Monday, April 21, 2008

OFHEO Begs Raines Not to Embarrass Them

Well, it wasn’t quite that bad for OFHEO, but very close.

The Office of Financial Enterprise Oversight (OFHEO) wrapped up its clunky and less than sterling legal case against Frank Raines and two other former Fannie officials last week, when all parties reached agreement to resolve the case leaving a “he said, she said” finale, which reflected a major weakness in the government’s case.

To accurately describe the ending, between OFHEO and three Fannie Mae former officials with Raines in the forefront, I’ve borrowed a boxing allegory. Through the allegory of boxing and the wonders of TIVO/slow motion, I’ve managed to capture the final seconds of the match, just before the decision was announced.

As they warily circled in the caged media “ring of death,” the pugilists glared at each other. OFHEO first struck a smiling Raines, slamming their jaw into his fast moving right hand. The agency quickly followed up, smacking a now laughing Raines with their stomach on his driving left fist. Staggered but not out, OFHEO employed its coup de gras, bollixing an openly guffawing Raines in his knee with their groin!

Final score: Raines and team—10; OFHEO--0. Game, set, match. (Can you say, "Here's a Greyhound bus ticket, Lockie?")

Caveats to Their “Win”

From its back on the ring mat, OFHEO announced their win was unprecedented and significant. In very fine print and in quiet whispers, they added the disclamer qualifications, “Decision is such, when all of the following conditions occur: when said federal agency takes at least three years, wastes untold millions but fails to trap a former GSE Chairman and CEO, who also was a former head of OMB under Bill Clinton; when the actions' denouement occurs in an even numbered year, also featuring a presidential election; and when the defendant grew up in Seattle, in which his father built by hand.” (Legal scholars furiously researched OFHEO’s claim and found only one case—the current one—in which all of those conditions apply, thereby making everything which occurred “unique and unprecedented.”)

OFHEO officials assured the world that they didn’t let Raines and his team dazzles them. And while the Harvard educated lawyer did not do that old “escaping while chained from a locked safe, sunk in the Potomac River” trick, Raines did find a way to prestidigitate and “monetize” underwater stock options and use them to pay some doughty OFHEO fine/penalty.

OFHEO’s acceptance of same made dozens of former and current Fannie officials wildly optimistic that some value may still exist in those $72 stock options, when the company’s stock is trading at less than $30 a share.

In using “underwater options” (those with a strike price below the current trading price and therefore valueless), Raines successful logic obviously was, “If you are going to sue me using bogus numbers, I’ll pay you in equally phony dollars.” So, Raines paid most of the “fines” cited by OFHEO in securities with no cash value—in the real world—stock options which OFHEO accountants and lawyers accorded sufficient worth to wipe out millions the agency claimed Raines owed it.

Bravo, Maestro!

Hello Safeway and Giant

In my next visit to Safeway, I going to say to the cashier, “I’d like to pay for those eggs and milk, with these January 2000 Fannie Mae stock options. They are only about $34 ‘wet.’ But, OFHEO’s Director, Mr. James Lockhart, believes they are currency, so…!”

This legal case’s rightful end—hardly worth the word “resolution”--strongly argues that the government should never have brought it. And OFHEO —and their Administration political puppet masters-- wouldn’t have brought it had the GOP not been trying to nab some prominent Democrat and suggest that he was a law breaker. (In previous blogs, I’ve written why I thought his entire accounting case against the GSEs, starting with the catalytic SEC finding, featured far more smoke than fire. Especially now when history reveals that hundreds of corporations made major mistakes trying to implement FAS 133, the infamous Financial Accounting Standards Board mark-to-market accounting principle which the GSEs supposedly violated.)

In the process of the Raines witch hunt, OFHEO blew through millions (provided by the GSEs which underwrite all of the agency’s expenses), wasted valuable staff and resources, but did earn itself some judicial brickbats for withholding reams of files from litigants. But hey, that’s GSE regulation under the Bush Administration.

I can see Jim Lockhart telling the agency flaks, “Now gang, we wound up with squat and most of that on our face, but write the press release real tough. That will show them!” Except the new stories which followed the OFHEO announcement seemed to nail the story pretty accurately, suggesting that OFHEO produced a whole lot of nothing. (See links at the end of the blog.)

