Franklin Raines is Exhibit A for the morally bankrupt political culture that exists in this country. Raines was President Clinton’s (#12) budget director. In spite of little experience as a banker or in the mortgage industry, after leaving the Clinton White House Raines was named CEO of Fannie Mae, the largest mortgage bank in the world. As CEO of Fannie, Raines would earn tens of millions of dollars even as he – along with his vice-chair and co-equal in incompetency and politically connected cronyism, Jamie Gorelick (#26) – would drive Fannie to tens of billions of dollars in losses.
Ostensibly, Fannie Mae was a private enterprise. However, Raines always reckoned the interests of his shareholders to be a distant second to advancing President Clinton’s homeownership goals. Raines eagerly – and disastrously - committed Fannie’s capital to advance President Clinton’s housing agenda. Raines committed Fannie to Clinton’s housing goals even though he recognized this strategy would expose Fannie to the risks in the market for sub-prime mortgages. For example, when HUD Secretary Andrew Cuomo’s (#16) mandate to have the GSE’s direct fully 50% of their mortgage capital to low and moderate income borrowers was only being discussed, Raines noted, “We have not been a major presence in the subprime market, but you can bet that under these goals we will be.”
Arguably the culmination of the economic idiocy of the Raines and Gorelick era at Fannie was March 18, 2003. Here Raines celebrated along with Fannie’s “partners” the more than $1.3-trillion in mortgages that had already been loaned to “targeted families.” Among the numerous banking names such as Countrywide, Bank of America, Fleet Boston and JPMorgan Chase – all of whom the government would later sue – being recognized as “partners,” was a then obscure community activist group – ACORN. Raines celebrating the issuance of these mortgages – so many of which would go bad in just a few years – is little different than the captain of the Titanic celebrating hitting the iceberg. Ultimately, on December 21, 2004 Raines was forced to resign under a dark cloud of suspicion after at least $6-billion in Fannie profits were proven to be non-existent. This was merely a harbinger of things to come and the losses accumulated by Fannie would be enormous. Franklin Raines had sowed the wind and the United States would reap the financial whirlwind. In less than four years, Fannie would be taken over by the government and require tens of billions in capital injections to stave off insolvency.
See Henry Cisneros (#11) and Andrew Cuomo (#16) for more details on the affordable housing mandate. See Bill Clinton (#12) for the “strategy” – read “central plan” - to increase homeownership levels to all-time highs. See Jamie Gorelick (#26) for more information on the disastrous lending standards pursued by Fannie to further the Clinton administration’s housing goals. For the most zealous congressional supporters and defenders of the GSEs and Franklin Raines see Kit Bond (#6), Barney Frank (#21), Gregory Meeks (#35) and Maxine Waters (#47).