01:00 AM EDT on Tuesday, July 11, 2006

At a recent Senate hearing, Fannie Mae Chief Executive Officer Daniel Mudd asserted that he was "shocked" that in 1998-2004, while he was the company's chief operating officer, Fannie Mae could have pulled off an $11 billion accounting fraud that he said he didn't know about until 2004. Such an expression of innocence forces a few questions: What type of executive is that clueless about a massive accounting fraud going on under his nose? Furthermore, what type of company promotes such an apparently clueless executive to be its CEO in charge of a massive corporate clean-up -- as was done by Fannie Mae?

Mudd, who earned $26 million from 2000 to 2003 and last year earned $8 million as CEO, was evasive under questioning at the recent Senate Banking Committee hearing. Rather than answer questions about what had happened, Mudd repeatedly said that he wouldn't tolerate a culture of corruption. Meanwhile, he claimed that Fannie Mae had been reducing its massive lobbying, which had previously been geared to obstructing federal regulators in their monitoring of the mortgage giant -- at which point Sen. Chuck Hagel (R.-Neb.) confronted Mudd with documentation that Fannie Mae had spent $10 million on lobbying in 2005 -- more than ever before.

Unlike Enron, WorldCom, and the other companies that make up the recent list of corporate scandals, Fannie Mae is a publicly chartered, government-sponsored enterprise, designed to promote home ownership and stabilize the economy by providing liquidity in the secondary-mortgage market -- a very important public purpose. It is also still around, and not going away any time soon.

Nonetheless, as with the other corporate scandals, the big winners at Fannie Mae were the top executives: Mudd, former CEO Franklin Raines, who earned $90 million between 1998 and 2003, and former Chief Financial Officer Timothy Howard. According to a report by the Office of Federal Housing Enterprise Oversight, Raines and Howard smoothed the numbers so that they and other executives could collect $27 million in bonuses linked to meeting specific earnings targets.

But one wonders: Why wasn't the board of directors at least a little suspicious that Raines and Howard met the earnings targets so precisely? Chairman Stephen Ashley, who's been on the board since 1995, testified at the Senate hearing that he had trusted Raines. Maybe he did. But why is Ashley now chairman of the board?

That both Mudd and Ashley were evasive and claimed ignorance at the Senate hearing speaks volumes about Fannie Mae's direction. Rather than confront the mistakes, punish the participants in the fraud, and start afresh, the executives -- people who held key positions at the time of the fraud -- appear to have no interest in getting to the bottom of what happened. Perhaps they fear being implicated.

Given the unique public role that Fannie Mae occupies in our country's economy, we all deserve better.

Lee Drutman - (ldrutman@gmail.com)