'In the end it's not the years in your life that count. It's the life in your years.'
- Abraham Lincoln -

Thursday, December 22, 2011

Barney Frank Had Some Help

The colossal economic plunge that America took in 2007, the wrenching effects from which we still suffer grievously, can be traced to a few men and a small handful of programs they launched in an effort to bring home loans to people who couldn't afford them.  Bubble created, crater resulted.

It's nice, as the dust clears, to give names to those who were responsible for this mess.  Brass plates with their names inscribed on them affixed to prison cells await.

Those names?

At the top of the list, Barney Frank, who led the Congressional effort to lay waste to traditional bank lending practices.  Followed by these guys:
What Fannie and Freddie Knew
Wall Street Journal

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 executives deny the charges, and we hope they don't settle. The case deserves to play out in court, so Americans can see in detail how Fan and Fred were central to the bubble. The lawsuits themselves, combined with information admitted as true by Fan and Fred in civil nonprosecution agreements with the SEC, are certainly illuminating.

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.

Mr. [Angelo Mozilo of Countrywide Home Loans] and Fannie essentially were business partners in the subprime business. Countrywide found the customers, while Fannie provided the taxpayer-backed capital. And the rest of the industry followed.

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. By June 30, 2008, Fannie had $60 billion in EA loans and $41.7 billion in another risky program called "My Community Mortgage," but it only publicly reported an $8 billion exposure.

CEO Daniel Mudd testified that "we see it as part of our mission and our charter to make safe mortgages available to people who don't have perfect credit," adding that Fannie's subprime exposure was "relatively minimal." The Freddie record is similarly incriminating.

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.

Congress [jf: this is where Barney Frank comes in] created the two mortgage giants as well as their "affordable housing" mandates, and neither the financial system nor taxpayers will be safe until Congress shrinks the toxic twins and ultimately puts them out of business. [link]
Fraud on this scale calls for prison time. It probably won't come about, what with the guilty parties having friends in high places. But striped pajamas and barbed wire are too good for these miscreants.

America has gone through an horrific crisis. A crisis brought about by do-gooders in leadership roles in government and in quasi-government organizations like Fannie and Freddie.

Let's send them to the Big House, learn from their mistakes, and vow to never let them happen again.