THERE’S EVEN A HERO Â by John McLeod, 21Jul06
“A potential financial disaster that could have shaken the housing market was averted because regulators discovered accounting failures at Fannie Mae and Freddie Mac, the new head [James Lockhart] of the agency that oversees the mortgage giants [OFHEO] said Monday [July 10, 2006].” (my emphasis)
That was the opening of the widely repeated AP wire story Mortgage Giants Avert Potential Disaster by seasoned GSE reporter Marcy Gordon. Gordon goes on to chronicle how Freddie Mac and then Fannie Mae paid enormous fines ($125m and $400m) and had to fire much of their top managements over accounting scandals measured in the billions. He quotes Lockhart as saying “[t]here’s still some arrogance in the culture. … There are certainly people in both organizations that have retained and will retain some of that arrogance.” and points to the OFHEO Annual Report to Congress (June 15, 2006) that “found that current and former executives of Fannie Mae reaped hundreds of millions of dollars in bonuses in a deceptive accounting scheme from 1998 to 2004.”
It sound’s like a tale of unrelieved greed and stupidity, but as usual it’s not quite that simple. There are many good people caught in the mix, and perhaps the most important of all is a true hero, Fannie Mae whistle-blower Roger Barnes. Despite what Lockart implies about institutional checks and balances, we have this single mid-level former accounting executive to thank for much of what we know now about how this GSE, America’s second largest financial institution behind only CitiBank, was operating over the last several years.
