That’s how long it took for the Fannie Mae/Freddie Mac crisis to grow from warning sign to $25-billion bailout.
In most cases, six years is ample warning. We won WWII in less time. But when The Wall Street Journal compared Fannie Mae to Enron in February, 2002, no one wanted to listen. Most of Washington had their hands too deep in the Fannie Mae/Freddie Mac piggy banks to work on the problem. And though other print outlets followed the Journal, the network news shows waited until a bailout was a foregone conclusion to do much reporting.
A day late and a dollar short? Try more than 2,000 days. That works out to $114 million short – per day. And The Washington Post estimates that $25-billion bailout tab could go much higher. “[T]here is an outside chance the companies could call upon Treasury for more than $100 billion,” the paper reported before the bailout was approved.
Even that is just the beginning. Overall, the tab for this governmental failure is closer to $150 billion when you count in fines for executives, fines for the two organizations, accounting restatements, stock losses and bailout. That’s right – governmental failure. Fannie and Freddie aren’t typical public companies. They are Government Sponsored Enterprises.
By comparison, the folks at Enron were rank amateurs. But they were only politically connected. Fannie and Freddie operated for years under what was an implied guarantee that the government would help them in troubled times.
Thanks to a do-nothing Congress and the ignore-everything networks, that implied guarantee is now an actual fact. And every one of us is on the hook for it.
The Journal did its best to let us know year in and year out. A 2004 editorial about Fannie said “the company was cooking the books. Big time.” That’s not especially subtle. In the future, maybe the paper should include USA Today style graphics so network anchors can understand.
The Journal wasn’t a voice in the wilderness. The nation’s most well-known financial newspaper was joined by then-Federal Reserve Chairman Alan Greenspan. He told lawmakers in 2004 there was a need for “preventive action” “sooner rather than later.”
We were comparative latecomers. The Business & Media Institute warned about Fannie Mae in early 2005 – still three years before it really hit the fan. It was obvious at that point that this was a major story being updated almost daily. But that didn’t matter. Fannie and Freddie kept restating earnings in the billions of dollars, the stock was plummeting and the network news shows were talking … Enron.
At the peak of the respective scandals of Enron and Fannie Mae, network news shows only focused on Enron. A search for “Enron” yielded 3,017 hits in LexisNexis, compared to just 37 hits for “Fannie Mae.” That search counted ABC, CBS, NBC and CNN.
This year was just as bad. As subprime ate the housing market, “Enron” was still the news of the day. In the first six months, network broadcasts talked Enron more than twice as often as Fannie and Freddie combined.
How this happened is easy. Fannie and Freddie spent $170 million on lobbying since 1998, and $19.3 million in campaign contributions to well-known Democrats and Republicans since 1990, according to Politico.
Fannie itself was the Promised Land for Washington insiders – especially Clinton buddies like his head of the Office of Management and Budget Franklin Raines or his Deputy Attorney General Jamie Gorelick. Those two now have been linked to Barack Obama’s candidacy along with former chairman and chief executive Jim Johnson, who was vetting vice presidential candidates when he had to resign after the Countrywide scandal.
Newsweek’s Charles Gasparino summed it up nicely in a Dec. 28, 2004, appearance on CNN calling Fannie too “politically correct” for coverage. “I mean, they do all the things that, let’s face it, liberal journalists like, like put home mortgages out there for poor people. And so right now, beating up on Fannie Mae is kind of politically incorrect.”
Wall Street Journal Editorial Page Editor Paul Gigot put the blame firmly on the liberal establishment in a July 23, 2008 op-ed. “Fan and Fred also couldn't prosper for as long as they have without the support of the political left... This includes Mr. [Rep. Barney] Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. [Paul] Krugman and the Washington Post's Steven Pearlstein in the press.”
It’s more than that. Enron fit the media theme that business is bad – especially if it has connections to Republicans. But when a far worse atrocity occurs and Democratic fingerprints are all over it, along with government, then that couldn’t be news.
Six years of spin and incompetence and we’re paying for it.