In my earlier post, you learned that the roots of the current mortgage mess were in the Clinton administration, where he directed Franklin Raines, CEO of the Federal National Mortgage Association (Fannie Mae), to loosen the credit rules for getting mortgages.
This was done in spite of warnings at the time. A Sep 1999 New York Times article warned that “the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue” and quoted Peter Wallison of the American Enterprise Institute as saying ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the (savings and loan) industry.”
Although Fannie Mae is a publicly traded organization, Raines went along with the plan, in part because of the performance bonuses he would receive for attracting new business to the organization. He had his supporters in Congress: Maxine Waters, Chris Dodd, and the Congressional Black Caucus. This policy of easy money fed their platform of easy access to the forms of the middle class – a house in the burbs. For that, Raines collected a nice salary – he had made over $90M mismanaging Fannie Mae.
But playing fast and loose with Fannie’s money got him into trouble, and in 2004 Raines was forced to resign in the wake of a $6.3 billion accounting scandal. This was the beginning of the end of our economy. Raines knew how to shuffle the money, bundling shaking loans with stable ones into stabilized packages. Without him in charge, not as much care was given to hiding the bad loans.
When the Democrats took over in 2007, the fiscal controls of the previous 6 years came off. And we were reaching the upper limits of what a true middle-class buyer could afford. A few mortgage companies got greedy and the banking industry began to implode.
So what was Raines doing since he left Fannie? He’s working for Steve Case (former head of AOL), and has helped Obama with finance and housing issues. Raines is not officially listed as an adviser, but that just means he wasn’t on the payroll. It’s clear the Obama campaign has been in regular contact with Raines. He knows how the crisis was created, and has some ideas about how to fix it. Expect to hear more from Franklin Raines if Obama gets elected.
source: NY Times Business, Sept 30, 1999