Kit Bond was the Republican senator from Missouri when the housing bubble was at its worst. Bond’s considerable contribution to the formation of the housing bubble was centered on the enormous lengths he was willing to go to protect the GSE mortgage lending giants, Fannie Mae and Freddie Mac from scrutiny. Bond was able to achieve this by thwarting the efforts of the Office of Federal Housing Enterprise Oversight (OFHEO). The creation of OFHEO – which was charged to essentially act as a banking regulator for the GSEs – was part of the Orwellian named Federal Housing Enterprises Financial Safety and Soundness Act of October 1992. Because this act would also require HUD to direct a fixed percentage of GSE mortgages to low and moderate income borrowers, this act – its name notwithstanding – would be both financially unsafe and unsound. The so-called affordable mandate provision would see the GSEs increase their lending to low and moderate income borrowers from about 30% of their total lending in 1993 to over 50% by the early 2000s.
On September 29, 1999 Armando Falcon was appointed director of OFHEO. For much of its existence – and as a result of the enormous political connections enjoyed by the GSE leadership – OFHEO had done little that could be interpreted as regulating the GSEs. Under Falcon’s leadership it became immediately clear that OFHEO would no longer be the pushover it had been. Squarely in Falcon’s cross-hairs was the spectacularly inept duo of Fannie Mae’s Franklin Raines (#40) and Jamie Gorelick (#26) – both former Clinton administration officials. As OFHEO attempted to complete the work assigned to it, Senator Bond launched numerous investigations into OFHEO. In fact, in 2004 he threatened to withhold $10-million in funding – OFHEO’s total budget was only a relatively paltry $59-million – unless OFHEO replaced Falcon. Not surprisingly, Bond received thousands of dollars in campaign contributions from Fannie Mae employees, chief among them CEO Franklin Raines.
Bond’s active role in suppressing OFHEO was merely a preamble to what would occur after Falcon released a report in September 2004 that was highly critical of Fannie Mae and its management. Senator Bond – along with Barney Frank (#21), Gregory Meeks (#35) and Maxine Waters (#47) in the House of Representatives – mounted an enormous and very public campaign against OFHEO generally and Falcon personally. More significantly for the development of the financial crisis, rather than looking into the veracity of Falcon’s report, Bond raised the bogus claim that Falcon’s investigation of Fannie was politicially inspired. (Falcon originally came to Washington to work for Henry Gonzalez, the populist firebrand Democratic former chairman of the House Banking Committee. Falcon was then kept in charge of OFHEO by the Republican administration of George W. Bush.)
In November 2004 Bond released a report which - viewed through the smoking rubble caused by the hundreds of billions in GSE mortgages that went up in smoke – should immediately be recognized for what it is – little more than a desperate attempt to curry favor with a politically connected constituency and special interest, Fannie Mae. Bond’s report read in part, “evidence and testimony raises questions about the substance and credibility of certain OFHEO enforcement actions, and the motivation behind such actions.” In a public statement Bond later claimed, "…top OFHEO officials have misused their agency and abused the public trust."
So what happened when the dust settled? Falcon’s report was proven to be correct in every important way. Fannie Mae was forced to acknowledge that at least $6-billion in previously reported profits were little more than accounting artifice and legal legerdemain. If the verdicts which resulted in Enron’s Andrew Fastow and Ken Skilling being sentenced to prison were fair, then Franklin Raines certainly deserved to go to jail. (The accounting shenanigans at Fannie dwarfed that at Enron.) Of course, with friends as powerful as the ones Raines enjoyed, jail was never a serious option. Raines was forced to resign however. Gorelick – every bit as criminally and comically inept as Raines – at least had the good sense to resign from Fannie the previous year and avoided the public spectacle of resigning in disgrace.
See Bill Clinton (#12) for the “strategy” – read “central plan” - to increase homeownership levels to all-time highs. See Henry Cisneros (#11) and Andrew Cuomo (#16) for more details on the affordable housing mandate. See Jamie Gorelick (#26) and Franklin Raines (#40) for the ineptitude at the highest levels of Fannie Mae. For the other zealous congressional supporters and defenders of the GSEs see Barney Frank (#21), Gregory Meeks (#35) and Maxine Waters (#47).