Jackson, HUD, and John McCain

It’s a shame that Jim Lockhart didn’t get the top HUD job, as the many rumors earlier this month suggested would happen. If his remaining few months in town were spent running that agency—often called “11 floors of basement”—it would have been just reward for his regulatory debasement of Fannie and Freddie.

Former HUD Secretary Alphonso Jackson is headed out of town or already has left.

HAZMAT crews reportedly were seen trying to scour the remaining grime and stench of dirty politics left from his office.

It is times like these when one wishes we had something of a parliamentary system and a vote of “no confidence” in the current Administration would have sent President Bush, Jackson, and others back to Texas. The President could then have done the nation one honest good turn and given ranch jobs to all those hack appointees he brought to the Nation’s Capital.

Bathroom, WC, The Loo, Shhh, Who’s Saying What?

I wonder if any senior Administration pol would have recommended then Assistant Secretary Alphonso Jackson to become the next Secretary, if they had heard his address to a Fannie Mae National Advisory Council about five years ago. Would they have realized then, possibly, that he wasn’t a man for future Cabinet employment, or maybe even the job that he held at the time?

Jackson had just come to town and, along with then HUD Secretary Mel Martinez, who subsequently became Senator Martinez of Florida, leaving a vacancy which Jackson later filled. They were the Bush Administration’s “new housing leadership team.”

That night was Jackson’s formal introduction to Fannie Mae and its National Advisory Council, which met three times yearly at the corporate headquarters and always had a prominent outside speaker. The audience was composed of the 40 person NAC, men and women in leadership positions from all facets of housing and from all parts of our nation. Also regularly attending were DC people from mortgage finance, local government, the Hill, Fannie’s senior officers, and a gaggle of housing officials, lobbyists and lawyers.

In introducing Jackson, Frank Raines made reference to the fact that—among other things—Jackson in his teens was a Texas high school sprinter.

When Jackson spoke, he decided to lay claim to some Texas and world sprint times, which still haven’t been achieved by anything with just two legs. But, unless you were truly into sports performances, his hyperbole was just mostly ignored.

But, it was when Jackson described his steely hand on the controls at HUD, as Martinez’ man and chief operating officer that eyebrows should have gone up (and many did).

Jackson proudly described his methodology for collecting valuable intelligence to defend Secretary Martinez and HUD from surprises and possible embarrassment.

I am paraphrasing now, but just a little. After assuring the NAC crowd that as HUD’s #2, he did have his own private bathroom, Jackson said, “I spend a good deal of my day in the stalls of HUD’s public restrooms, listening to what the employees are saying and what issues are on their minds. That’s how I stay ahead of what could be problems.”

Holy porcelain, Batman! And this was long before Larry Craig’s actions suggested a variety of non-traditional bathroom uses.

Intelligence gathering, huh?

In retrospect, I guess Jackson’s approach was a pretty good way for Bush Cabinet-officials-in-waiting to spend their time, considering how crappy…….Oh, dear readers, I won’t even finish that line. I’ll let you do it in the comments section of the blog.

If you need one more reason to vote for Barack Obama or Hillary Clinton, no matter how non-Bush John McCain might appear to you, Jackson’s uninspiring, less than pedestrian, and possibly criminal tenure at HUD provides it.

The “moderate Republican talent pool” isn’t very deep. It likely would fill the average 7-11, with space leftover. So a “President McCain” would have to turn to the same personnel source that George W. Bush did for all the eager GOP candidates that McCain would need staff those federal agencies.

And that’s where whatever tiny glimmer one might see in a possible McCain Administration breaks very bad.

Our country cannot afford and should urgently reject the return of the crew, which we’ve seen for 8 sorry years and which has just started to slither away. The nation’s voters should not invite them take over the reins of government for another presidential term or more.

Maloni, 4-21-2008

Statement of Franklin D. Raines

1 comment:

Adam Rust said...

There's plenty of other stuff going on at the GSEs that we ought to be worrying about. We need to be alarmed about the declining markets policy. This is redlining!