Further Fannie and Freddie Fallout

While I'm on the topic of Finance, I'm pissed off that the US Treasury needed to bail out the corrupt and mismanaged Fannie Mae and Freddie Mac.

About Fannie Mae

Johnson received $21 million in his last year as chief executive and a consulting contract worth $600,000 a year.

But when good numbers -- and the bonuses that came with them -- weren't possible anymore, the executives who came after Johnson allegedly rearranged the math and, even after accounting problems were found, used the company's political clout to fend off closer regulation. That was the conclusion of Fannie Mae's chief regulator, the Office of Federal Housing Enterprise Oversight, in a 340-page report that determined the company's $10.6 billion accounting scandal was rooted in a corporate culture that dates back 20 years.

To keep up with Wall Street expectations, however, the company began holding onto more mortgages and mortgage-backed securities for investment purposes. The same practice nearly drove the company into bankruptcy in the early 1980s, when interest rates strayed into the double digits. Its smaller rival, Freddie Mac, copied the strategy. Around the time Freddie Mac's accounting scandal broke in 2003, the companies' combined portfolios totaled $1.5 trillion.

If Fannie Mae could afford a $21 million dollar a year Chief Executive, don't you think they could have found one who wouldn't implement the same risky strategy that almost bankrupted the company some 20 years ago?

From Glenn Reynolds:

HOW WASHINGTON FAILED TO REIN IN FANNIE & FREDDIE: Basically, it was bought off. "Blessed with the advantages of a government agency and a private company at the same time, Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them. . . . Fannie Mae, and to a lesser extent Freddie Mac, became enmeshed in the fabric of political Washington. They were places former government officials went to get wealthy -- and to wait for new federal appointments. At Fannie Mae, chief executives had clauses written into their contracts spelling out the severance benefits they would receive if they left for a government post. The companies also donated generously to the campaigns of favored politicians."