Editorial: Fannie, Freddie bought a bailout

Any story about the taxpayers’ bailout of Fannie Mae and Freddie Mac is incomplete if it fails to mention the fact that the mortgage giants often served as a halfway house for Democratic Party operatives and recovering Clinton administration officials who avoided uncomfortable congressional oversight by spreading lavish amounts of money around on Capitol Hill.

Fannie’s top executive ranks have included former President Clinton budget director Franklin Raines, former Clinton deputy attorney general Jamie Gorelick and longtime Democratic Party insider Jim Johnson. They presided over one of the biggest frauds in American history by “misstating” earnings and duping investors into thinking Fannie was profitable.

Instead of being prosecuted, they walked away with multimillion-dollar bonuses.

So will the most current residents of the executive suites. Former Fannie CEO David Mudd will pocket $8.4 million, and former Freddie CEO Richard Styron will float back to earth on a $15.5 million golden parachute, courtesy of federal taxpayers left holding the bag. That’s because Fannie and Freddie didn’t only invest in mortgages, they invested in lawmakers, too, making it highly unlikely that any grandstanding representative or senator would turn the spotlight on them, even though this was not the first time they had gotten themselves into serious financial trouble.

In the early 1980s, a sharp rise in interest rates left Fannie Mae in peril as its stock went into free-fall, losing almost two-thirds of its value. Without the implied backing of the federal government, Fannie would have been unable to borrow enough money to weather the crisis and would have gone belly up.

Since 1989, according to OpenSecrets.org, Sen. Chris Dodd, D-Conn., has pocketed $165,400 from Fannie and Freddie. As chairman of the Senate Banking Committee, Dodd has performed his oversight role with blinders on, even after fraudulent accounting practices were exposed.

Democratic presidential nominee Barack Obama received $126,349, and Sen. John Kerry, D-Mass., $111,000. The top five recipients of bipartisan largesse also included Republican senators Robert Bennett of Utah ($107,999) and Spencer Bachus of Alabama ($103,300). To his credit, Sen. Richard Shelby, R-Ala., has received $80,000 but has long been an advocate of reforming Fannie and Freddie. A total of 354 lawmakers received close to $5 million from Fannie or Freddie since 1989, according to OpenSecrets.org.

It is likely a government seizure would not have been necessary if Fannie and Freddie had limited themselves to buying traditional, 30-year, fixed-interest mortgages backed by proof of income instead of buying questionable subprime loans. But they were greedy, and they gave Congress millions of reasons to look the other way.

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