Life is unfair indeed.
If not for Florida Representative Alan Grayson, we could have not remembered Fannie Mae’s Three Stooges. The New York Times ran a report last month on how the feisty Democrat is pursuing to stop the Treasury’s financing of legal defense bills of three of its former top men. It states, “… As a result of the Fannie takeover, taxpayers are paying millions of dollars in legal defense bills for three top former executives, including Franklin D. Raines, who left the company in late 2004 under accusations of accounting improprieties. From Sept. 6, 2008, to July 21, these legal payments totaled $6.3 million.
With all the turmoil of the financial crisis, you may have forgotten about the book-cooking that went on at Fannie Mae. Government inquiries found that between 1998 and 2004, senior executives at Fannie manipulated its results to hit earnings targets and generate $115 million in bonus compensation. Fannie had to restate its financial results by $6.3 billion.
When these top executives left Fannie, the company was obligated to cover the legal costs associated with shareholder suits brought against them in the wake of the accounting scandal.”
Indeed, there are many questions about Fannie Mae and Freddie Mac’s future. The bailout has already brought too much suspicion from taxpayers on the desirability of the government’s economic restructuring plans. When the federal government intervenes in the market, it’s a hit or miss.
Both companies are already facing tremendous losses. Fannie Mae alone has more than $171 billion in toxic loans, and we were fooled all these years that they can’t fix their mess easily. Coming to know about these legal defense financing is an insult to the public. While we’re scrambling to keep the market from further plunging in the pit, we’re not sure if we still can trust Fannie Mae anymore.
This also goes for the borrowers who find it hard to qualify for a loan from these two GSEs. They can’t own a house while three people are off to their vacations, not worrying a bit how to pay for their legal fees. Life is unfair indeed.