What Did Fannie Mae Know and When Did She Know It?
Washington Post reports Raines, Gorelick knew of accounting practices early on, but glosses over their ties to Democrats.

By Ken Shepherd
Business & Media Institute
Feb. 28, 2006

     Four days after the Business & Media Institute documented the media’s continuing whitewash of Democratic ties to the Fannie Mae accounting scandals, The Washington Post’s David Hilzenrath glossed over Democratic ties to the scandal, ignoring political contributions by then-CEO Franklin Raines and then-vice chairman Jamie Gorelick to liberal Sen. Paul Sarbanes (D-Md.), co-sponsor of the Enron-inspired Sarbanes-Oxley Act of 2002.

     Hilzenrath opened his February 28 article explaining that as Raines was about to step on board as Fannie Mae’s CEO in the summer of 1998, company officials alerted him to the mortgage broker’s lackluster performance on Wall Street. At that time, “earnings per share for 1998 would fall short of two important targets: the $3.21 that Wall Street was expecting and the $3.23 that would trigger maximum funding of management bonuses,” so company managers massaged the books in order to “deliver the maximum payout of $27.1 million in management bonuses.”

     The Post business reporter explained that “As with many companies, Fannie’s reported profits were largely a function of complex estimates that could be squeezed or stretched. The catch-up – which related to changes in the value of loans Fannie owned – was among the most important of those figures.”

     Hilzenrath later noted a Jan. 8, 1999, meeting where the accounting practices were discussed by top executives, including Raines and “Jamie S. Gorelick, who was then vice chairman of the company and who has also served in senior positions in the Clinton administration.”

     Yet Raines’s tenure as Clinton’s Office of Management and Budget director and his numerous campaign contributions to liberal Democrats eluded Hilzenrath’s notice. According to the Federal Election Commission Web site, both Raines and Gorelick donated regularly to liberal Democrats running for Congress.

     The media went wild over Enron’s accounting scandal, but Fannie Mae was not just another Enron. It was much larger, with a cozy relationship to the federal government. “Fannie Mae will have to compensate for $11 billion in accounting errors. To put this in perspective, Enron overstated its earnings by $567 million: 5 percent of Fannie Mae’s fiasco,” The Business & Media Institute noted in its April 2005 study.

     “Fannie Mae and Freddie Mac were originally established as elements of the federal government,” explained real estate writer Peter G. Miller in an article in the February 28 Realty Times. “Fannie Mae and Freddie Mac are owned by private shareholders and yet have unique marketplace privileges stemming from their government days … In practice, investors believe that because of their size and history,” financial trouble for Fannie Mae would lead to a federal bailout.

     Meanwhile, the media have continued to bail out Democratic supporters with ties to scandal.

     To read BMI’s 2005 study of Fannie Mae coverage, “Government-Sponsored Enron,” click here.