Cascajun

The Freddie Mae/Fannie Mac problem was reported by the Wall Street Journal back in October 2004. (emphasis mine)

Fannie Mae Enron?

We’ve looked closely at the 211-page report issued by the Office of Federal Housing Enterprise Oversight (Ofheo), and the details are more troubling than even the recent headlines. The magnitude of Fannie’s machinations is stunning, and in two key areas in particular they deserve to be better understood. By improperly delaying the recognition of income, it created a cookie jar of reserves. And by improperly classifying certain derivatives, it was able to spread out losses over many years instead of recognizing them immediately.

In the cookie-jar ploy, Fannie set aside an artificially large cash reserve. And — presto — in any quarter its managers could reach into that jar to compensate for poor results or add to it to dampen good ones. This ploy, according to Ofheo, gave Fannie “inordinate flexibility” in reporting the amount of income or expenses over reporting periods.

[…]

Well, in its wisdom, Fannie decided to recognize only $200 million, deferring the other half. That allowed Fannie’s executives — whose bonus plan is linked to earnings-per-share — to meet the target for maximum bonus payouts. The target EPS for maximum payout was $3.23 and Fannie reported exactly . . . $3.2309. This bull’s-eye was worth $1.932 million to then-CEO James Johnson, $1.19 million to then-CEO-designate Franklin Raines, and $779,625 to then-Vice Chairman Jamie Gorelick.

[…]

Fannie Mae isn’t an ordinary company and this isn’t a run-of-the-mill accounting scandal. The U.S. government had no financial stake in the failure of Enron or WorldCom. But because of Fannie’s implicit subsidy from the federal government, taxpayers are on the hook if its capital cushion is insufficient to absorb big losses. Private profit, public risk. That’s quite a confidence game — and it’s time to call it.

Who are James Johnson, Franklin Raines, and Jamie Gorelick?

Obama’s Choice of Insider Draws Fire, Republicans Assail Head of VP Vetting

Last month, Sen. Barack Obama turned to James A. Johnson, a former Fannie Mae chief executive and Washington insider since the Carter administration, to lead the vetting of potential running mates for the Democratic Party’s presumptive presidential nominee.

But four years earlier, as Johnson was angling for a job if Sen. John F. Kerry (D-Mass.) was elected president, Fannie Mae did some vetting of its own. Company executives had grown so worried about the lucrative consulting deal they had cut with their former CEO that they considered enlisting an outside investigator to comb through the deal “in light of issues that could come up during Senate confirmation . . . or White House review of the consulting contract,” according to company documents unearthed by federal regulators.

Isn’t it curious that Obama is the second largest recipients of Fannie Mae and Freddi Mac campaign contributions?

All Recipients of Fannie Mae and Freddie Mac Campaign Contributions, 1989-2008

#1 Senator Christopher Dodd (D) $165,400
#2 Senator Barack Obama (D) $126,349
#3 Senator John Kerry (D) $111,000

There must be some history there.

Fanny, Freddie, and Obama (They go way back)

Both Raines and Johnson have served as CEO of Fannie Mae, with Raines taking over from Johnson. Both are key political and economic advisers to Obama.

[…]

It isn’t just Fannie Mae where Obama has a problem. Another close political adviser, in fact the one man responsible for rallying support for Obama early on among Congressional Democrats, is Rep. Rahm Emanuel, who served on the Board of Directors for Freddie Mac after leaving the Clinton White House. According to Freddie Mac insiders, Emanuel during his time on the board opposed every reform proposed by the Bush Administration that would have impacted Freddie and Fannie Mae.

Emanuel claimed to be neutral in the primary race between the wife of his old boss and his longtime Chicago acquaintance, Obama. But the chairman of the House Democratic Caucus, who would be first in line for the vacated Senate seat of Obama should he win the presidency, quickly dumped Clinton when it was clear Obama had a head of steam for the nomination.

As it turns out, the real culprit in this meltdown is Big Government.

The Real Culprits In This Meltdown

Obama in a statement yesterday blamed the shocking new round of subprime-related bankruptcies on the free-market system, and specifically the “trickle-down” economics of the Bush administration, which he tried to gig opponent John McCain for wanting to extend.

But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street’s most revered institutions.

Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.

The untold story in this whole national crisis is that President Clinton put on steroids the Community Redevelopment Act, a well-intended Carter-era law designed to encourage minority homeownership. And in so doing, he helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but “predatory.”

[…]

As soon as Clinton crony Franklin Delano Raines took the helm in 1999 at Fannie Mae, for example, he used it as his personal piggy bank, looting it for a total of almost $100 million in compensation by the time he left in early 2005 under an ethical cloud.

