Freddie Mac's Whistleblower
By Arnold Kling
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.