What went wrong with Fannie Mae?

News & Politics

Larry Makinson at the Sunlight Foundation pulls more out of the Fannie Mae accounting fraud scandal -- it wasn't just a case of the execs fudging the books for massive pay benefits -- it's that Fannie Mae, a mortgage insurer that's backed by the federal government, has been conducting a massive bipartisan buyoff in Congress for years to keep pesky oversight investigators from taking a look at the books. A government-backed entity making political contributions? Yep.

Citing Open Secrets, Makinson says that Fannie Mae gave $3.5 million to Congress from '97-'02, and he points out, "The money was split almost equally between the Democratic (47%) and Republican (53%) parties." Here are the appalling numbers:

Here are the totals to each committee from 1997-2002:
National Republican Congressional Committee $843,650
National Republican Senatorial Committee $615,265
Democratic Congressional Campaign Committee $666,500
Democratic Senatorial Campaign Committee $644,500
Democratic National Committee $302,000
Republican National Committee $226,470
Other Republican Party committees $170,000
The Washington Post reported that it will cost an estimated $800 million just to review Fannie Mae's records, find the phony accounting and come up with clean numbers. In that article, author Jerry Knight bemoans Fannie Mae's sibling organization, Freddie Mac concludes, "We've created a pair of mortgage monsters, and we can't do anything about it."

I agree. But why? Why can't we do anything about it? My take is that at this point is that many of the federal agencies have such colossal inertia and responsiblities that they are beyond the scope of political imagination in Washington. Partly because the legislative and executive bodies haven't been updated much since they were first created, and partly because there's been one long process of increasing centralized power in the federal branch -- deeply accelerated since the New Deal era -- the system of government is not accountable, even to itself. To try and deal with a massive agency problem like this, it's good to look at the number of $800 million to figure out what happened as litmus proof that the idea of what government is needs to be rethought: Someone needs to come out and say that even if we "get to the bottom" of the Fannie Mae scandal, ban its abilities to make political contributions, etc. that perhaps the existence of centralized and government-backed mortgage company run by political appointees is itself a corruption of a democratic republic.

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