The following graphic and quotes come from a recent Addison Wiggin’s article at The Daily Reckoning:
Looks like fun, doesn’t it?
The Federal Housing Finance Agency (FHFA) — the arm that oversees the government-sponsored entities Fannie Mae and Freddie Mac — announced they plan to sue a list of major Wall Street banks for… drumroll, please… lying about the quality of the mortgages they packaged into securities and sold to Fannie and Freddie.
“While I believe that FHFA is acting responsibly in its role as conservator,” one-time Fannie flunky Tim Rood (now a partner at the Collingwood Group) told The New York Times this morning, “I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”
Hmmmnn… let’s see if we can get this: A bankrupt government is suing on behalf of two bankrupt quasi-government firms… hoping to recover money from bankrupt banks that were already bailed out once by the aforesaid bankrupt government… and as a consequence may yet need to be bailed out again.
I can understand Addison’s quandary. I have been trying to wrap my mind around this for days. I doesn’t compute.
Those of you who have followed this blog for any time know how much I despise the banking industry. So, you would expect that I would be delighted that the FHFA is finally going after the bankers who ripped off investors during the housing bubble fiasco and then were bailed out by our government in the name of all future and present taxpayers. I say finally because this action by the FHFA took place just two days before the statute of limitations expired. Does all of this seem just a little bit fishy to you?
Let’s do a simple review of events. Starting back in the Clinton Administration, our compassionate Democrats, like Barney Frank and Maxine Waters and others, pushed a program to allow poor people with less than stellar credit ratings to obtain mortgages to buy a home. The quasi-government agencies, Fanny Mae and Freddy Mac, were pressured to lower their loan standards so that people otherwise unqualified would now qualify for mortgages. The un-said premise being that there was little risk to the lender because houses always go up in value over time. (Mental midgets our compassionate Democrats.) Fannie and Freddy do what they are told and millions of unqualified people start buying homes. There is a boom in the housing industry. Meanwhile, Fannie and Freddy and their friends on Wall Street begin packaging these high risk mortgages with lower risk mortgages and they are sold to investors. The baksters bribe or coerce S&P and Moody’s to give these investment instruments AAA ratings. Because these packaged instruments pay a higher return than the under laying mortgages, Fanny and Freddy decide to invest in them big time. okay, the bubble burst and Fannie and Freddy are in big trouble. Our government takes them over and we taxpayers assume their debt. Now, three years later, the FHFA is suing all the banks that were involved in selling these toxic mortgage packages, in the name of Fannie and Freddy , claiming that Fannie and Freddy weren’t made aware of the risk level of the investments they were making. Excuse me!!! Fannie and Freddy wrote most of the under-laying high risk mortgages. HOW COULD THEY NOT KNOW THE RISK?
Please go back and reread the last quote of Addison’s. Do you see why i am scratching my head?
Well, that’s what I’m thinking. What are your thoughts?