Capitol Hill exploded in outrage this month when AIG paid retention bonuses to the employees it brought on board to rescue the company from the shoals. What about people in high government office who profited from unethical behavior during the period when the damage got done? Congress could start demanding refunds from those people — like, say, Barack Obama’s chief of staff Rahm Emanuel:
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. …
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.
Nor was that the only scandal at the GSE for which Emanuel had a ringside seat. The board approved a scheme to increase its political influence by using corporate resources for campaign fundraisers. That violation netted Freddie Mac a hefty $3.8 million fine for the 2002 electoral cycle, although by that time, Emanuel — one of the recipients of the fundraising — had won a seat in Congress. Emanuel was also around when Freddie Mac deliberately misstated earnings, creating a $5 billion write-off and almost $600 million in fines and settlements after OFHEO discovered the false figures in 2003.
Congress had plenty of venom to unleash on AIG execs this month over some contractually-obligated retention bonuses. Why not go after some of the people really responsible for the collapse — the people who sat on boards while cooking the numbers, fooling investors, and evading auditors? When will Congress pass a bill asking Freddie Mac and Fannie Mae board members during this period to return the ill-gotten gains they received from perpetrating a Ponzi scheme with government backing?
Well, that’s the answer right there. Too many of the people in Congress who vented outrage over retention bonuses not only approved of the Ponzi schemes at the GSEs, they colluded in creating them. Barney Frank, Chris Dodd, et al have little room to castigate Rahm Emanuel for merely enacting what they created. And that, of course, is the root of the hypocrisy.