Daniel Mudd’s description of the good ol’ days at Fannie Mae is disturbing at the same time that it sounds like a lot of fun.
From the years 1998-2004, senior execs “wrote their own rules,” and paid themselves whatever they wanted, according to the FCIC’s report on the causes of the financial crisis.
Of course the end it was terrible, because the corporate culture apparently involved employees manipulating accounting and earnings to trigger bonuses for senior executives, but consequences aside, how great would it be to pay yourself whatever you want?
The former CEO of Fannie precisely describes it in an email as feeling like “always winning” and “taking no prisoners.”
Too bad you can’t do stuff like that without causing massive financial instability.
By 2006, the Federal Housing Finance Agency (OFHEO) must have suspected that something was up at Fannie, because an examination of the GSE began and an investigator discovered this shocking email written by Mudd, the former CEO of Fannie:
“The old political reality [at Fannie] was that we always won, we took no prisoners . . . we used to . . . be able to write, or have written rules that worked for us.”
He called the behaviour “arrogant and unethical.”
Of course, the OFHEO’s report in 2007 also determined that Fannie’s board members were “qualified and active” and that the GSE was “adequately capitalised.”
From the FCIC’s report (click here to download the report):
In that special examination, OFHEO pinned many of the GSEs’ problems on their corporate cultures. Its May 2006 special examination report on Fannie Mae detailed the “arrogant and unethical corporate culture where Fannie Mae employees manipulated accounting and earnings to trigger bonuses for senior executives from 1998 to 2004.”
OFHEO Director James Lockhart (who had assumed that position the month the re- port was issued) recalled discovering during the special examination an email from Mudd, then Fannie’s chief operating officer, to CEO Franklin Raines.
Mudd wrote, “The old political reality [at Fannie] was that we always won, we took no prisoners . . . we used to . . . be able to write, or have written rules that worked for us.”