OOPs! Where does this go?

Bruce Krasting's picture

Mudd, the former CEO of Fannie Mae got a Wells notice from the SEC on
Friday. I have been waiting years for this to happen. There is a good
reason this action is so late in coming. This case could open the door
for culpability of the Federal Government in the collapse of the US
mortgage agencies.

The Wells notice is a very significant ratchet up of this story. Prosecution is not assured, but a big investigation is certain.

Mudd, who is now the CEO of buyout firm Fortress Investment Group,
commented on the bad news from the SEC in predictable fashion. He denied
everything: (Bloomberg)

could not disagree more with this turn of events. The disclosures and
procedures that are the subject of the SEC investigation were accurate
and complete. These disclosures were previewed by federal regulators,
and have been issued in the same form since the company went into
government conservatorship.”

I have always believed that Mudd is dirty. He had ample foreknowledge
that the wheels were coming off at Fannie (and the entire mortgage
market). If he argues that he did not, he will just look dumb. When he
spoke to Bloomberg he was reading from a script prepared by big-shot
lawyers. Again his words:

These disclosures were previewed by federal regulators.

Mudd and his lawyers are spot on with this comment. It is a shot across
the bow of the SEC. If Mudd had used real words in his statement he
would have said:

prepared statements and sent them to our regulator, OFHEO. They
reviewed them and agreed with them. Fannie has letters from OFHEO that
says we were clean. Don’t blame me for the blowup. Blame our regulator!”

OFHEO (Office Of Federal Housing Enterprise Oversight) was run by James
Lockhart. I don’t think he is responsible for the collapse of the GSE’s.
But I have always been convinced that he covered up the problems from
the day he took over as the head of OFHEO. OFHEO did fail as a
regulator. There can be no doubt about that at this point.

I hope the SEC pushes this hard. I hope there is a trial. If there is, I am betting that Mudd takes a walk. His reporting/disclosure was approved by Lockhart. That legal conclusion (should it come) would be very damaging to the government. It opens the door for a ton of lawsuits.

-Lockhart is now Vice Chair at Wilbur Ross’s holding company. He is advising on investments in distressed mortgages. Fitting.

-Don’t read this as an argument to buy the very distressed securities of
Fannie and Freddie that are now trading in the “Pinks”. If there were
to be some legal action I think it would be to the benefit of those poor
suckers who bought and held Agency preferred and common prior to the
conservatorship in the fall of 2008. That said, the Fannie Pref is up
400% in just the past few months. Go figure…..

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Leo Kolivakis's picture


In Canada, our federal home insurer, the Canada Housing and Mortgage Corporation (CMHC), went out of its way to respond to critics publicly on their website:


When official denials are posted publicly, you know something is brewing...

anony's picture

Investgation without prosecution is like having sex with yourself.

f16hoser's picture

Mudd and Barney Franks bumping nasty's? Anyone? (puke)


Broomer's picture

I hope the SEC pushes this hard. I hope there is a trial.

Suddenly, Pandora's box comes to my mind...

Orly's picture

Just to clarify, please, Bruce.  By "walk," do you mean the perp-walk, or walk as in walk?

Bruce Krasting's picture

Walk, as in get out of jail free card.

DNB-sore's picture

Pretending knowing of nothing and acting "dumb" gets everyone in this class of the hook. Being dumb is no crime and an excuse to drop charges

At the end he has to be asked 1 thing; How do you get jobs if you do not know anything, is it your IQ that matches the reading on a thermometer during an ice-age?

Then take them in protective custody so they will bring no harm to themselves and society. Let them do jobs like feeding animals on a farm, walk some weelchaired veterans or in medical care (meanwhile bann them from acces to GM crops, tire valve-bleeders and nasty medications). 

Forbes's picture

I understood Fannie's and Freddie's disclosures and securities issuance filings were regulated by OFHEO and not the SEC. So where/how does the SEC get investigatory/prosecutorial jurisdiction? 

Am I missing something here?

Tapeworm's picture

Maybe for issuing preferreds when they knew that the operation was BK and soon to be taken over by the taxcows.

 I still have the cover sheet posted on a bulletin board at work for a Preferred issue (Series T 8.25%) that was done just two months before the end. The employees are oblivious to this crap and agree with each other that I am nuts for whining about fraud.

ISEEIT's picture


No way is this guy going down. There has got to be ulterior motives for the SEC action. This looks to me like a show trial set-up or one part of a larger goal seeking scenario.

In my opinion, at this level all is political. Law and ethics are not at play.

QQQBall's picture

Where is the Wells notice for Mr. Potatohead, Franklin Raines?  Lets see some clawback on the compensation too.

srelf's picture

Regulators appointed by an anti-regulation president... leads to poor regulation... who woulda thunk it?!

