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Public Statements

Rebuild America Jobs Act

Floor Speech

By:
Date:
Location: Washington, DC

BREAK IN TRANSCRIPT

Mr. McCAIN. Mr. President, I would like to speak about an issue that I and most Americans, I believe, find extremely troubling and one I have been seeking to have properly addressed for many years now; namely, the outright corruption and blatant abuse of the American taxpayer that has been taking place at the hands of Fannie Mae and Freddie Mac for decades.

Since they were placed in conservatorship in 2008, the two government-sponsored enterprises--GSEs; i.e., supported by the taxpayers--have soaked the American taxpayer for nearly $170 billion in bailouts. Just this morning, the Associated Press reported that Freddie Mac has now requested an additional $6 billion to continue their, so far in my view, failed efforts. I quote from the Associated Press:

Government-controlled mortgage giant Freddie Mac has requested $6 billion in additional aid after posting a wider loss in the third quarter. Freddie Mac said Thursday that it lost $6 billion, or $1.86 share, in the July-September quarter. That compares with a loss of $4.1 billion, or $1.25 a share, in the same quarter of 2010. The government rescued McLean, Virginia-based Freddie Mac and sibling company Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them. Since then, a Federal regulator has controlled their financial decisions. Taxpayers have spent about $169 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates it will cost at least $51 billion more to support the companies through 2014, and as much as $142 billion in the most extreme case.

Freddie and Washington-based Fannie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year. The two mortgage giants buy home loans from banks and other lenders, package them into bonds--

Et cetera, et cetera, et cetera. So here we are. We have spent $169 billion and now they are asking for $6 billion more. What do we find out? Fannie and Freddie now will dole out big bonuses. I am not making this up.

Quoting now from a Politico article:

The Federal Housing Finance Agency, the government regulator for Fannie and Freddie, approved $12.79 million in bonus pay after 10 executives from the two government-sponsored corporations last year met modest performance targets tied to modifying mortgages in jeopardy of foreclosure. The executives got the bonuses about two years after the federally backed mortgage giants received nearly $170 billion in taxpayer bailouts--and despite pledges by FHFA, the office tasked with keeping them solvent, that it would adjust the level of CEO-level pay after critics slammed huge compensation packages paid out to former Fannie Mae CEO Franklin Raines and others.

I might add, these huge bonuses and packages that were given to Mr. Johnson, Mr. Raines, and many others--and there is clear evidence of this--was done by cooking the books. Yet not a one of them has been held accountable in any way, shape or form.

Continuing to quote from the article:

Securities and Exchange Commission documents show that Ed Haldeman, who announced last week that he is stepping down as Freddie Mac's CEO, received a base salary of $900,000 last year yet took home an additional $2.3 million in bonus pay. Records show other Fannie and Freddie executives got similar Wall Street-style compensation packages; Fannie Mae's CEO Michael Williams, for example, got $2.37 million in performance bonuses.

That was after the taxpayers paid $160 billion. That is why they are on the hook for another $6 billion and God knows how much more. So we are giving these individuals $900,000 a year in salary, millions of dollars in bonus pay, and who in the world is the Federal Housing Finance Agency to award these bonuses?

FHFA's Acting Director Edward DeMarco--and I must admit to my colleagues I had not heard of Mr. DeMarco--told Congress last year that the managers who were at the helms of the mortgage companies during the market collapse were dismissed but also argued that generous pay helps lure ``experienced, qualified'' executives able to manage upward of $5 trillion in mortgage holdings.

Whatever happened to asking patriotic Americans to come and serve and help homeowners out of this crisis? Whatever happened to patriotic Americans who would serve and help the nearly half of all homeowners in my State of Arizona whose mortgages are underwater?

DeMarco told lawmakers he is concerned that suggestions to apply a Federal pay system to non-Federal employees could put the companies in jeopardy of mismanagement--could put the companies in jeopardy of mismanagement--and result in another taxpayer bailout. They just asked for $6 billion more. He said the compensation packages at Fannie and Freddie are part of the plan to return them to solvency while reducing costs to the taxpayers.

A March report by FHFA's inspector general--obviously ignored by Mr. DeMarco--said the agency ``lacks key controls necessary to monitor'' executive compensation, nor has it developed written procedures for evaluating those packages.

In other words, the beat goes on. Business as usual, Fannie Mae and Freddie Mac.

It is unconscionable. It has been proven time and time again that Fannie and Freddie Mac are synonymous with mismanagement, waste, outright corruption, and fraud. And their Federal regulator has the audacity to approve $12.8 million in executive bonuses to people who make $900,000 per year. This body should be ashamed if we let this happen, especially in these economic times. Every day more and more Americans are losing their jobs and their homes, and we are allowing these people to take home annual salaries of $900,000 and bonuses of millions of dollars, all while they ask the taxpayers for $6 million more today.

