Bipartisan Chicanery: Fannie Mae and Baseball in DC

an curious tale of how politics works in DC

[THE REIGN OF RAINES
FALLS MAINLY WITHOUT PAINS

ALTHOUGH FRANKLIN RAINES was one of those Washington figures who could do no wrong in the media's eyes - especially the Washington Post - he has plenty to account for, and not just about Fannie Mae. The capital colony of DC was a major victim of the dubious activities of Raines and his institution.

RAINES' NAME has long been associated with a local combine that hopes to take over Washington's new baseball team now that the half-billion dollar scandal known as the stadium deal is complete. The proposed purchasers can now boast two partners who have run into serious problems, the other being Nixon aide and Jew-hunter, Fred Malek. A press account reported some time back: "Malek and Kimsey's Washington Baseball Club LLC took form 3 1/2 years ago when attorneys Stephen W. Porter, on behalf of the D.C. Chamber of Commerce, and Paul M. Wolff, as chairman of the D.C. Sports and Entertainment Commission's baseball committee, approached Malek. He recruited Kimsey, Joseph E. Robert Jr., whose company deals internationally in commercial real estate, and Fannie Mae chairman and CEO Franklin Raines. According to papers filed with the city, Malek, Kimsey and Robert own equal equity in 85 percent of WBC. Raines, Wolff and Porter own five percent each. . ."

HERE'S ANOTHER little known sidelight to Raines:

GREG PIERCE, WASHINGTON TIMES, OCT 23 - Donations from 23 executives of mortgage buyer Fannie Mae helped New York Democratic Sen. Charles E. Schumer raise more campaign funds than any of his colleagues in the past quarter, Bloomberg News reports, citing disclosure forms. Mr. Schumer raised $1.7 million in the three months ending Sept. 30 and has $18 million cash on hand for his 2004 re-election campaign, forms filed with the Federal Election Commission show. As a member of the Senate Banking, Housing and Urban Affairs Committee, Mr. Schumer is helping to write legislation that affects Fannie Mae, the largest U.S. mortgage buyer, and rival Freddie Mac. A bill designed to strengthen the government-chartered companies' regulation by shifting their oversight from the Department of Housing and Urban Development to the Treasury Department is stalled in Congress. Fannie Mae Chief Executive Officer Franklin Raines and Chief Financial Officer J. Timothy Howard, with 21 colleagues, gave a combined $13,750 to Mr. Schumer from July through the past month. Mr. Raines gave $1,000 to Mr. Schumer on July 18, the day after the banking committee held hearings on the company's regulation, FEC records show.

OF COURSE RAINES is small potatoes compared with the leader of the ball team combine, Malek, who has also had his troubles with the SEC:

WASHINGTON TIMES - Prospective baseball team owner Fred Malek and his District-based investment firm, Thayer Capital Partners, yesterday received $250,000 in fines as part of a settlement with the U.S. Securities & Exchange Commission to resolve a series of fraud charges involving the Connecticut state pension plan. The SEC said Malek and his firm did not disclose the 1998 hiring of a consultant, William A. DiBella, to assist with the investment of $75 million from the Connecticut Retirement and Trust Funds into a private equity fund managed by Thayer. Such hirings must be disclosed by SEC rule to original fund investors, in this case the Connecticut pension plan. Malek received a $100,000 fine and Thayer a $150,000 fine.

