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Report doesn’t back up Chico’s attack on Rahm

Updated: April 30, 2011 4:45AM

I’m sitting here combing through the Report of the Special Examination of Freddie Mac issued in December 2003 by the Office of Federal Housing Enterprise Authority.

Yes, it’s every bit as scintillating as it sounds.

But the issues raised within its 185 pages have become serious fodder in the mayoral race.

That’s because Rahm Emanuel was handsomely compensated for serving on the board of directors of Freddie Mac, the government-chartered private corporation created to promote home ownership, from February 2000 through May 2001.

It was during that period that Freddie Mac engaged in improper accounting practices that later resulted in the company being forced to restate $5 billion in earnings, pay $125 million in fines and dump its three principle officers — a scandal that some say was a precursor to the subsequent financial debacle at both Freddie Mac and Fannie Mae that necessitated a federal bailout.

On Tuesday, mayoral candidates Gery Chico and Miguel del Valle both sought to rain on Emanuel’s Bill Clinton parade by dredging up the Freddie Mac problems to coincide with the former president’s endorsement visit. It was Clinton who appointed Emanuel to the Freddie Mac board, a since-discontinued patronage plum that helped launch his former White House aide’s short but lucrative business career.

In one of his harshest attacks to date on his front-running opponent, Chico said Emanuel “sat on his hands, looked the other way and took the cash” when he could have been blowing the whistle on corrupt activity at Freddie Mac.

Del Valle took another route, suggesting that Emanuel must defend why he is not to blame for the housing foreclosure crisis for his Freddie Mac tenure.

While I would agree that his Freddie Mac involvement reflects poorly on Emanuel, I’m not so sure the facts laid out in the 2003 report support quite so harsh an assessment as the one offered up by his opponents.

Most important from my viewpoint, there’s nothing in there to back up Chico’s accusation that Emanuel looked the other way, although you can certainly make a good case that he and other board members were asleep at the switch.

First of all, Emanuel isn’t mentioned by name in the report at all.

Freddie Mac’s board of directors did come in for harsh criticism in the report for its go along-get along relationship with the company’s management.

The report also states that company directors were made aware of accounting and management issues that were the root causes of the accounting problems and had specifically been told of Securities and Exchange Commission concerns.

But the report indicates these matters were brought to the board’s attention during meetings in 1999, which was before Emanuel came on the board. Emanuel was on the board by the time its chief financial officer and controller resigned in September 2000, which the oversight agency said should have been another red flag to the company’s directors that something was amiss. Problems were also brought to the attention of the company’s audit committee, on which Emanuel did not serve.

Strangely enough, the problem at Freddie Mac did not involve overstated earnings, as is so often the case, but understated earnings. In an effort to keep its reputation as “Steady Freddie,” company management obsessively manipulated financial transactions to push earnings into the future, thereby hiding its volatility.

The point on which I have no quarrel with Chico’s assessment is with his calling Emanuel’s Freddie Mac board position a “sweetheart appointment.”

Emanuel made at least $320,000 for his 14-month stint at Freddie Mac, which may have required him to attend as few as nine board meetings. Note that I didn’t use the word “earned” in connection with his compensation.

Although it reserved most of its criticism for the long-term board members and their cozy relationship with management, the Report of the Special Examination was so unimpressed with the role of the three short-term presidentially appointed directors that it urged their elimination. Emanuel was long gone by then.

Emanuel’s Freddie Mac involvement has been aired out previously, but one of the facts of political life is that the higher you climb the ladder, the more everything in your past is re-examined. You can expect a lot of that involving all four major candidates in the next few weeks.

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