It has come to my attention that some of my colleagues are writing letters, calling for committee hearings on this issue. Letters are fine, hearings are fine, hearings are great. They are not the answer. The answer is for us to stop it from happening, and we can do that with an amendment on the pending appropriations bill. I will be offering an amendment, and I hope all of my colleagues would join in.

Let me just bring the attention of my colleagues to a book called ``Reckless Endangerment,'' written by Gretchen Morgenson and Joshua Rosner. The title of it is ``How Outside Ambition, Greed and Corruption Led to Economic Armageddon.'' So we are talking about pay and bonuses, and I read from the book:

Because bonuses at Fannie Mae were largely based on per-share earnings growth, it was paramount to keep profits escalating to guarantee bonus payouts. And in 1998, top Fannie officials had begun manipulating the company's results by dipping into various profit cookie jars to produce the level of income necessary to generate bonus payouts to top management.

Federal investigators later found that you could predict what Fannie's earnings-per-share would be at year-end, almost to the penny, if you knew the maximum earnings-per-share bonus payout target set by management at the beginning of each year. Between 1998 and 2002, actual earnings and the bonus payout target differed only by a fraction of a cent, the investigators found.

Investigators uncovered documents from 1998 detailing the tactics used by Leeane Spencer, a finance official at Fannie, to make the company's $2.48 per-share bonus target. That year, Fannie Mae earned $2.4764 per share.

In a mid-November memo to her superiors, Spencer forecast that the company was on track to earn $2.4744 per share, just shy of what was needed to generate maximum bonus payments to executives.

Look, this story goes on in this book. It goes on and on how the Fannie Mae and Freddie Mac executives intentionally ripped off the American people, describing profits in a way that was totally false, getting tens of millions in bonuses. This is a government-sponsored enterprise. Mr. Johnson, bailed out with $100 million or so of taxpayers' bonuses:

In 1999, Johnson joined Goldman's board, stepping into a highly lucrative position that offered rich investment opportunities overseen by the firm and opened doors for Johnson around the world. In 2000, the Goldman board position paid Johnson $50,000, not counting stock awards.

With brokerage firms such as Goldman Sachs, which flourished from the fees by underwriting securities issued by Fannie and Freddie, with fees totalling $100 million a year, guess who came on Fannie's board. Mr. Johnson.

Johnson was still on the board in 2010, when the Securities and Exchange Commission sued the investment bank for securities fraud related to its sale of a dubious mortgage security. By that time, Johnson was earning almost $500,000 for his work on the Goldman board.

The accounting fraud at Fannie went undiscovered until 2005 when an investigation by OFHEO unearthed it. In a voluminous, intensely detailed 2006 report, OFHEO noted that if Fannie Mae had used appropriate accounting methods in 1998, the company's performance would have generated no executive bonuses at all.

A lawsuit filed by the Securities and Exchange Commission in 2006 said the company's 1998 results were ``intentionally manipulated to trigger management bonuses.''

Although a highly kept secret at the time, Johnson's--

This is Mr. James Johnson--

Johnson's bonus for 1998 was $1.9 million, investigators determined. It later emerged that the company had made inaccurate disclosures when it said Johnson earned a total of almost $7 million in 1998. In actuality, his total compensation that year was like $21 million, OFHEO said, referring to an internal Fannie Mae analysis it had turned up.

So one of the great scams in American history is going on, and the people responsible for it have never been held responsible. They have never been held responsible. I refer my colleagues, take a look at this book, and I recommend taking blood pressure medicine before you read it.

Now, here we are, business as usual in Washington. The approval rating of Congress is now down to 9 percent. As I have said continuously, we are down to paid staffers and blood relatives.

Why aren't they happy with us? Why haven't we solved the housing crisis in America? Why is it that half the homes in Arizona are still underwater, worth less than their mortgages, while the financial institutions on Wall Street are doing just fine, with record profits, and Fannie and Freddie continue to act as if they did nothing wrong? And to add insult to injury, after a third quarter loss of $6 billion, they are going to get millions of dollars in bonuses.

I may be a bit of an idealist, but I will bet you there are some patriotic, talented Americans who would be willing to serve on Fannie Mae and Freddie Mac without being paid $900,000 a year and millions of dollars in bonuses. I really believe that. I really believe that. Yes, people are sitting in around the country; and, yes, I don't agree with a lot of their agenda. But when they read of things like this, their anger is justified. Already, $170 billion in bailouts. This morning, an additional $6 billion. Yet the American taxpayer is told they are making progress? And who has been held responsible at these organizations, at these government-sponsored enterprises that were responsible? To my knowledge, no one.

So it seems to me the least we can do is cancel these bonuses, make sure it doesn't happen, and maybe ask for some qualified, experienced, talented Americans to come in and take over this agency. And the first guy I think ought to go is the guy who approved these payouts, Mr. Edward J. DeMarco.

Mr. President, I yield the floor.

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