PROGRESSIVE REVIEW, AUG 2004 - Frederick V. Malek, the man behind the DC baseball bid, was an active member of the Nixon combine, serving among other things as deputy director of CREEP, the aptly named and notorious Committee to Reelect the President. In 1988, Bush chose him to run the Republican Convention but he later had to resign from the campaign after it was learned that he had compiled a list of Jews in the Labor Department as part of a Nixon investigation of a "Jewish cabal." As Nixon's special assistant for personnel, he also was charged with finding ways to use the federal civil service to help Nixon get reelected, for which he was later censured by the Senate Watergate Committee. As the Post reported in 1991, "In a number of memos, some of which he later repudiated, Malek proposed organizing the White House staff and 'politically reliable' officials throughout the federal government down to the sub-agency level." Among his 1972 memos was this choice bit: "All major grants and construction decisions for the next fiscal year were reviewed prior to the finalization of the budgets to ensure to the extent possible they impacted on politically beneficial areas."On August 16, 1971, a memo was drafted at the White House, headed "Dealing with Our Political Enemies. It read in part: "This memorandum addresses the matter of how we can maximize the fact of our incumbency in dealing with persons known to be active their opposition to the administration. Stated a bit more bluntly - how we can use the available federal machinery to screw our political enemies."One of the agencies to be used in this manner was the IRS. One of its targets, Pentagon whistleblower Ernest Fitzgerald, would later write, "The agreed-on solution was to lay down the (illegal) law to IRS chief Johnnie Walters. From now on he was to cooperate with White House hatchet man Fred Malek to 'make personnel changes to make IRS responsive to the President' and was to take on discreet political action and investigations himself." The plan didn't work so well with Fitzgerald; his audit showed an overpayment of $1,835.46.Malek also served on the board of the DC-based Palmer National Bank, a private bank with an even more private history. It board included a number of other familiar GOP names and a man known as the "godfather" of the dirty Texas S&Ls. PNB served as banker to the National Endowment for the Preservation of Liberty in its fund-raising efforts on behalf of Oliver North's gun-running operations in Nicaragua and Iran.Malek has continued to do well, turning up as an advisor to the Carlyle Group, a sort of fiscal home away from home (especially in defense matters) for the well connected In 1990, George W. Bush was asked by Carlyle Group to serve on the board of directors of Caterair, one of the nation's largest airline catering services which it had acquired in 1989. The offer was arranged by Malek.

MARC FISHER WASHINGTON POST JAN 5, 2002 - If either Washington or Northern Virginia is ever to get a team - downtown is where sports teams generate the best economic kick, but beggars can't be choosers -we must take four quick steps. . . 3. Get rid of Fred Malek, the main moneyman behind the Washington Baseball Club, the District's ownership group. Malek has the advantages of being hugely rich and hugely connected in both business and politics, including having been co-owner of the Texas Rangers along with President Bush. But Malek is also the guy who did Dick Nixon's anti-Semitic bidding back in 1971, when the unimpeached co-conspirator ordered up a list of members of the "Jewish cabal" who worked at the Bureau of Labor Statistics. Malek, the good soldier, produced the list, and soon enough, some of those Jews found themselves transferred. Malek says that he's no anti-Semite and that he actually refused Nixon's first few requests to produce the list. Maybe in his book that's backbone, but he has no business representing this city in any capacity.

AMAZINGLY, during the current furor over the stadium deal, we have not seen a single media mention that future beneficiaries include two individuals - Raines and Malek - who have such troubled records.

WHAT IS ALSO NOT widely known was Raines' role in stripping DC of much of its limited home rule powers during the heavily hyped financial crisis of the 90s, which in fact was about the same in real dollars as what the city faced when it first got home rule in 1974. Clinton administration official Raines was at the heart of such schemes as cutting off the city's control over its own prisoners and ripping off its pension fund balance to make the federal budget look a few billion dollars better.

DC NEWS SERVICE, 1997 - President Clinton is proposing a financing scheme for DC that would replace a formula based on the equities of the city's relations with the federal government with one based on major and permanent dependency. The Clinton plan would remove the possibility that the city could gain true self-government again and certainly not statehood. It proposes that DC ever more be a financial ward of the national government.Demonstrating that no humiliation is too great to bear provided they are not stripped of their salaries and token status, many elected DC officials are lining up behind the scheme.Two of these plans -- the tax haven scheme and the latest White House proposal -- bear the imprint of Franklin Raines, now the president's budget director but formerly head of Fannie Mae. Fannie Mae is the city's biggest deadbeat thanks to an enormous congressional tax exemption. Raines is close to [DC Delegate] Eleanor Holmes Norton who is already cheering the federal takeover plan.Under the current system, the federal government makes an annual payment that theoretically reflects the cost of services provided by the city and revenues lost due to the federal presence. In 1993 the city estimated this cost to be nearly $2 billion dollars a year. The actual federal payment is one-third that amount and a smaller percentage of the city's revenues that at the beginning of home rule.Because the federal payment is a payment in lieu of taxes rather than a subsidy for servitude, it could easily survive even the granting of statehood. The Clinton scheme, on the other hand, would do away with the federal payment and replace it with a hodgepodge collection of federal takeovers of local functions. The IRS would collect local taxes, the feds would maintain the local road system and the Justice Department would be put in charge of the courts and prisons. Felons would be sentenced under federal guidelines and the convicted would be sent -- in a manner reminiscent of Soviet penal practices -- to federal installations that might be a couple of thousand of miles away from families and friends.

