Tribune: Rahm Emanuel's profitable stint at mortgage giant and Freddie Mac scandals began during Emanuel's watch by Bob Secter and Andrew Zajac, and The House Rahm Built -- How Chicago's profane, ruthless, savvy operative, remade the Democrats in his image by Naftali Bendavid.
Highlights:
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....
What is less known, however, is how little he apparently did for his money and how he benefited from the kind of cozy ties between Washington and Wall Street that have fueled the nation's current economic mess.....
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....
Columbia University, said the financial crisis at Freddie Mac was years in the making and fueled by chronically weak oversight by the firm's directors. The presence of presidential appointees on the board didn't help, he added.
"You know there was a patronage system and these people were only going to serve a short time," Coffee said. "That's why [they] get the stock upfront."....
The Obama administration rejected a Tribune request under the Freedom of Information Act to review Freddie Mac board minutes and correspondence during Emanuel's time as a director.....
By the time Emanuel joined Freddie Mac, the company had begun to loosen lending standards and buy riskier sub-prime loans. It was a practice that later blew up and contributed to the current foreclosure crisis. In his investigation, Falcon concluded that the board of directors on which Emanuel sat was so pliant that Freddie Mac's managers easily were able to massage company ledgers. They manipulated bookkeeping to smooth out volatility, perpetuating Freddie Mac's industry reputation as "Steady Freddie," a reliable producer of earnings growth. Wall Street liked what it saw, Freddie Mac's stock value soared and top executives collected their bonuses....
Freddie Mac scandals began during Emanuel's watch. In addition to a major accounting scandal, Freddie Mac also was the center of a political fundraising scandal that brewed while Rahm Emanuel sat on its board.
The mortgage giant was hit with a record $3.8 million fine from the Federal Election Commission to settle allegations of illegal use of corporate resources to host fundraisers for politicians -- and Emanuel was the beneficiary of one of those tainted parties when he ran in 2002 for a North Side seat in Congress....
From In Banking, Emanuel Made Money and Connections, New York Times:
Emanuel (made) more than $18 million in just two-and-a-half years, turning many of his contacts in his substantial political Rolodex into paying clients and directing his negotiating prowess and trademark intensity to mergers and acquisitions. He also benefited from the opportune sale of Wasserstein Perella to a German bank, helping him to an unusually large payout....
Jeffrey A. Rosen, now deputy chairman of Lazard and a former managing director of Wasserstein Perella's international practice, said Mr. Emanuel was "both a developed and a raw talent."
"His years in the White House and what he'd done before that really honed what I'd call deal-making instincts, which could be easily translated into the business arena," Mr. Rosen said. "Plus, he was someone who was well connected in Chicago and highly respected."
Mr. Emanuel turned out to be an effective banker, proving a quick study with financial concepts, even as he relied on others in his office for heavy number crunching, former colleagues said. He worked 12-hour days and was known among clients for his relentlessness, constantly on the phone or sending e-mail, and being unafraid to pitch deals. Revenue in Wasserstein's Chicago office climbed significantly after his arrival.
There is no evidence Mr. Emanuel used his political clout on behalf of his clients, but his connections certainly helped drum up business and contributed to his hiring, former colleagues said....
One of Mr. Emanuel's major deals was the purchase in 2001 of a home alarm business, SecurityLink, from SBC Communications, the telecommunications company that was run by William M. Daley, the former secretary of commerce in the Clinton administration and the brother of Chicago's mayor...
He earned more than $900,000 in 1999, his first year at the firm; nearly $1.4 million in 2000; and $6.5 million in 2001, when he left the firm in midyear to run for Congress. He collected $9.7 million more from the firm in deferred compensation in 2002.
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