The Axe's picture

Since all the computers at the SEC have been impounded for downloading too much porn. I believe a intern must having been searching for previous downloaded pictures of Wendy Wild being humped by a camel(to send to the Cario office) and came upon the Wells Notice by accident and sent it as a Aprils fool joke to. 

virgilcaine's picture

The dollar is decaying.. a piece of paper backed by corrupt shytbirds and scheisters..

ebworthen's picture


The new methodology of the SEC:

Press release, file charges, generate statements and news, allow 6-12 months to pass, start the "we may not have enough hard data for a good case" talk so the perpetrators of malfeasance go to lunch and laugh rather than jail and cry.

It's becoming part of our societal fabric; a level of equivocation and sophistry that is so highly refined and practiced that it substitutes for reality.


Rkymtnhorror's picture

How true.  Plus we (the taxpayers) are still paying his legal bills.



DB Cooper's picture

Nowhere!  Bread & Circuses.

virgilcaine's picture

I wonder if Franklin Raines got a notice also?  amazing how he was able to slip out into the darkness.

Rogerwilco's picture

My question too. Raines was Clinton's butt-boy and the gig at the GSE was his reward for loyal service. He only paid himself a paltry $30M in bonuses before slipping out the back door.

The OMB investigated the situation before Congress put both GSEs under the wing of the Fed. It was estimated that 2500 man-years of work would be needed to reconcile the books and provide a proper audit. All of these SOBs belong in prison.

moneymutt's picture

corrupt govt regulators and fraudlent financial folks equals MAD, so they always collude to skirt law. I wonder if American people can sue to have our laws enforced.

Broker NotBroke's picture

I'm starting a taxpayer's lobby...

Rainman's picture

...laws were outlawed a decade ago under the emergency powers act, except for the "little people".

RolloTamasi's picture

In the end no one will go to jail.......

You can us this on the end of every government investigation where the people being investigated are government employees. 

Private sector= risk

Public sector= no risk. Diplomatic immunity for every government worker is the norm as long as they say the words "we're sorry" and "we need more supervision"

snowball777's picture

Private sector= risk


Buahahahahahaha....are you FUCKING KIDDING?!

What part of the government was Angelo Mozillo in again?



Go fuck yourself, tool.

Vendetta's picture

its too bad warnings of systemic risk in the GSEs from the OFHEO back in 2003/2004


Gee I wonder why gw fired Armando Falcon the director at the time after he sent multiple reports warning of this to Richard Shelby and Michael Oxley in congress.  So  James Lockhart was the see-no-evil, hear-no-evil replacement for that pesky Armando who kept warning about a systemic crisis in housing.

Amish Hacker's picture

I guess the pesky Armando can join the pesky Harry Markopolis, Joe Wilson and his equally pesky wife, the pesky generals who disagreed with Rumsfeld on manpower needs in Iraq, everyone who suggested that the wars might be expensive, and those pesky cabinet members Richard Clark and Paul O'Neill. Where are they now? Invisible, sentenced to a media-imposed silence, while the American public fixates on Lohan's latest tattoo.

Another good article, Bruce, but to think that any of this blatant, criminal wrong-doing will be punished, or will even come to the attention of the man (and woman) in the street, is an opinion unsupported by the historical record.                    

MrSteve's picture

Do you have a link on LiLo's newest ink? I totally missed that VIP news.

Tapeworm's picture

All that the MSM has to is to ignore/suppress information on the fincrims until the statute of limitations runs out, and that is soon.

 P.S. your handle has always gotten a little laugh out of me.

moneymutt's picture

just like everything, they say, who could have seen this coming inspite of the fact many people warn them, they just shoot the messegner and pretend the message never existed...and then to distract us away from all the corrupt regulators, politicans, and financial fraudsters they tell us this was due to fact some deadbeat in the hood tricked sophisticated mortage folks into lending them money....if we just had one bigh public dramactic trial where people could see how much these folks knew and how they gamed the biggest economy in the world and suck enomous wealth and trust out of the system, this would all be cleaned up within 6 months. 

velobabe's picture

far far too optimistic, bruce. nothing will happen. i can't for the life of me understand why you think any action would take place. scanned a little shot of Issa raising some questions about m shapiro, not completing an investigation. is all of this for real, or just theatre for the dumb people, that think any truth comes out of these pathetic people's mouth. 

JimboJammer's picture

My  name  is  Mudd,  Chris  Dodd ,  is  next..

Barney  Frank  is  next....

