Northwest Indiana Discussion

Rahm Emanuel's profitable stint at mortgage giant
Short Freddie Mac stay made him at least $320,000
By Bob Secter and Andrew Zajac | Tribune reporters
March 26, 2009
Before its portfolio of bad loans helped trigger the current housing crisis, mortgage giant Freddie Mac was the focus of a major accounting scandal that led to a management shake-up, huge fines and scalding condemnation of passive directors by a top federal regulator.

One of those allegedly asleep-at-the-switch board members was Chicago's Rahm Emanuel—now chief of staff to President Barack Obama—who made at least $320,000 for a 14-month stint at Freddie Mac that required little effort.

As gatekeeper to Obama, Emanuel now plays a critical role in addressing the nation's mortgage woes and fulfilling the administration's pledge to impose responsibility on the financial world.

Emanuel's Freddie Mac involvement has been a prominent point on his political résumé, and his healthy payday from the firm has been no secret either. What is less known, however, is how little he apparently did for his money and how he benefited from the kind of cozy ties between Washington and Wall Street that have fueled the nation's current economic mess.



Related links
Freddie Mac scandals began during Emanuel's watch
Rahm Emanuel Photos
Do you know the real Rahm? Quiz Though just 49, Emanuel is a veteran Democratic strategist and fundraiser who served three terms in the U.S. House after helping elect Mayor Richard Daley and former President Bill Clinton. The Freddie Mac money was a small piece of the $16 million he made in a three-year interlude as an investment banker a decade ago.

In business as in politics, Emanuel has cultivated an aggressive, take-charge reputation that made him rich and propelled his rise to the front of the national stage. But buried deep in corporate and government documents on the Freddie Mac scandal is a little-known and very different story involving Emanuel.

He was named to the Freddie Mac board in February 2000 by Clinton, whom Emanuel had served as White House political director and vocal defender during the Whitewater and Monica Lewinsky scandals.

The board met no more than six times a year. Unlike most fellow directors, Emanuel was not assigned to any of the board's working committees, according to company proxy statements. Immediately upon joining the board, Emanuel and other new directors qualified for $380,000 in stock and options plus a $20,000 annual fee, records indicate.

On Emanuel's watch, the board was told by executives of a plan to use accounting tricks to mislead shareholders about outsize profits the government-chartered firm was then reaping from risky investments. The goal was to push earnings onto the books in future years, ensuring that Freddie Mac would appear profitable on paper for years to come and helping maximize annual bonuses for company brass.

The accounting scandal wasn't the only one that brewed during Emanuel's tenure.

During his brief time on the board, the company hatched a plan to enhance its political muscle. That scheme, also reviewed by the board, led to a record $3.8 million fine from the Federal Election Commission for illegally using corporate resources to host fundraisers for politicians. Emanuel was the beneficiary of one of those parties after he left the board and ran in 2002 for a seat in Congress from the North Side of Chicago.

The board was throttled for its acquiescence to the accounting manipulation in a 2003 report by Armando Falcon Jr., head of a federal oversight agency for Freddie Mac. The scandal forced Freddie Mac to restate $5 billion in earnings and pay $585 million in fines and legal settlements. It also foreshadowed even harder times at the firm.

Many of those same risky investment practices tied to the accounting scandal eventually brought the firm to the brink of insolvency and led to its seizure last year by the Bush administration, which pledged to inject up to $100 billion in new capital to keep the firm afloat. The Obama administration has doubled that commitment.

Freddie Mac reported recently that it lost $50 billion in 2008. It so far has tapped $14 billion of the government's guarantee and said it soon will need an additional $30 billion to keep operating.

Like its larger government-chartered cousin Fannie Mae, Freddie Mac was created by Congress to promote home ownership, though both are private corporations with shares traded on the New York Stock Exchange. The two firms hold stakes in half the nation's residential mortgages.

Because of Freddie Mac's federal charter, the board in Emanuel's day was a hybrid of directors elected by shareholders and those appointed by the president.

In his final year in office, Clinton tapped three close pals: Emanuel, Washington lobbyist and golfing partner James Free, and Harold Ickes, a former White House aide instrumental in securing the election of Hillary Clinton to the U.S. Senate. Free's appointment was good for four months, and Ickes' only three months.

Falcon, director of the Office of Federal Housing Enterprise Oversight, found that presidential appointees played no "meaningful role" in overseeing the company and recommended that their positions be eliminated.

John Coffee, a law professor and expert on corporate governance at Columbia University, said the financial crisis at Freddie Mac was years in the making and fueled by chronically weak oversight by the firm's directors. The presence of presidential appointees on the board didn't help, he added.

