A $40-Billion Scandal...With a Capital 'D'
When most people hear the word “Enron,” they mentally complete the phrase by adding the word “scandal.” As reporter Lester Holt of NBC’s “Today” put it in a January 1 story, “Enron has been the poster child, if you will, of corporate scandals.”
It isn’t the only one, though. There’s $40-billion scandal with most of the same elements – even connection to prominent politicians. Just don’t expect to see much about it on TV. After all, the top people involved here are Democrats.
Welcome to Fannie Mae, the government-sponsored mortgage giant. As part of a scandal that’s been running nearly two years, Fannie Mae has “misstated earnings” to the tune of $10.8 billion.
That’s some tune.
So far, the Fannie fiasco has cost Chief Executive Officer Franklin Raines and several other top executives their jobs. The stock has dropped from nearly $80 a share to around $50 – roughly $30 billion in lost value. And the company recently settled with the federal government and agreed to pay $400 million in fines, stemming from allegations that the firm fiddled with the books to ensure bigwigs got performance bonuses.
To top it off, the Fannie Mae leadership was quite well-connected in D.C., especially to the Democratic Party. The May 23 Washington Post made this all clear in black and white. The front page of that day’s Business section showed how James A. Johnson, a former campaign manager for Walter Mondale’s presidential run, had created “a political powerhouse.”
That story had a photo of Johnson, who had been chairman and chief executive of Fannie Mae, flanked by two other photos – both other prominent Democrats. On one side was Raines, a former head of the Office of Management and Budget under Clinton. On the other was Clinton Deputy Attorney General Jamie Gorelick.
While the rest of the graphic listed other prominent Democrats and Republicans, the titanic captains at Fannie Mae were clearly Democrats.
Sounds like an amazing political scandal. Certainly, newspapers and business magazines think so. The Wall Street Journal, New York Times and Washington Post have done hundreds of stories on the Fannie fiasco. An Oct. 4, 2004, Wall Street Journal editorial summed up the crisis: “The company was cooking the books. Big time.”
Then there’s network news. When the Business & Media Institute looked into this last year, we found almost no network coverage of the scandal. Instead, ABC, CBS, NBC and CNN all focused hours and hours on the damage done at Enron.
Since last year’s study period ended on Feb. 1, 2005, CBS has reported on the Fannie Mae scandal just twice – both the same day of the $400-million settlement. NBC has mentioned it just once and ABC has been completely out to lunch. CNN has mentioned it just six times – a decline in its coverage.
None of the stories discussed the roughly $30 billion in lost value to stockholders since this scandal has hit the news. None of them mentioned the fact that this was a Democratic scandal.
When it came to Enron, the media did everything they could to link it to Republicans or President George W. Bush. Back in January, Anne Thompson of NBC’s “Today” showed how it was done. “He was Houston’s number one corporate citizen who morphed into public enemy number one when Enron disintegrated: Ken Lay, friend of presidents past and present. Kenny Boy, President Bush called him, a powerful, influential man with a photograph album of famous figures.”
Being connected to President Bush was newsworthy. Being connected to President Clinton apparently was not.
In a Dec. 28, 2004, interview on CNN’s “Newsnight With Aaron Brown,” Newsweek reporter Charles Gasparino, who was covering the scandal, said he thought reporters ignored it because “it’s a politically correct company.” He meant that Fannie Mae helped provide mortgages for the poor, something “liberal journalists like.”
Much like Fannie Mae, perhaps Gasparino underreported the real results. It seems that there was something else about the organization that network media types love – the big (D) after so many of the prominent names. How else can you explain a scandal that equals the wealth of the second-richest man in the country, Warren Buffett, but gets less network coverage than skateboarding during the same time period?
There’s still time for the networks to do their job.
According to a June 12 BusinessWeek article, “Fannie didn’t admit or deny any wrongdoing” in its $400-million settlement agreement. After $10.8 billion in misstated earnings, nearly $30 billion in lost market value and a $400-million settlement, no admission from the firm is necessary. What we do need is an admission from the networks that they have missed a huge story – and a good reason why.
Dan Gainor is a career journalist and The Boone Pickens Free Market Fellow. He is also director of the Media Research Center’s Business & Media Institute www.businessandmedia.org.