Other Clinton cronies, including Janet Reno aide Jamie Gorelick, padded their pockets to the tune of another $75 million.

[…]

The Clinton-era corruption, combined with unprecedented catering to affordable-housing lobbyists, resulted in today’s nationalization of both Fannie and Freddie, a move that is expected to cost taxpayers tens of billions of dollars.

And the worst is far from over. By the time it is, we’ll all be paying for Clinton’s social experiment, one that Obama hopes to trump with a whole new round of meddling in the housing and jobs markets. In fact, the social experiment Obama has planned could dwarf both the Great Society and New Deal in size and scope.

[…]

While government arguably has a role in helping low-income folks buy a home, Clinton went overboard by strong-arming lenders with tougher and tougher regulations, which only led to lenders taking on hundreds of billions in subprime bilge.

This is just another example of Big Government Gone Bad. I still can’t comprehend why so many people keep looking to the government for solutions to their problems. We see example after example of well meaning government intervention that only exacerbates the problem, yet we have roughly 50% of the electorate who believe the government should have a greater role in providing health care, education, and jobs.

Make no mistake, I’m not a free market extremist. The government certainly has a role as an infrastructure-builder. This however, is a prime example of the problems associated with government involvement in the economy. Too often the goals are wrong. Even when they are right, progress is often hampered by politicians, their friends, and businesses hoping to game the government system to benefit themselves at the taxpayers’ expense.

Are all politicians, regardless of party, crooks and liars? Has it always been that way?

Wretchard writes about the British Labor party’s reversal of position on a referendum on the Treaty of Lisbon (emphasis mine):

“In other words the Independent thinks it unfortunate that the former French President called the public’s attention to the fact that a political superstructure was being constructed over the nations of Europe and thinks Tony Blair was ‘cowardly’ to promise he would consult the voters on it when the whole thing could have been handled so much more quietly in backrooms.”

“But recent events in Britain underscore just how powerful the backroom has become and how little words to the public mean. Despite Tony Blair’s promises not to give up British sovereignty without asking Britons, the “fix” was in. Recently Barack Obama himself was accused of privately telling the Canadian government one thing about NAFTA while the public yet another. Although Obama denies talking out of both sides of his mouth, saying his staffers were misunderstood, the shadow of the backroom looms large over every public pronouncement. Maybe politicians don’t represent the “people” any more. Just themselves.”

Are the following examples of change?

As his supporters will point out, Obama hasn’t been indicted with Rezko. However, what does his longterm relationship with Rezko say about Obama’s character? Are the boarded up slums his reward to the constituents of his congressional district?

I find it incredible that Hillary claims she didn’t know one of her biggest fund raisers was a felon and fugitive. Even if I were to give her the benefit of doubt, it is even more incredible that her entire staff were duped along with her. And, if they were aware of Hsu’s history, they were ignoring direct instructions from Hillary to be certain all donations to the campaign were legitimate. Is this the kind of leadership & ethics we can expect from Clinton and her White House staff?

Pakistani president Pervez Musharraf’s party suffered a crushing election defeat and his resignation is reportedly only days away. What will follow?

“President Musharraf’s political party (PML-Q) has been heavily defeated at the polls by a coalition led by two major opposition parties. The opposition has probably won enough seats to form a new government. The Telegraph reports Musharraf’s exit is now days, not months away. And the man with the power to determine the shape of the new government is a man with close ties to AQ Khan, presided over the development of Pakistan’s nuclear program and has just returned from exile in Saudi Arabia.”

What would/will be the policy of President Obama, or Clinton, of McCain be towards the new Pakistani coalition government?

UPDATE:

Zaffar Abbas writes in Dawn, an english language Pakistani internet publication, Musharraf down but not out — and why.

“With his opponents openly asking him to step down and even some well-wishers suggesting a kind of ‘graceful exit’, President Musharraf may well be under tremendous pressure. Yet signals emanating from the president’s camp indicate that despite the heavy odds, he is determined not to throw in the towel — at least not in the initial few rounds.”

These two pieces outline some very real problems facing Obama, and Democrats in general.

The Opacity Of Obama

Barack Obama has run on the message that he wants to change Washington politics. Indeed, “hope” and “change” have been almost all we’ve heard from the Obama campaign, and his success in these themes show just how much the American electorate agrees that DC has to change its methods of operation.

But who will be the candidate who can deliver that change? Will it be the Senator who promised transparency in earmarks but didn’t deliver, not even in the short time he’s been in Washington? Or will it be the Senator who doesn’t earmark at all and promises to veto any appropriations bills that have earmarks?

