FNMA Is Making Enron Executives Look Good

07/25/2008 05:12 am ET | Updated May 25, 2011

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.