Back in 2004, I can remember feeling a small twinge of anxiety when one of the black captains of industry, Franklin Raines was getting his ass handed to him. You may recall that this was when Fannie Mae, of which he was the principal, was forced to restate its finances.
I'm surely not the only black man to feel the twinge - I mean what are the chances that when I do a quick look at the first two names I find defending Raines that they are both black Democrats. Hmm
Representative William Lacy Clay, Democrat of Missouri, accused the regulators of "rushing to judgment.""This hearing is about the political lynching of Franklin Raines,'' Mr. Clay said. "We have seen this kind of action before. This is truly a witch hunt."
Representative Artur Davis, Democrat of Alabama, asked Mr. Falcon, "Is it possible that by weakening this institution, you are weakening the housing market because of the broad insinuations you have made?"
Rush to judgment? Where have we heard that language before?
The unsung hero in this appearst to be one Armando Falcon, Jr. who was a regulator at an bureacracy called OFHEO. They dropped a bomb on Fannie Mae. Falcon started his doing his job back in December of 2004. Nobody paid attention until the SEC validated his findings.
It turns out that John McCain was one of the people trying to clean up this mess proactively, but were stymied by the Democrats. Chuck Hegel's bill S.190 was going to tighten regulations on Fannie and Freddie. It was clear that Falcon was outgunned and had some explaining to do to Democrats. He ended up resigning his position.
Later the OFHEO sued Raines and Fannie Mae for $400 million.
Here's an article in Forbes giving some extended characterization by Falcon about his role in taking down Raines and what was wrong at Fannie Mae.
Forbes: You resigned under pressure from the White House after releasing your study about the risks Fannie and Freddie pose to the financial system. Now it looks as though your successor also is in trouble for speaking out. Do you see a problem with the independence at OFHEO?Falcon: When I was director, I think the White House did respect the independence of the agency. I think there was a plan in the works before the release of my report to put their own person in place at the agency. It wasn't as much about independence, but more about me being a Clinton Administration appointee. That's why I stepped down willingly. If I thought it was because there would be a threat to the independence of the agency, I would have stuck around a little longer.
Forbes: What do you think of Congress considering legislation that would give a new regulator for Fannie Mae and Freddie Mac varying levels of authority to scale back the size of their holdings?
Falcon: It's very important that Congress pass legislation to strengthen powers of the regulatory agency. But it's not helpful for regulators to have their hands tied behind their backs on the issue of portfolio limits. I never really considered that was a final point to the legislation until the problems came up with Fannie and Freddie in accounting areas. Many of those problems arose because of the vast amount it took for the companies to manage the risk associated with the retained portfolios. (That is, the loans they keep instead of reselling in the secondary market.) Since the retained portfolios really don't contribute to the fulfillment of the mission of the companies (to promote housing and easy access to mortgages), it is time to get the companies to scale back their portfolios.
Forbes: Any specific number in mind?
Falcon: I wouldn't want to see a hard number in legislation, but the number mentioned by [Alan] Greenspan ($100 billion to $200 billion) is within the ballpark of what's necessary for the fulfillment of Fannie's and Freddie's mission.
I'm not going to spend the time reordering all this chronology. But the bottom line is that Kevin Hassett of the American Enterprise Institute has the Democrats over a barrel on this one. The more I dig following up on his story the more interesting it gets. Obviously there's a lot of blame to go around. If Raines and company had exercised sounder judgment, we wouldn't have been in this mess. If, if, if.
I didn't pay much attention to the racial noise coming out of Obama's media flacks last week about the (non)-connection between he and Raines. But as I look at this I find it very difficult to believe that Raines wasn't selling his own high tech lynching story. I heard the recording of his pleas for solidarity to the Congressional Black Caucus. That McCain is furious this week at the NYT in covering Obama's ass is now more understandable given McCain's own efforts to do something about this very issue long ago.
I think perhaps I have an answer for Hitchens when he asks why Obama hasn't made hay over the apparent political advantage he could make out of this financial crisis. The answer is this. Obama didn't do squat on this issue or anything like it. If he did, then it might have come sideways through the black door. But I doubt that. More likely he was just absent. I'm rather flabbergasted by Obama's voting record. Now that I actually get a chance to see it, it's a rather stunningly empty thing.
So add a few political stripes to the sordid history of this meltdown. I've already been fussing in principle about how crappy racial politics obliterate economic sense, and specifically the appeal to blackfolks to support Down Payment Assistance. I hope we can stick to the facts here. There's nothing racial about Obama and Raines. If there's any connection at all, its Raines trying to bamboozle Obama on a racial solidarity tip as he likely did with Clay and Davis and attempted to do with the CBC. But the legislative history against S.190 is clearly a Democrat Party responsibility and that's where Obama should take his hit. But I don't think he'll man up and do it. That would be too complicated, and this is a story I'm sure he'd hope - like so many others, will die without legs in the national media.
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