What Barack Obama and Milli Vanilli Have in Common

For all the hype, Barack Obama is making his way though the Democratic nominating process by merely lip-syncing old liberal standards borrowed from those who came before him. When potential voters begin to notice the lack of originality behind the hype, the “change” candidate may find his fall to be just as meteoric as his rise.

It’s clear to me the electorate is sick of ‘politics as usual’. What isn’t clear is that there has been some massive shift to the left. While Bush may be hugely unpopular, that doesn’t mean moderate Democrats and independent voters won’t vote for a Republican candidate, especially one with authentic centrist credentials. I think that will become clear in the next two or three months.

I’ve heard some speculation that large portions of conservatives will probably sit this election out, presumably because of McCain’s ‘mavrick’ history. While there is a real risk that large segments of conservative voters might do so (it’s certainly happened before), I haven’t seen anything suggesting that will happen. The most recent example of that would be the 1996 election when Dole/Kemp failed to ingnite any enthusiasm in the Republican base and, consequently, lost to Clinton/Gore.

However, 2008 isn’t anything like 1996. The comparison pretty much ends with the simplistic observation that Dole/Kemp ran as ‘Democrats lite’ and lost. The political & economic environment in 2008 are vastly different. To paraphrase Rudy Guiliani, “Everything has changed.”

Clinton/Gore won running as a moderate ticket. G.W. Bush won running as a moderate, or at least as more of a centrist than both the Gore (2000) & Kerry (2004) campaigns.

The 2008 election is shaping up to be a contest between a moderate Republican and a flaming, far left liberal Democrat. As I noted previously, I don’t believe there has been a shift in the electorate that will carry a flaming, far left liberal Democrat into the White House. I certainly haven’t seen any polling that suggests such a shift.

UPDATE: More analysis from Real Clear Politics.

The Democrats are convinced that the GOP is a divided, listless party this year. They see talk radio show hosts with little enthusiasm for the Party’s presumptive nominee, or outright hostility towards him. They see much lower turnout in the GOP contest than in the Democratic nominating process, and much more money raised by Democrats than Republicans across the board. If conservatives and religious voters are unenthusiastic about McCain, there is concern among Republicans that they will not have the ground game that delivered 62 million votes for George Bush in 2004, a full 14 million more than he received in 2000.

Despite all of this, McCain is within striking range of Obama, the Democrats’ strongest general election prospect (at the moment), and the closest thing to a political phenomenon seen in decades.

2008 is not 2006. The Iraq War is going much better than it did in 2006. John McCain appears to have been right to call for and back the surge. Many may think, once they are informed of the matter, that Barack Obama was wrong to call for a quick withdrawal and ignore the advice of the new commander on the ground, General Petraeus. It certainly was not Obama’s long military experience and national security background that gave him the judgment to trump the advice of Petraeus or McCain. The economy is weaker than in past years, but Obama’s solution appears to be the same old liberal dirge: massive federal spending and much higher taxes.

When he shares a stage with McCain, if both are the nominees, he will be challenged on these things. It is not the same as a campaign event, when the floor just belongs to you. McCain will be able to contrast his notion of national service and call for individual sacrifice, with Obama’s call for making the government the solver of all problems. There will be a contrast between a basically optimistic vision of what Americans can do and achieve, including the role of the free market and individual achievement, with welfare state dependency and a basically gloomy reading on the state of the country and its people. In recent decades, when the issues have been framed in this way, Republicans have more often won the day.

My enthusiasm over the 2008 presidential election wanes daily. The race for the nomination of both major parties has narrowed to two candidates in each field, none of which I find myself drawn to support.

The Republicans are likely to nominate John McCain. John McCain 2008 reminds me of Bob Dole 1996. They both represent the Republican party leadership’s chosen successor for parties nomination, rather than a real leader or visionary. Aside from that, I disagree with both McCain and Romney on a variety of issues.

There is a palpable air of inevitability that a Democrat will be elected. And now, with Obama & Clinton in a virutal tie, it appears quite possible that neither will have a majority of the pledged delegates going into their presidential nominating convention in August. Should that happen, the Democrat’s choice of nominee could be made by the party’s 796 superdelegates. Superdelegates are delegates are not legally bound by the decisions of party primaries or caucuses. Rather, they are current elected officeholders, current party officials, former elected officeholders, and former party officials. How democratic is that?

Furthermore, I’m continually discouraged when following coverage of the race because it focuses largely on the horse race aspect. Who is ahead in the polls and leading in which demographic segment of likely voters, rather than the candidates positions on the issues and how they differ from one another.

Congress is investigating politicized science.

“While you might think political influence on climate research programs started under the Bush administration, it simply isn’t true,” said Roy Spencer, a former NASA scientist now working at the University of Alabama in Huntsville.

Scientist cites pressure during Clinton years