December 16, 2011

#SEC sues Fannie, Freddie bigwigs; where's #Newt?

Fig Newton Gingrich
This could be good news, or it could be hot air. The Securities and Exchange Commission is suing six former top officials at Fannie Mae and Freddie Mac.

On the surface, it's good news. But, we've seen just how air-pillow light the SEC's punishment hammer has been in the past couple of years.

Anyway, here's the gist:
The SEC's complaint against the former Fannie Mae executives alleges that, when Fannie Mae began reporting its exposure to subprime loans in 2007, it broadly described the loans as those "made to borrowers with weaker credit histories," and then reported — with the knowledge, support, and approval of Mudd, Dallavecchia, and Lund — less than one-tenth of its loans that met that description. Fannie Mae reported that its 2006 year-end Single Family exposure to subprime loans was just 0.2 percent, or approximately $4.8 billion, of its Single Family loan portfolio. Investors were not told that in calculating the Company's reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by Fannie Mae towards borrowers with weaker credit histories, including more than $43 billion of Expanded Approval, or "EA" loans. ...

In the complaint against the former Freddie Mac executives, the SEC alleged that they and Freddie Mac led investors to believe that the firm used a broad definition of subprime loans and was disclosing all of its Single-Family subprime loan exposure. Syron and Cook reinforced the misleading perception when they each publicly proclaimed that the Single Family business had "basically no subprime exposure." Unbeknown to investors, as of December 31, 2006, Freddie Mac's Single Family business was exposed to approximately $141 billion of loans internally referred to as "subprime" or "subprime like," accounting for 10 percent of the portfolio, and grew to approximately $244 billion, or 14 percent of the portfolio, as of June 30, 2008.
There's another way this could be good news, for the general public and for Barack Obama, and GOP presidential contestants along with Obama.

Two words: Newt Gingrich. His allegedly non-lobbying lobbying efforts for Freddie Mac are going to draw even more fire now. He got hammered for it in last night's debate:
Fox News debate moderator Brett Baier pointed out that in a previous debate, Gingrich said that Rep. Barney Frank, former Sen. Chris Dodd and Federal Reserve Chairman Ben Bernanke should be imprisoned for their roles in the financial meltdown. He pointed out that such statements could look hypocritical given that Gingrich supports government policy to encourage home ownership.
Gingrich defended his earlier remarks by saying that "Barney Frank was in public office with direct power over Freddie Mac [and] he exploited that power... I was a private citizen, engaged in a business like any other business." 
As I blogged yesterday: Newt, it's your turn to slip. And, it's going to happen pretty quickly, perhaps. If it's a slow news cycle otherwise, this is going to draw plenty of chatter on Sunday morning political talk TV.


Beyond Newt, though, this says Fannie and Freddie should be reformed, and frankly, made back into straight government entities. The filing involves some major fraud allegations.

Do you know why they're "hybrid" quasi-public, quasi-private government service enterprises? LBJ, as part of his guns-and-butter financial strategy for the budget and the Vietnam War, pushed the two out of government. Yet another way he got way too fixated on Vietnam, to his own detriment and the country's as well.

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