Mother Of All Financial Scandals: Fannie Mae and Freddie Mac
Stewart is a too-easy target, an overstuffed pink piñata
swinging in the wind, waiting to be thwacked by
every last critic of capitalist excess. But the
stock-dumping doyenne is no match for the real mother of
all brewing financial scandals. That moniker belongs to
the twin behemoths,
Fannie Mae and Freddie Mac.
say? Unlike Martha, or the three-piece-suited villains
WorldCom, Fannie Mae and Freddie Mac haven`t been
plastered all over the tabloids and prime-time TV.
That`s because they are faceless, government-sponsored
enterprises in a complex, loosely regulated, highly
leveraged monopoly business that has engaged in
questionable accounting practices and put billions of
taxpayer dollars at risk—with plenty of private
profiteering for company executives and Washington
lobbyists, but almost zero accountability to the public.
chartered "government-sponsored enterprises," the
two institutions have been exempt from normal securities
regulations for almost their entire lives. Analysts
unable to decipher Fannie Mae and Freddie Mac`s
incomprehensible annual and quarterly reports have long
suspected book-cooking with regard to their real cash
the Wall Street Journal reported that Freddie Mac
SEC probe over possible
accounting irregularities. Investigators will
examine whether Freddie Mac
may have deferred some income to smooth out results in
future periods. The SEC will also probe the actions of
the chief executive and chief financial officer, who
fired on Monday over an accounting review of earning
The news sent stocks south
and roiled some foreign markets as well.
politically correct fashions (“Catch the dream,”
beckons Freddie Mac`s
program to boost minority home ownership; a
“leader in diversity,” brags a Fannie Mae
press release), these public-private hybrids are two
dangerous pigs feeding at the federal trough. Congress
created Fannie Mae (nickname for the Federal National
Mortgage Association) in 1938 to bolster home ownership
during the Depression. Three decades later, it was
partially privatized, but retained a host of government
benefits. In 1970, Congress spawned Freddie Mac
(nickname for the Federal Home Mortgage Corp.) to
provide a lending competitor to Fannie Mae. Both
entities expand the pool of money for home purchasers by
snapping up loans that lenders make to homebuyers, and
then converting those loans into relatively safe
mortgage-backed securities that are attractive to
wrong with this picture?
Fred Smith, president of the Washington, D.C-based
Competitive Enterprise Institute, has noted, these
financial beasts are a textbook example of
"profit-side capitalism and loss-side socialism."
When things go right for Freddie Mac and Fannie Mae,
they keep the profits. But when things go wrong,
taxpayers—not just private shareholders, managers, and
employees—will be on the hook.
and Fannie Mae each receive $2.25 billion lines of
credit with the U.S. Treasury. These special pipelines
give the institutions an implied federal guarantee
available to no other private sector competitors in the
mortgage market. That protection makes them immune to
the costs normally associated with riskier and riskier
behavior. Moreover, Fannie Mae and Freddie Mac are not
required to pay state and local income taxes. In
addition, the standard for how much money the government
requires them to keep on hand in case homebuyers default
on their mortgages is lower for Freddie Mac and Fannie
Mae than for fully private banks and thrifts. The two
corporations receive an estimated $10 billion a year in
hidden taxpayer subsidies.
appointees to the companies` boards pocket millions in
stock options to bolster support on Capitol Hill.
Clinton-appointed board members at Fannie Mae include
March Rich lawyer Jack Quinn and Janet Reno`s lieutenant
at the Justice Department, Jamie Gorelick. At the helm
of Fannie Mae is another Clinton appointee, Franklin
Raines, who was paid more than $4 million and had almost
$6 million in unexercised stock options in his first
year at the helm.
both major political parties have opposed
privatizing Fannie and Freddie.
Stewart is the face of capitalist excess,
Fannie Mae and
Freddie Mac are the poster children for
government-sponsored gluttony. The potential fall of
Freddie Mac or Fannie Mae could rival the
savings and loan collapse of the 1980s. Too bad the
Martha bashers, blind to the far greater catastrophes of
market socialism, won`t pay attention until it`s too
Michelle Malkin [email
her] is author of
Invasion: How America Still Welcomes Terrorists,
Criminals, and Other Foreign Menaces to Our Shores.
here for Peter Brimelow`s review. Click
here for Michelle Malkin`s website.
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