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SEC Sues Former Fannie, Freddie CEOs For Misleading Investors On Subprime Risk

Tyler Durden's picture




 

So with just a 3 years delay, the SEC has finally put down the porn channel remote, and decided to do what it should have done back in 2008, which is to sue the former heads of Fannie and Freddie for "misleading investors about risky mortgages" in the case below, former Fannie CEO Daniel Mudd, who was paid $13.4 million in 2007. With MF Global telling everyone it had no European exposure as recently as September 30, this appears to be a recurrent theme. So at this pace, Corzine should expect the SEC to sue him... about 8 years after he passes away? Per Reuters: "The U.S. Securities and Exchange Commission sued three former executives at Fannie Mae and three at Freddie Mac, including former chief executives of both companies. The civil charges were filed in two separate lawsuits. The SEC said both firms have agreed to cooperate with the agency and have entered into non-prosecution agreements." Yes, your honor, we don't admit or deny that we got paid tens of millions to blow up the companies at the backbone of the American mortgage industry by lying what we were investing in, but we will cooperate... We promise. In the meantime, we won't hold our breath for the SEC to clawback even one cent from Mudd in this purely theatrical spectacle, of which we will see many more as the US enters election year. Incidentally, any and all LPs of Fortress Group may want to ask themselves what else  (if anyhting) the current CEO of the company, who just happens to be Dan Mudd, is misrepresenting these days.

From the lawsuit:  

This action arises out of a series of materially false and misleading public disclosures by the Federal National Mortgage Association ("Fannie Mae" or the "Company") and certain of its former senior executives concerning the Company's exposure to subprime mortgage and reduced documentation Alt-A loans. Eager to promote the impression that Fannie Mae had limited exposure to- subprime and Alt-A loans during a period of heightened investor interest in the credit risks associated with these loans, Fannie Mae and its executives misled investors into believing that the Company had far less exposure to these riskier mortgages than in fact existed.

 

Between December 6, 2006, and August 8, 2008, (the "Relevant Period"), Daniel H. Mudd ("Mudd"), Enrico Dallavecchia ("Dallavecchia") and Thomas A. Lund ("Lund") (collectively, "Defendants"), made or substantially assisted others in making materially false and misleading statements regarding Fannie Mae's exposure to subprime and Alt-A loans.

 

For example, in a February 2007 public filing, Fannie Mae described subprime loans as loans "made to borrowers with weaker credit histories" and reported that 0.2%, or approximately $4.8 billion, of its Single Family credit book of business as of December 31, 2006, consisted of subprime mortgage loans or structured Fannie Mae Mortgage Backed Securities ("MBS") backed by subprime mortgage loans.

 

Fannie Mae did not disclose to investors that in calculating the Company's reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by the Company towards borrowers with weaker credit histories, including Expanded Approval ("EA") loans. As ofDecember 31, 2006, the amount ofEA loans owned or securitized in the Company's single-family credit business was approximately $43.3 billion, yet none of these loans were included in the Company's disclosed subprime exposure.

 

Fannie Mae's exclusion of loans such as EA from its subprime disclosures was particularly misleading because EA loans were exactly the type of loans that investors would reasonably believe Fannie Mae included when calculating its exposure to subprime loans. In fact, the Company identified EA as its "most significant initiative to serve credit impaired borrowers" in response to regulatory requests for information on its subprime loans. In addition, all of the Defendants knew that EA loans had higher average serious delinquency rates, higher credit losses, and lower average credit scores than the loans Fannie Mae included when calculating its disclosed subprime loan exposure.

 

In a November 2007 public filing, Fannie Mae described subprime loans as a loan to a borrower with a "weaker credit profile than that of a prime borrower," classified mortgage loans as "subprime" if the mortgage loans were originated by a "specialty" subprime lender or a "subprime division of a large lender," and again represented that only 0.2%, or approximately $4.8 billion, of its Single Family credit book of business consisted of subprime mortgage loans or structured Fannie Mae MBS backed by subprime mortgage loans as of both March 31, 2007, and June 30, 2007.

 

Fannie Mae did not tell investors that in calculating the Company's exposure to subprime loans reported in this filing, Fannie Mae again did not include at least $43 billion of EA loans, included loans from only fifteen loan originators of the approximately 210 lenders listed on the HUD Subprime Lender list, and did not even have the capacity to track whether loans were originated by a subprime division of a large lender.

 

Fannie Mae made similarly misleading disclosures concerning its exposure to subprime loans in public filings throughout the Relevant Period. The result of these disclosures was to mislead investors into seriously underestimating Fannie Mae's exposure to subprime loans.

