Investigate Jamie Gorelick Now; Urge Obama to Return Fannie Mae Donations

Congress needs to investigate Clinton appointee Jamie Gorelick now. 

You might remember her as the author of the policy which prevented the foreign intelligence and criminal investigative communities from collaborating.  Then of course, America lost thousands of lives when the WTC and Pentagon were attacked by al-Quaeda operatives.  Attorney General Ashcroft cited this “wall” between the communities as responsible “specifically [for] imped[ing] the investigation into Zacarias Moussaoui, Khalid al-Midhar and Nawaf al-Hazmi. After the FBI arrested Moussaoui, agents became suspicious of his interest in commercial aircraft and sought approval for a criminal warrant to search his computer. The warrant was rejected because FBI officials feared breaching the wall.”  In the youtube video below, Gorelick lays blame for the “wall” with Janet Reno.

Astonishingly and after the attack set America’s economy back what is estimated to be about $500 billion, Gorelick then went on to serve on the 9/11 commission – the bi-partisan panel which was to report on the roots and causes of 9/11 as well as to suggest potential ways forward.  (you can’t make this up)

Gorelick served as Vice Chairman of Fannie Mae for six years and presided over a $10 billion accounting scandal, an ominous harbinger of the firm’s looming troubles. One of the falsified transactions helped FNMA hit earnings targets for 1998, which triggered bonuses for top executives including nearly $800,000 to Gorelick.  During this 6 year period, she earned $26 million. (no that is not a typo)

Now, in 2002 Business Week interviewed Gorelick concerning the health of FNMA. She responded, “We believe we are managed safely. We are very pleased that Moody’s gave us an A-minus in the area of bank financial strength — without a reference to the government in any way. Fannie Mae is among the handful of top-quality institutions.”  Well it turns out that this isn’t so.

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 (Office of Federal Housing Enterprise Oversight), gave Fannie “inordinate flexibility” in reporting the amount of income or expenses over reporting periods.

This flexibility also gave Fannie the ability to manipulate earnings to hit — within pennies — target numbers for executive bonuses. Ofheo details an example from 1998, the year the Russian financial crisis sent interest rates tumbling. Lower rates caused a lot of mortgage holders to prepay their existing home mortgages. And Fannie was suddenly facing an estimated expense of $400 million.

Well, in its wisdom, Fannie decided to recognize only $200 million [of losses], 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.

As for other losses, they were routinely mischaracterized so that they could be amortized over years, not realized fully as they were supposed to be. By this method, the Fannie Mae management siphoned off millions of dollars in excess compensation to top management, including Gorelick.

Today Obama rewrites history, blaming Bush for this ugly economic ripple.  “If you want to understand the difference between how Senator McCain and I would govern as President, you can start by taking a look at how we’ve responded to this crisis. Because Senator McCain’s approach was the same as the Bush Administration’s: support ideological policies that made the crisis more likely; do nothing as the crisis hits…”

But the facts speak for themselves – it is the Clinton administration and Jamie Gorelick which presided over these La-z-Boy relaxed lending practices and accounting methods — not President Bush, not John McCain, not Sarah Palin. 

Meanwhile, Obama is the largest recipient of political donations from Fannie Mae and still has not returned the $112,000 given to him.  This is money the taxpayers of the United States are now owed since the government has taken over both Fannie and Freddie.