[Only the prison change actually occurred - TPR]

DC NEWS SERVICE, 1998 - Clinton and [Alice] Rivlin's successor, Franklin Raines, ripped off funds contributed to the DC pension fund in order to create the impression that the federal government had taken over responsibility for this fund. In fact, the feds will spend nothing until they have drained existing contributions down to zero. After that the city is at the mercy of a Congress and a White House that once also promised that Social Security would never be touched and that home rule was forever. . .Not surprisingly, the Clinton plan is being pushed by the erstwhile vice chair of the city's biggest tax deadbeat: Fannie Mae, whose congressional exemption from local taxation costs the city several hundred million a year. Clinton's budget director Franklin Raines, while running Fannie Mae, perfected a scheme for stifling protests against his firm by spreading charitable donations around the city with special attention to those organizations that might make formidable opponents of FM's tax exemption. Raines was also the unofficial budget advisor to the fiscally disastrous [Mayor] Sharon Pratt Kelly, whose one term was harder on the city's finances than all the Barry administrations combined.THE NATION'S DEFENSES COME LATERWe will protect your purchasing power -- Budget director Franklin Raines to a meeting of high-level Pentagon officials.

WASHINGTON ICONS AND THE FANNIE MAE SCANDAL

WASHINGTON POST, SEP 26 - There are signs the gilt-edged resumes, and political futures, of three former Fannie executives have already been tarnished, because of findings they profited from manipulation of financial results in 1998. Former Fannie Mae chief James A. Johnson, who holds a top post in the Democratic presidential campaign and headed the Kennedy Center and the Brookings Institution; Smithsonian Institution Secretary Lawrence M. Small, who was Fannie Mae's chief operating officer; and Washington lawyer Jamie Gorelick, a former Fannie vice chairman, who has served as deputy attorney general, the Pentagon's top lawyer and a member of the 9-11 commission, joined Raines and Howard in receiving sizable bonuses that year. Regulators allege they were paid after the company improperly deferred other expenses.Johnson, who headed the vice presidential selection process for Sen. John F. Kerry (D-Mass.), could be the first to feel the fallout. Democratic Party insiders say that Johnson is no longer considered the leading candidate for treasury secretary in a potential Kerry administration. His role as leader of Kerry's transition planning for the White House might also be in jeopardy unless the regulators' allegations are convincingly disputed, they add. "It strikes me those are the most likely outcomes for Johnson," said a senior economic adviser to Kerry, who sought to remain anonymous for fear of reprisals within the campaign. Johnson declined to respond to requests for a comment.Small's mention in the OFHEO report is another in a series of personal missteps that have come to light recently. Earlier this year a federal judge sentenced him to two years' probation and 100 hours of community service for the purchase and possession of 206 art objects made with the feathers of protected species. As the director of the nation's largest complex of museums, Small was also ordered to write a public letter of apology and explanation for his actions. Small, who was Fannie's chief operating officer for eight years, declined to comment on the regulators' report.Gorelick has told friends that she would seriously consider an offer some day to serve as defense secretary, an aspiration that could be harder to achieve if OFHEO's allegations pan out. In an interview, she said, "I have no desire to go back into government in the near term." She added that she had "knocked herself out" on the 9/11 commission and for the time being is "very happy" working as a D.C.-based partner of the law firm Wilmer, Cutler, Pickering, Hale and Dorr. At the same time, Gorelick might be spared because, unlike many of the other former or current officers, her responsibilities at Fannie did not specifically include financial matters.Raines is in the most difficult predicament. In the wake of the regulators' study, Fannie's stock fell 13.4 percent in three days More than any other time in its 36-year history, the District-based company with 4,100 employees in the area finds itself under the microscope. Besides the board-ordered independent internal probe by Rudman, the Securities and Exchange Commission has begun an informal inquiry. Members of Congress have promised to look into the matter. And OFHEO has hired Stanley Sporkin, a former federal judge and senior SEC enforcement official, to help them in the continuing examination of Fannie Mae. Raines, budget director in the Clinton White House and chair last year of the Business Roundtable's committee on good corporate governance, now finds himself being criticized by regulators for permitting a corporate culture that made the accounting problems possible.]