ChanceIs's picture

Just a rant on my part:  I am all for shrinking the size of the federal government.  The idiot Republicans are about the business of saving $20 by cutting the SEC's budget by maybe 1/3.  Is that economic?  I have to believe that our once envied capital markets have become a laughing stock.  I think that the SEC budget ought to increased twenty fold.  Think of the tr$$ions we could have saved by nipping the banksters in the bud.  Think of SEC Chair Chris Cox banning shorting the banks back in '08.  What a scandal!  Some regulation - and a mountian of prosecution - is required.  It will have unimaginable positive impacts on our economy.   Not to pick on Republicans.  Both parties are innept/corrupt.  Will we see our first bankster in jail - finally?

IQ 145's picture

 "History!; history is written by the winners". Probably, when hell freezes over.

DeadFred's picture

From where I stand it looks like they should do away with all of them.  It looks like all they're good for is prosecuting mid and lower level hedge funds for insider trading. Gee it makes me feel so safe to know the SEC doesn't go after the ones who caused the mess but instead goes after their little competitors.  It reminds me of Obama's rhetoric about the huge bonuses given to the bank employees.  If I own a bank that's screwed the public and robbed the nation why would it make me sad for the government to sternly wag its finger at me while telling me they're going to force me (and my competitors) not to pay my employees as much.  It would be great to increase the SEC if they did their jobs but I see no evidence that's going to happen.  What little reform has been done to date actually seems to to help the TBTF at the expence of their smaller competitors.  The banks control the government, not the other way around

DukkButt's picture

Agreed. Eliminate the SEC entirely. Make everyone do their own due diligence, or subscribe to a service that independently rates anything to do with finance. All the SEC does is lull the average person into a false sense of security. Same thing with the FDIC. If your money WASN"T insured, you would care a great deal about how your bank was being run. Since your money is insured by the government, all anyone cares about is who gives out the nicest toaster or iThing or whatever to open an account. The SEC has proved beyond a shadow of a doubt that government oversight of anything important is not just useless, but actually counter productive. (Libertarian rant <off>)

Husk-Erzulie's picture

Cool, a new tag <liberant>Nice Rant</liberant>


moneymutt's picture

public investgations and some actions are only hope that some story will eventually light fire to end this...I am confident it will happen...call me naive

Orly's picture

If we can help Anonymous spread the word to all our plebian friends and associates starting Monday, it may be our best hope yet.


Lucius Cornelius Sulla's picture

The thing that ticks me off about the Republicans is they are making a big stink about spending reductions but fail to bring up the elimination of Corporate welfare.  Particularily farm subsidies (especially ethanol!), energy subsidies (does XOM really need any help?) and DOD contractors (especially the mercenaries).  These can all be completely eliminated as far as I'm concerned.  But then again I'm not one of the pigs eating at the trough.  These pigs really know how to play the game...

victor82's picture

Listen. I'm a movement conservative who voted GOP last time out as a protest against the Administration. Of COURSE the AssClown GOP will vote to keep ethanol subsidies. And that in the face of rising commodity prices and food rioting worldwide.

There is, after all, money to be made.

Why do you think Boehner, Rove, Ed Gillespie, and that whole crowd of Brooks Brothers looters despise Obama so much? Here's a clue: it has nothing to do with principles. It has everything to do with Obama and HIS clients having first dibs at the pork trough.

The Beltway GOP never gave a rat's ass about Obamacare or the National Debt. They just wanted a talking point so the Rubes would vote in enough Republicans to give the Establishment GOP a say in how Government Swag gets distributed. 

As long as Pelosi ran the House, the GOP was ignored on K-Street and in the writing up of Porky Pig bills. That just wouldn't do.

Until these people are purged, as in sent to GULAG, the GOP will be just as corrupt and as laden with time-servers and Banksters' Pimps as the Democratic Party.


robobbob's picture


until the likes of Rove, Schmidt, Gramm et al are gone, it will be business as usual in DC. Just a fight over the pig trough.

here's something that should frost a conservative. Item 4: NPR exec touts high level establishment Repubs voted for Obama and can't stand those religious racist gun toters that are taking over the party


so the next question should be, how much are they sabotaging Tea Party and conservative candidates?

Blano's picture

Well said.

I gave them one more chance in 2010 also, and all we get for it is $61 billion in proposed cuts plus no elimination of any of the said subsidies.  I'm done with them.  That was probably my last vote, period.

ebworthen's picture


When the GOP helped pass the bailouts I was done with them.

Politics is the distraction.

Government needs to be completely purged; along with most of Wall Street.

Tapeworm's picture

 I faxed and called the Wisconsin senators Kohl and Feingold and bombarded "my representative" Paul Ryan on the bailouts. I made sure that my employees knew the stakes and gave them free rein with the fax machine. Feingold did vote against, but the rest voted for TARP and anything else.

 Shortly thereafter the WSJ lauded Ryan as a Hero for going against the 200/1 opposition to TARP from his constituents.

 Keelhaul these bastards under a blacktop laying machine.