Sarbanes-Hypocrisy

Senator Paul Sarbanes is best known for being the Sarbanes of Sarbanes-Oxley, a tough-on-corporate-fraud bill.

It turns out that he doesn't mind corporate fraud when it benefits Democrat fatcats ($):

A strange thing has happened on the matter of corporate scandal: Democrats have discovered the virtues of forbearance. Or at least they have on reforming Fannie Mae and Freddie Mac, the "government-sponsored enterprises" responsible for some $16 billion in mistaken or fraudulent accounting in recent years. To adapt F. Scott Fitzgerald, the rich in Washington are different; they have more political protection.

And their main protector at the present crucial moment is none other than Senator Paul Sarbanes, co-author of Sarbanes-Oxley. That law imposed vast new accounting costs and potential liability on all of corporate America in the name of punishing a few business crooks who ended up in jail in any case. But when it comes to reforming the demonstrably culpable Fannie and Freddie, Mr. Sarbanes has refused to lend a hand to Banking Chairman Richard Shelby. If a bill fails to pass the Senate this year, Mr. Sarbanes will be the reason.

And the names and figures on the Democrats who got rich from the fraud:

For years, Fannie in particular has also been a sinecure for Democrats (and a few Republicans) who want to get rich in between their government stints without leaving Washington. As the recent report by Fannie's regulator makes clear, those managers were directly responsible for policies that fixed earnings in order to trigger their bonuses. Here's a list of top managers, from the recent exhaustive regulator report, and their earnings over the six years from 1998 through 2003:

• CEO Franklin Raines, $90.1 million in total compensation, including $52.8 million tied to earnings per share growth;

• CFO Timothy Howard, $30.2 million in all, including $16.8 million tied to earnings;

• General Counsel Jamie Gorelick, presumably responsible for the company's corporate governance, $26.5 million in total, including $14.9 million tied to earnings;

• Former COO and current CEO Daniel Mudd, $26.3 million in total, including $14.6 million tied to earnings growth.


We could list many more. But keep in mind that Mr. Raines was Bill Clinton's budget director and was widely mentioned as a potential Treasury Secretary had John Kerry won in 2004. Ms. Gorelick was Hillary Rodham Clinton's eyes and ears in the Justice Department in the 1990s, helped obscure the Clinton Administration's antiterror record as part of the 9/11 Commission, and could be the next Democratic Attorney General. As the regulator's report notes, "The conduct of Mr. Raines, CFO Timothy Howard, and other members of the inner circle of senior executives at Fannie Mae was inconsistent with the values of responsibility, accountability, and integrity."