The loans were bundled, and sliced like salami, ensuring that the risk an evaluation of these slices would defy understanding in the future. George W. Bush, to his credit, tried to push through a reform in 2005-2006, but was stymied by Barney Franks who repeatedly claimed these 'government sponsored enterprises' were sound. Moreover, anyone questioning them was on a political witch hunt.
Several years later, the old chiefs of Fannie and Freddie are being held responsible responsible for misleading investors, the public and Congress.
Robert Khuzami, SEC enforcement director, said Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was.” The misrepresentations allegedly misled the market about the risk held on the company’s books “during a time of acute investor interest in financial institutions’ exposure to subprime loans”.
Franklin Raines was Chairman and CEO of Fannie for several years, but was forced to retire uner investigations for irregular accounting discovered by audits. Rains got a golden parachute valued at about $240 million. The Bush government did sue Raines, and in 2006 a court ordered him to return $50 million from bonuses for mis-stated deals.
In 2008 McCain campaign tried to cast Raines as an advisor to the Obama campaign based on a Washington Post article from July 16 of that year where Rains said he had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters".
The connection is flimsy. Still, I would expect Franklin Raines to head the list of convicted heads of Fannie and Freddy. Could his relationship with Obama have anything to do with Raines getting away scott free, while smaller fish are made to fry?
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