Raines claiming accountability isn't enough

he should show it

December 10, 2006|By Jay Hancock | Jay Hancock,Sun Columnist

Frank Raines says he should be accountable for the billions in overstated earnings and shareholder losses at Fannie Mae when he was running the joint.

He just doesn't act like it.

Another executive would forthrightly apologize over the debacle at the mortgage-finance giant. Another executive would express shame at overseeing the bogus books even if, as Raines maintains, he had no knowledge they were fake.

Another executive would forgo much of an annual pension of $1.2 million. Another executive would disgorge tens of millions in pay that was tied to fictitious profits.

But Raines has shown no sign of doing any of those things. He should be ashamed of that, too.

Last week, we got the best picture yet of the Fannie damage, although it is far from complete. From 2001 through the first half of 2004, the government-subsidized company, the biggest buyer of residential mortgages and the pivot of the U.S. housing market, overstated profits by $6.3 billion. That's less than what was previously estimated, but it still represents one of the biggest accounting breakdowns in history.

Most Americans don't especially mind seeing business chieftains rewarded for success. We don't begrudge Bill Gates and Warren Buffett their billions. Reward for failure, however, kind of ticks us off.

In a May report, the Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight found that Fannie Mae under Raines perpetrated "extensive financial fraud" so that executives could collect big bonuses. There have been no criminal charges, but the conduct of Raines and other senior Fannie executives "was inconsistent with the values of responsibility, accountability, and integrity," the agencies said.

Fannie paid a $400 million civil penalty this year to the SEC and OFHEO.

This is failure of a high order, and Raines has been rewarded on the same scale.

He began collecting a lifetime monthly pension of $100,000 last year. From the late 1990s through 2003, he made $90 million, according to regulators, of which more than half was reward for fairy-tale profits. Last month, Fannie paid him an additional $2.6 million to partly settle claims that he was owed even more.

The earnings were fake. Raines' pay wasn't, and it's still in his bank and brokerage accounts.

Even if he had no clue that the books were bad, he should disgorge buckets of money. He was in charge. Tying his pay to profits was the board's way of saying: "You are responsible for earnings, no matter what happens."

On Feb. 23, Raines' lawyer, Robert B. Barnett, issued a statement that said, in part: "Mr. Raines strongly believes that, as the leader of Fannie Mae, he should be accountable for what happened within the organization, regardless of his personal involvement or fault. He does not disagree with the ... statement [in an internal report] that `he was ultimately responsible for the failures that occurred on his watch.'"

But true accountability and responsibility come with actions and consequences, of which there have been few. Raines resigned under pressure two years ago, but that's about it.

Shohei Nozawa had been president of Yamaichi Securities for only three months when the Japanese company announced it had concealed $2 billion in losses a few years ago. Nevertheless, he publicly wept, apologized, said "I am bad," later resigned and went home to tend his vegetable garden, according to news accounts.

I left a message for Barnett asking if Raines had anything to add or had expressed regrets or apologies for what happened. "Our statement of Feb. 23 is our only statement," his assistant responded.

Maybe Raines' idea of responsibility is having shareholders, regulators and Fannie Mae itself sue the bejesus out of him and ultimately paying a settlement, as may happen.

But enough is now known about what went on that the Fannie CEO should do more than await the slow gears of the judiciary. Japanese self-abasement might not be necessary. But having your lawyer say you are accountable does not make you accountable, either.

jay.hancock@baltsun.com

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