of losses so senior executives, such as himself, could earn large bonuses.[5]

        In 2006, the OFHEO announced a suit against Raines in order to recover some or all of the $90 million in payments made to Raines based on the overstated earnings,[6] initially estimated to be $9 billion but have been announced as 6.3 billion.[7]

        Civil charges were filed against Raines and two other former executives by the OFHEO in which the OFHEO sought $110 million in penalties and $115 million in returned bonuses from the three accused.[8] On April 18, 2008, the government announced a settlement with Raines together with J. Timothy Howard, Fannie’s former chief financial officer, and Leanne G. Spencer, Fannie’s former controller. The three executives agreed to pay fines totaling about $3 million, which will be paid by Fannie’s insurance policies. Raines also agreed to donate the proceeds from the sale of $1.8 million of his Fannie stock and to give up stock options. The stock options however have no value. Raines also gave up an estimated $5.3 million of “other benefits” said to be related to his pension and forgone bonuses.[9]

        An editorial in The Wall Street Journal called it a “paltry settlement” which allowed Raines and the other two executives to “keep the bulk of their riches.”[10] In 2003 alone, Raines’s compensation was over $20 million.[11]

        A statement issued by Raines said of the consent order, “is consistent with my acceptance of accountability as the leader of Fannie Mae and with my strong denial of the allegations made against me by OFHEO.”[12]

        In a settlement with OFHEO and the Securities and Exchange Commission, Fannie paid a record $400 million civil fine. Fannie, which is the largest American financier and guarantor of home mortgages, also agreed to make changes in its corporate culture and accounting procedures and ways of managing risk.[13]

        In June 2008 The Wall Street Journal reported that Franklin Raines was one of several public officials who received below market rates loans at Countrywide Financial because the corporation considered the officeholders “FOA’s”–“Friends of Angelo” (Countrywide Chief Executive Angelo Mozilo). He received loans for over $3 million while CEO of Fannie Mae.[14]

  • Sweet Ebony Diamond


    You have no credibility.

    You lost it.

    Just like every other banker in this world.

  • Bill

    The whole bunch who “ran” Fannie and Freddie, including Raines, Johnson, Gorelick, Rahmbo, et al, as well as Congressional enablers like Barney Fraud, Dodd, Maxine Waters, and Obama, should be sued and prosecuted under RICO.

  • Rob

    There is a reason why Dodd is retiring this year…Frank will soon do the same. Those two guys are the biggest crooks of them all. Fannie and Freddie are nothing but slush funds for the Democratic party.

    Home ownership is not for everyone. We as a country forgot that starting around 2001.

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