Posts Tagged ‘Fannie Mae’

From John Carney:

One of the more ridiculous complaints about the Federal Housing Finance Agency’s lawsuits against 17 banks is that Fannie Mae and Freddie Mac were “sophisticated investors” who knew or should have known about the quality of the mortgages underlying the securities they were buying.

Fannie and Freddie were not sophisticated purchasers under any reasonable definition of the term. And there’s no way they could have known that the mortgage securities they bought from Wall Street were stuffed with low-quality mortgages.

The lack of sophistication of Fannie and Freddie was on display throughout the last decade. They consistently showed that they couldn’t handle even basic accounting for their own balance sheets. If not for the imprimatur of the government and the protection of their pet politicians, they would have been de-listed from major exchanges. They probably should have been shut down altogether.

Plus this:

It all comes down to the fact that Fannie and Freddie relied on the banks and were legally entitled to rely on the banks. Fannie and Freddie paid enormous fees to the banks for this right to rely on them. If the mortgage securities they purchased did not meet the standards that the banks vouched for, it’s the banks who should take the losses.

Read the whole thing.


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From CNBC’s John Carney:

The news that the federal government is suing 17 of the biggest banks in the world for hundreds of billions of dollars no doubt has many people wondering what was the point of bailing them out with hundreds of billions of dollars.

Why sue the companies you just rescued?

There’s an ancient precedent for this kind of thing. Herodotus tells us a story about a fraught sea voyage in which Xerxes, the ancient Persian king, was told by the ship’s captain that they would sink unless the load was lightened. When Xerxes delivered this news to his subjects on board, many jumped into the ocean in order to save their king. It worked. The ship made it to port thanks to their sacrifice.

The captain of the ship was rewarded for saving the life of Xerxes with a golden crown. But then Xerxes ordered the captain’s beheading because he has lost the lives of so many loyal Persian subjects.

It’s hard to escape the impression that we’ve gone from crowning to beheading. The question really is when does the pursuit of justice go too far?

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