Fannie Mae Execs Should've Fessed Up

Fannie Mae's (FNM - commentary - Cramer's Take) no different from the other scandals. They all revolve around a premise of character. A prominent executive, a revered executive, makes a mistake. The mistake might be a miscalculation in the demand for gas grills. It could be a collapse in long-distance pricing. It might be a shortfall in the amount of pills ordered or a radical decline in the profitability of natural gas market-making. Or, as in the case of Fannie Mae, it might be a terribly wrong bet on interest rates.

To admit the mistake means to fail people. It also might have severe monetary consequences. If you are paid by where a stock goes, you certainly are going to take a pay cut when you announce the bad news, and nobody in America takes pay cuts except rank-and-file workers. At least, that's the sentiment.

So, you cover up the mistake. You hide the gas grills in a warehouse in Oklahoma. You do bogus transactions with other phone companies in the same predicament. You force the wholesalers to take pills; you stuff the channel. You rig the California energy market and you make self-deals that bring in income through back doors and artificial transactions. You mark the derivatives incorrectly and you roll out the truth to some later date.

We all know this stuff. It is human nature. Nobody wants to let anybody down. How well do I know it? If you had called me as a partner of Cramer & Co. back when I was running my hedge fund to find out how I was doing, I would have told you to speak to my accountant, that he was coded for everything and knew everything. I did that because I recognized that we all are such frail creatures that I could, in a moment of weakness, have said we were doing fine when we weren't. I felt that in a moment of weakness, I could have given the wrong number. Did I ever? No. But I knew what had happened to so many managers before me who didn't want to disappoint. So I eliminated myself from the scoreboard, set it up for another arbiter to make the call.

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Listen to Cramer's RealMoney Radio show on your computer; just click here. Click here to buy Cramer's latest book, "You Got Screwed!" Click here to order Cramer's autobiography, "Confessions of a Street Addict."