"You know there was a patronage system and these people were only going to serve a short time," Coffee said. "That's why [they] get the stock upfront."

Facing the worst economy since Jimmy Carter, the country needs a leader - not a lawyer/advocate dedicated to class warfare.

What a shame because what we have is a lawyer/advocate community organizer who is Jimmy Carter Jr.

Wait until the carbon tax hits. People will forget all about the lying little scumbag's promise to cut taxes, which he isn't going to do anyway.

Pelosi, Reid, and the socialist agenda are going full steam ahead.

This is my prediction, if you think the Republican Revolution of 1994 was huge, you ain't seen nothin' yet when 2010 comes.

I am troubled by Obama fingering Wall Street and letting Congress, Fannie Mae and Freddie Mac off the hook. Money was spread like manure and accounting procedures ignored to generate huge FNMA and Freddie Mac bonuses.

Congress applied pressure to make banks lend to those who were buying homes they couldn't afford.

Obama is as silent about that as he is about political corruption in Chicago.

The stock market and the economy were starting to come back on their own.

Then Obama failed to get along with the Bankers on Friday 3/27 and went after the car companies over the weekend.

The markets around the world are sharply lower.

This stinky little pile of manure is far more inept than Bush.

I am troubled by Obama fingering Wall Street and letting Congress, Fannie Mae and Freddie Mac off the hook. Money was spread like manure and accounting procedures ignored to generate huge FNMA and Freddie Mac bonuses.

Yet that's not even the worst of it. Now the government is telling GM to fire one guy when the guy at Chrysler is about in the same boat but he keeps his job. But since when does the government get to run private businesses?

This bailout crap was a mistake from the start. Now the damned Treasury department is reportedly telling GM what product lines to keep and which to discard. Folks, no denying it now - this IS socialism.

How about firing the stupid, crooked politicians who caused this mess like Barney Frank and Chris Dodd.

And making the stupid, crooked politicians like Obama and Dodd give back their political contributions from Fannie Mae and Freddie Mac.

But instead they are firing the CEO of GM, Rick Wagoner.

Obama, stop finger pointing and scapegoating. "It's all Wall Street's fault or it's all the GM CEO's fault."

The buck stops at Obama's desk, and so far he isn't doing a very good job.

My out-of-state family has pulled their money out of their banks, and just left enough in to cover their bills. They have put their savings in overseas banks. It's more than socialism, it is at the brink of communism.

Then your out-of-state family is dumber than a box of rocks. Banks outside of the United States are in even more trouble than those here. At least here you have the benefit of FDIC insurance protecting your savings.

Not to mention that most of the worlds governments are far more socialist than ours are. We are moving closer to the European model sadly, but still a long long ways to go.

Speaking of the banks, I was standing in line the other day and noticed the FDIC insurance disclosure. There was a management employee talking to customers in line and I made mention that the sign was out of date because FDIC insurance had been raised. He said oh yes, and that they still hadn't gotten around to changing all the signs, but that next year it was going back down anyway. The extra insurance coverage was just to keep people from pulling their money out of the banks in the interim.

Keep in mind that when you have a nice combination of checking, Savings/ CDs, IRA, other types of savings instruments it doesn't take too long to exceed the old insurance limits. Especially in today's dollars. I thought the increase in FDIC insurance was just about right with the increase but now it seems to me they will again be underfunded.

So I guess if you have more than $250k in net worth the government thinks you are rich and can fend for yourself.

The FDIC doesn't mean sqaut. there was an article a while back, that said that the FDIC doesn't have the money to maintain, as they have already emptied their kitty on previous bank failures. THEY were going to have to get some "stimulus" dough.

My family knows what it is like to have the banks collapse, and lose everything. They remember what happened during the depression. They trusted the banks, and lost their businesses, homes, properties, etc. They went from being wealthy, living in mansions, to living in a 2 room scrapwood shack, and having clothes made from flour and surgar sacks. They are making sure it never happens to them again.

FYI, there are safe ASIAN banks. Swiss is still good, too, so far, even though they will now report what you have to the U.S. government.

TIger,

THe FDIC is still solvent. They have taken the steps to raise their capital and have set up a line of credit. IF the FDIC fails there isn't a bank in the world that is going to survive. And Swiss and Asian banks are in no better shape than the US ones and probably worse. UBS in Switzerland is in big trouble. Just about every bank in Europe and Asia has been bailed out to a far greater extent than any US bank. As scary as this is, the US is in much better shape than the rest of the world.