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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 16, 2011 at 10:54 AM

Fannie, Freddie and…?

The Securities and Exchange Commission has brought civil fraud charges against six former executives at Fannie Mae and Freddie Mac for allegedly providing misleading information about the subprime mortgages held in the portfolios of these giant government-sponsored entities. What took so long?

The bigger question is where are the successful civil and, especially, criminal charges being brought against the big Wall Street investment banks that took the liar-loan subprimes and bundled them into dangerous derivatives that were sold to investors. Most of these loans and all of these derivatives were originated in the big financial services outfits, from Golaman Sachs to Countrywide and Washington Mutual. The executive compensation and profits that the mortgage bubble produced were astronomical, but ultimately the edifice was just another fraud bubble, albeit the largest in history. When does their perp walk happen? Oh, and don’t forget the feared ratings agencies, the captured regulators, and the Federal Reserve.

If recent history is any guide, not much will be forthcoming. Just ask Kerry Killinger. Reinstating Glass-Steagall or even the original Volcker Rule? Dream on. The big banks get every penny for their lobbying money.

Fannie and Freddie were late to the subprime bubble. They didn’t cause the collapse. Their problem is different but just as daunting. Created to provide a highly efficient mortgage market to increase home ownership, they operated smoothly for decades. But they were always coddled by politicians of both parties and returned the love (e.g. Newt Gingrich). Although not directly owned by the government before the collapse, there was no doubt that the feds would come to their rescue. In their way, they were the original too-bog-to-fails, so not surprisingly they became systemically dangerous. We need to wind down these giants and find a better, safer way to run the mortgage market.

The Friday poll will return next week.

Today’s Econ Haiku:

It’s seven thousand

For 737

And still rolling off the line

Comments | More in Bailout, Banking

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