SEC lawsuit shows that Fannie and Freddie, protected by the Democrats, were at the very heart of the housing crisis

  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 10:48 PM GMT
    What Fannie and Freddie Knew - The SEC shows how the toxic twins turbocharged the housing bubble.

    http://online.wsj.com/article/SB10001424052970204791104577110643650732030.html?mod=ITP_opinion_2

    excerpts:

    Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis.

    That's the story revealed Friday by the SEC's civil lawsuits against six former Fannie and Freddie executives, including a pair of CEOs. The SEC says the companies defrauded investors because they "knew and approved of misleading statements" about Fan and Fred's exposure to subprime loans, and it chronicles their push to expand the business.

    ...

    The Beltway story of the crisis claims that Congress's affordable housing mandates had nothing to do with it. But the SEC's lawsuit shows that Fannie degraded its underwriting standards to increase its market share in subprime loans.

    ...

    The SEC also shows how Fannie led private lenders into the subprime market.

    ...

    By December 31, 2006, Fannie owned or securitized some $43.3 billion of these loans, which, according to the SEC, had "higher average serious delinquency rates, higher credit losses, and lower average credit scores" than Fannie's disclosed subprime loans.

    ...

    Far from being peripheral to the housing crisis, the SEC lawsuit shows that Fan and Fred were at the very heart of it. Private lenders made many mistakes, but they could never have done as much harm if Fan and Fred weren't providing tens of billions in taxpayer-subsidized liquidity to lend on easy terms to borrowers who couldn't pay it back.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 10:54 PM GMT
    Some bedtime reading for you:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924831

    I wonder what your stance is on Collateralized Debt Obligations?
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 11:02 PM GMT
    TigerTim saidSome bedtime reading for you:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924831

    I wonder what your stance is on Collateralized Debt Obligations?

    Quite familiar and have commented in the past that the practices in the financial industry along with the housing policies noted above precipitated the financial collapse. The Bush Administration failed to foresee the impact of such practices, and the Democrats and their support of F & F and the policy of pushing loans to people who could not afford them were jointly to blame, The Democrats tried to absolve themselves of any blame, and the information provided by the SEC case shows otherwise.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 11:10 PM GMT
    TigerTim saidSome bedtime reading for you:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924831

    I wonder what your stance is on Collateralized Debt Obligations?


    Right... so the basic claim is that the underwriting standards were better when there was less competition - or that more competition caused more lax underwriting standards. Of course this has nothing to do with the market bubble that resulted from the GSE's buying up anything irrespective of underwriting standards? And GSE's had nothing to do with that?

    Do you even realize how much of the market they controlled - or rather, what percentage of mortgages they touched and continue to touch?
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 11:18 PM GMT
    socalfitness said
    TigerTim saidSome bedtime reading for you:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924831

    I wonder what your stance is on Collateralized Debt Obligations?

    Quite familiar and have commented in the past that the practices in the financial industry along with the housing policies noted above precipitated the financial collapse. The Bush Administration failed to foresee the impact of such practices, and the Democrats and their support of F & F and the policy of pushing loans to people who could not afford them were jointly to blame, The Democrats tried to absolve themselves of any blame, and the information provided by the SEC case shows otherwise.


    So the Financial Industry, in your view, is quite free of any blame?
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 11:22 PM GMT
    TigerTim said
    socalfitness said
    TigerTim saidSome bedtime reading for you:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924831

    I wonder what your stance is on Collateralized Debt Obligations?

    Quite familiar and have commented in the past that the practices in the financial industry along with the housing policies noted above precipitated the financial collapse. The Bush Administration failed to foresee the impact of such practices, and the Democrats and their support of F & F and the policy of pushing loans to people who could not afford them were jointly to blame, The Democrats tried to absolve themselves of any blame, and the information provided by the SEC case shows otherwise.


    So the Financial Industry, in your view, is quite free of any blame?

    Never stated that. I think the blame can be allocated to 3 general groups:

    1. Fannie & Freddie and the Democrats who continually protected them. View from 2005: http://hotair.com/archives/2008/09/17/mccains-attempt-to-fix-fannie-mae-freddie-mac-in-2005/

    2. The financial industry for its practices.

    3. The Bush Administration, especially Cox at the SEC, for failing to see what was to happen.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 11:24 PM GMT
    socalfitness said
    TigerTim said
    socalfitness said
    TigerTim saidSome bedtime reading for you:

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1924831

    I wonder what your stance is on Collateralized Debt Obligations?

    Quite familiar and have commented in the past that the practices in the financial industry along with the housing policies noted above precipitated the financial collapse. The Bush Administration failed to foresee the impact of such practices, and the Democrats and their support of F & F and the policy of pushing loans to people who could not afford them were jointly to blame, The Democrats tried to absolve themselves of any blame, and the information provided by the SEC case shows otherwise.


    So the Financial Industry, in your view, is quite free of any blame?

    Never stated that. I think the blame can be allocated to 3 general groups:

    1. Fannie & Freddie and the Democrats who continually protected them. View from 2005: http://hotair.com/archives/2008/09/17/mccains-attempt-to-fix-fannie-mae-freddie-mac-in-2005/

    2. The financial industry for its practices.

    3. The Bush Administration, especially Cox at the SEC, for failing to see what was to happen.


    I'd also add consumers to that group.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 11:29 PM GMT
    riddler78 saidI'd also add consumers to that group.

    Absolutely. Some were not sophisticated and duped, but people do have to take responsibility for their actions. For example, if someone with a modest income was"tricked" by a salesman into buying a $80,000 Mercedes, while the salesman would be at fault, so would the consumer.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2011 11:44 PM GMT
    Well we're probably not going to disagree very much here. I think there's plenty of blame to go around here, and I'd add that lobbying on the part of banks to force the GSEs to facilitate subprime mortgages should not escape scrutiny. It's terrible that none of the perpetrators have really received any sort of comeuppance for their terrible acts too. I therefore personally don't believe that it's intellectually honest to single out any one of these factors.

    There is an unfortunate tendency to forget that home ownership has significantly reduced the geographical mobility of American Labour, and that this prolongs structural unemployment.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 24, 2011 5:29 PM GMT

    http://www.nytimes.com/2011/12/24/opinion/nocera-the-big-lie.html?_r=2&hpCentral to Wallison’s argument is that the government’s effort to encourage homeownership among low- and moderate-income Americans is what led to the crisis. Fannie and Freddie, which were required by law to meet certain “affordable housing mandates,” were the primary instruments of that government policy; their need to meet those mandates, says Wallison, is what caused them to dive so heavily into those “risky” mortgages. And because they were powerful forces in the housing market, their entry into subprime dragged along the rest of the mortgage industry.

    But the S.E.C. complaint makes almost no mention of affordable housing mandates. Instead, it charges that the executives were motivated to begin buying subprime mortgages — belatedly, contrary to the Big Lie — because they were trying to reclaim lost market share, and thus maximize their bonuses.

    As Karen Petrou, a well-regarded bank analyst, puts it: “The S.E.C.’s facts paint a picture in which it wasn’t high-minded government mandates that did [Fannie and Freddie] wrong, but rather the monomaniacal focus of top management on market share.” As I wrote on Tuesday, Fannie and Freddie, rather than leading the housing industry astray, got into riskier mortgages only after the horse was out of the barn. They were becoming irrelevant in the most profitable segment of the market — subprime. And that they couldn’t abide.