FNMA Is Making Enron Executives Look Good

Enron is generally brought up as the company that defines fraudulent and greedy behavior on the part of capitalist executives, so much so that "Enron" is basically a pejorative. But guess what? The people that lost their savings in the Enron debacle were private shareholders, including people owning mutual funds. Their investments in Enron shares were mostly voluntary and at-risk. As bad as management was, they enriched themselves by screwing private shareholders.

FNMA executives, on the other hand, screwed all of us. They gamed the system to enrich themselves by exposing the American taxpayer to their company risk. The executives themselves took no risk. This weekend, through the overt guarantee by the administration of FNMA, we effectively doubled the national debt to $5 trillion. In one weekend.

FNMA executives used their insider's game to set their bonuses to EPS targets, which they set themselves, thereby guaranteeing themselves a bonus. They turbocharged their balance sheet by lending long and borrowing short. They retained a larger mortgage portfolio than was intended ($700 billion) and thereby took on interest rate risk. They pressured Congress to let them assume riskier loans by funding localized special interest groups to demand more "fairness" in lending, since as we all know, everyone has the God-given right to own a home. Let's face it, they bribed Congress, to the tune of $90 million in the last 10 years.

This was all possible because they could always resort to the "implied" government guarantee their debt carried. BTW, guess who owns over 15% of FNMA debt? China. Think they might have had a word with Treasury officials last weekend?

Hubris is not the only word one should use to describe the actions of FNMA executives. Arrogance, greed and perfidy also come to mind. It is the biggest financial scandal we'll ever see.

We threw Jeff Skilling in jail for misleading Enron investors. What should we do with FNMA executives? A certain scene from Pulp Fiction comes to mind.

Follow Ron Galloway on Twitter: www.twitter.com/rongalloway

Comments

[Henry]

If you were really paying attention to Enron you will remember a lot of related bankers convicted of felony and the largest most trusted accounting firm in the world driven into the ground. Fanny and Freddie have greedy and corrupt boards and management (what's new about tht)

But you miss the larger point entirely. Bernanke at the Fed has fed funds a 2.0%. Gr Brit if 5.0% and the Euro Union at 4.25%. Ben needs to raise rates (can you understand this?) to fend off an erosion of the dollar, ensueing inflation, and I'm not even mentioning the psychological impact on oil.
But what happens to Fannie Freddie and the whole range of secruitized subprime mortgages floating in the cess pool (market), If fed funds in America goe to 4.25% there is an approximate loss to the paper of greater than a trillion, putting fair valutions down and imparing capital on a near term basis... which stops the whole "clucking" train. Think about it, it's really not too complicated. (And you have the euphoric "easy" Al who painted you into this corner)

[Rule Of Law]

Hey nipper, this is written by a guy who told us why Wal-Mart works....m­ath can't be his strong suit.

"They pressured Congress to let them assume riskier loans by funding localized special interest groups to demand more "fairness" in lending, since as we all know, everyone has the God-given right to own a home. Let's face it, they bribed Congress, to the tune of $90 million in the last 10 years."

So Congress let themselves be alternately bought and bullied--kinda like they allow Bush to do even now with our mythical majority--but it's the FNM execs who are to blame??? C'mon. Wall Street can't wait to get in the pants of Fannie, and Freddy too--the perverts, and this spate of articles fanning the flames for "Justice" are just thinly veiled PR campaigns to sell them off, break them up and let the Wall Street vultures have the business that was denied them since 1934!

It's so transparent. Can we dare call it "privatization?" Yeah, I want the Wall Street wizards that gave us this Depression in the first place (and who we are bailing out with our money now) running the only really good government agencies left. Eliminate the thieves and their co-dependent Congressman along with them. But don't throw out the Baby with the bath water.

[Veri]

So, America's official debt is now larger than our GDP. Great. Bankruptcy of The United States for the fifth time since The Fed was created?

[Rule Of Law]

True dat!

[nippersdad]

"...we efectively doubled the national debt to five trillion dollars. In one week end."

I thought that prior to the bailout of Fannie Mae we already had nine trillion dollars in national debt (plus the off budget stuff). The takeover of Fannie Mae and Freddie Mac debt would add five trillion to that, so I come up with fourteen trillion plus in national debt, not five. Seems like doubling the debt to five trillion is a situation that we could only dream of. What am I missing?