Arnold Kling  

Freddie Mac's Whistleblower

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A Freddie Mac Press release says,

The story is apparently based on the word of David Andrukonis, a former employee who was involuntarily terminated in 2005. It describes a memorandum – one we can't confirm the existence of, one we don't believe Mr. Syron ever saw, and one that Mr. Duhigg never produced for us. Although the reporter was aware of these facts, he cited the individual's account without mentioning them, instead portraying the former employee as having left amicably to become a schoolteacher.

The story they refer to is from the front page of yesterday's New York Times.

In an interview, Freddie Mac’s former chief risk officer, David A. Andrukonis, recalled telling Mr. Syron in mid-2004 that the company was buying bad loans that “would likely pose an enormous financial and reputational risk to the company and the country.”

Freddie Mac was big enough, and important enough in the mortgage market, that if they had said "no" to these loans, it might have made a difference. The charter for Freddie Mac is to purchase investment quality loans. All they had to do was stick to the charter.

My guess is that there are people at Freddie Mac who remember what happened, and they will back Andrukonis' version of events. I hope they know that there are whistleblower laws to protect them, because the party line at the top of the company appears to be to demean Andrukonis and challenge the integrity of the former Chief Risk Officer and twenty-year veteran employee of the firm. I knew Andrukonis when I worked at Freddie, and I think that trying to impugn his integrity is like trying to question Tiger Woods' ability to play golf.

How will the conflict between Syron's version of events and other people's versions get resolved? I would think that the truth will come out. Shareholder lawsuits could be one avenue. Perhaps some journalist will go after the story.

There won't be a Congressional investigation. The relevant committee chairman is Barney Frank, who has close ties to Syron, the Freddie Mac CEO.

UPDATE: The Boston Globe writes,

Freddie had to balance the risks against affordable housing goals, Syron said. Andrukonis and other executives disagreed on that balance, he said.

So according to the Freddie web site, Syron didn't get the memo. But according to the Globe, Syron disagreed with the memo that he didn't get.

I think Freddie's story could use a little more polishing.

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CATEGORIES: Business Economics

COMMENTS (6 to date)
Dan Weber writes:

The most hilarious thing (for me, anyway) is that Freddie Mac's website brings up the denial for an instant, and then replaces it with an "unsupported browser" error, if you dare to look at the page without JavaScript.

spencer writes:

Syron would have only been on board about six months at that time. He would have still been in the process of learning the ropes and trying to understand where all the people he was just starting to work with were coming from. I've known Syron since he was working for the state of Mass and have never had reason not to trust him. Suspect there is a lot more to the story then is in the public domain. When people have only worked together for a short time it is very easy for communications to not be fully understood.

Arnold Kling writes:

Spencer, I'll just throw it out there that Syron is not miscommunicating. He's lying.

Arnold Kling writes:

Actually, look at the story in the Boston Globe today. here

Freddie had to balance the risks against affordable housing goals, Syron said. Andrukonis and other executives disagreed on that balance, he said. Andrukonis was later fired, Freddie officials said.

"The place didn't have enough orientation towards its housing mission," Syron said, "and he disagreed with that approach." Andrukonis couldn't be reached.

So the story on Freddie's web site is that Syron didn't get the memo. The story in the Globe is that Syron and Andrukonis disagreed. Both stories can't be correct. The latter one is the one I believe.
Steve Sailer writes:

Ironically, Syron helped get us into this mess when he was head of the Boston Fed in the early 1990s. His Freddie Mac biography boasts, “Syron also was sponsor of a landmark study on racial discrimination in mortgage lending …” This was seized upon by Congress and the Clinton Administration to promote lending quotas for minorities with bad credit ratings. By 2008, even Syron had doubts but what he had helped unleash:

On March 12, 2008, Bloomberg News reported:

Freddie Mac Chief Executive Officer Richard Syron said he’s urging changes in federal rules that enabled too many low- and moderate-income Americans to buy houses they can’t afford. It’s ‘perverse’ that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged ‘to put people into homes that they end up losing,’ Syron said at a meeting with analysts and investors in New York.

Patrick writes:

Gee, shocking that a CEO would lie and then try to denigrate the whistleblower as part of a poorly orchestrated cover up. This has certainly never happened before.

Even more surprising that a politician would fail to delve deeper because of personal biases.

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