 

Similarly, Fannie Mae misled investors concerning its exposure to Alt-A loans with reduced or alternative documentation requirements. Fannie Mae did not disclose the total percentage of its Single Family mortgage guarantee business consisting of reduced documentation loans as reflected in its own internal reporting, which Defendants routinely received throughout the Relevant Period.

...

etc.

...

The result of these disclosures was to mislead investors into materially underestimating Fannie Mae's exposure to reduced documentation loans. Fannie Mae made similarly misleading disclosures concerning its exposure to reduced documentation loans in public filings throughout the Relevant Period.

 

By engaging in the misconduct described herein, Mudd violated and aided and abetted the violation of the antifraud and reporting provisions of the federal securities laws; Dallavecchia violated the antifraud provisions and aided and abetted the violation of the antifraud and reporting provisions of the federal securities laws; and Lund aided and abetted violations of the antifraud and reporting provisions of the federal securities laws. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, civil  penalties and other appropriate and necessary equitable relief from both defendants.

Full filing:

 

 

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Fri, 12/16/2011 - 11:42 | 1986877 GeneMarchbanks
GeneMarchbanks's picture

Jail Time, bitchez!

Fri, 12/16/2011 - 11:42 | 1986880 Ahmeexnal
Ahmeexnal's picture

Too little much too late.

Fri, 12/16/2011 - 11:44 | 1986886 ucsbcanuck
ucsbcanuck's picture

Agreed. Nothing will come out of this.

Fri, 12/16/2011 - 11:47 | 1986898 Popo
Popo's picture

"Non-prosecution agreements."  ?!

Seriously:  Under what justification would such an agreement be made?  In order to get them to cooperate???  I'm sorry -- who has the mandate of authority here?  

How about:  "If you do not cooperate, we will have you arrested.  Are we clear?"

Fri, 12/16/2011 - 11:52 | 1986920 Mark123
Mark123's picture

At least we arn't offering them awards to cooperate....or are we????

Fri, 12/16/2011 - 11:58 | 1986934 The Big Ching-aso
The Big Ching-aso's picture

 

 

SEC......

I think nowadays this really stands for:    Sustaining Enterprise Corruption.  

 

 

Fri, 12/16/2011 - 12:00 | 1986945 Manthong
Manthong's picture

Where is Franklin Raines?

Fri, 12/16/2011 - 12:08 | 1986970 SheepHerder
SheepHerder's picture

Let's think about this...a taxpayer backed agency is suing another taxpayer backed agency.  So if one agency wins what do they get?  Oh that's right, unless they are going after personal assets...a shuffling of taxpayer money.  All the while the litigation and legal process will cost more taxpayer money.  Brilliant!  The one thing the American government is efficient at is wasting the 30% plus of my salary I give up on an annual basis.  Kudos, kudos!

Fri, 12/16/2011 - 12:17 | 1987001 john39
john39's picture

agency wasn't sued, just the individuals.

Fri, 12/16/2011 - 12:25 | 1987031 SheepDog-One
SheepDog-One's picture

There are no individuals, only Corporations.

Fri, 12/16/2011 - 12:31 | 1987060 Oh regional Indian
Oh regional Indian's picture

Very purseptive of you to notice that.

Yes, purseptive. it's like pursepective, only different.

ori

/this-that-and-the-4th-reich/

Fri, 12/16/2011 - 12:36 | 1987089 FreedomGuy
FreedomGuy's picture

40% for me last year. And they want more. Put on top of your 30% that we run about a 40% annual deficit...meaning to balance the books you should pay about 40% than you do now. It only gets worse with time. Someone beside Ron Paul in the Republican party might want to note and address this.

Fri, 12/16/2011 - 15:06 | 1987706 Buzz Fuzzel
Buzz Fuzzel's picture

Manthong, you risk being called a racist or even worst, a right wing conservative republican for asking that question.  I hope you are not expecting a meaninful answer.

Fri, 12/16/2011 - 12:59 | 1987222 smlbizman
smlbizman's picture

now we know why that disgusting nose picking ass eater quit.....

Fri, 12/16/2011 - 14:49 | 1987652 SWRichmond
SWRichmond's picture

Too little much too late.

Yes, only this, and since the "resititution," if any, would come out of the taxpayers' pockets anyway, since these companies are on taxpayer life support anyway, if there is not crminal prosecution then this is merely a show for the election cycle: "Look, we're doing something!  Regulation works!"

Fri, 12/16/2011 - 11:44 | 1986885 economics1996
economics1996's picture

Why do we have a SEC?  Fucking useless jerk offs.

Fri, 12/16/2011 - 11:58 | 1986938 PrintingPress
PrintingPress's picture

Haven't you heard, government creates jobs! 

Fri, 12/16/2011 - 13:53 | 1987425 chipshot
chipshot's picture

perfect holiday diversion for the JD/SEC off of fast and furious

Fri, 12/16/2011 - 12:13 | 1986987 navy62802
navy62802's picture

The SEC exists to make people believe that there is some sort of regulation going on.

Fri, 12/16/2011 - 12:18 | 1987003 SheepDog-One
SheepDog-One's picture

Yes and then when things like MF Global go up in flames, it gives great cover to guys like Bawney Fwank to bluster about needing more wegwoowations.

Never been more overlapping wegwoowations, but each failure to catch any outright criminality simply proves we need more.

Fri, 12/16/2011 - 12:25 | 1987036 dwdollar
dwdollar's picture

Sort of... Just like any government regulatory, they are institutionalized 'muscle' to keep the peasants from engaging in the same crimes the oligarchs are privileged to engage in.

Fri, 12/16/2011 - 11:49 | 1986911 HelluvaEngineer
HelluvaEngineer's picture

Time to wheel out Arthur Levitt to explain why the SEC should never take anyone to court.  His reason: if they lose a case in court, that sets a precedent, thereby reducing their capacity to enforce the law.  Make sense? 

 

No, didn't to me either.

Fri, 12/16/2011 - 13:13 | 1987276 scatterbrains
scatterbrains's picture

Lets elect Ron Paul, declare these banksters terrorist and hold them indefinitely or until they return to dust so we can clean this shit show up.

Fri, 12/16/2011 - 12:39 | 1987106 FreedomGuy
FreedomGuy's picture

They need to trace this thing all the way back to the prime movers of this fiasco, i.e., politicians! That will not happen because the majority are democrats. Frank is retiring and Dodd wisely got out before it came back on him. We need to go back 30 maybe 40 years for all of them. If anything good comes out of this (and I don't think anything really will) it would be that central planning always fails. Always.

Fri, 12/16/2011 - 13:00 | 1987227 bonddude
bonddude's picture

Does anyone find it amazing that Former FNMA CEO Franklin Raines (Yes, O bam a's former head of his campaign's finances) who made $100 MM is strangely missing from this suit ?

Fri, 12/16/2011 - 14:12 | 1987526 FreedomGuy
FreedomGuy's picture

Not amazing. Predictable. Tony Rezco is in jail in Chicago, though so who knows?

Fri, 12/16/2011 - 11:44 | 1986884 Surly Bear
Surly Bear's picture

About damned time.

Fri, 12/16/2011 - 11:45 | 1986889 LawsofPhysics
LawsofPhysics's picture

What about the folks at Goldman?  It seems like the folks at Fannie and Freddie are small fish here.  What the fuck?

Fri, 12/16/2011 - 11:45 | 1986891 spekulatn
spekulatn's picture

Pattsy, bitchez!

Fri, 12/16/2011 - 11:45 | 1986894 Theta_Burn
Theta_Burn's picture

3 yrs delay? thier not slow just helping where they can

http://www.statuteoflimitations.net/fraud.html

 

Fri, 12/16/2011 - 13:16 | 1987288 azusgm
azusgm's picture

Is there a time limit on the officers and directors insurance coverage?

Fri, 12/16/2011 - 11:48 | 1986903 Scalaris
Scalaris's picture

That didn't take long. 

(That's sarcasm, 'cause it did take long)

Fri, 12/16/2011 - 12:26 | 1987041 WonderDawg
WonderDawg's picture

It's funny because it's not true.

Fri, 12/16/2011 - 11:48 | 1986904 Caviar Emptor
Caviar Emptor's picture

Window dressing. THey may collect a nickel in 20 years. But since president Newt wants to downsize the court system, it could take longer. But a nickel will truly be worth more than 5cents!

Fri, 12/16/2011 - 11:49 | 1986909 Vincent Vega
Vincent Vega's picture

They were doing God's work.

Fri, 12/16/2011 - 11:50 | 1986912 Mark123
Mark123's picture

Sure am glad we voted in Obama to clean up the mess left behind by Bush.  Wow, he really showed them who's boss!  What a farce....can't wiat for the next stooge to come in and take control.....

 

Anyone have any comments on today's conflicted markets?  French market trading down (DAX flat), Bond yields in US way down, US stocks up?????  WTF???  Like a squirrel on the road darting back and forth in confusion as a car races towards it...

Fri, 12/16/2011 - 12:58 | 1987197 Strut
Strut's picture

 

If you think Obama's bad, just wait until any one of these GOP "candidates" gets elected. Even if Ron Paul were electable, he would be powerless to implement any of his reforms. Nothing changes without a constitutional amendment to get ALL MONEY out of politics.

 

Fri, 12/16/2011 - 11:52 | 1986913 Fíréan
Fíréan's picture

"The SEC said both firms have agreed to cooperate with the agency and have entered into non-prosecution agreements".

 

So what's the point ? Lots of investigation at high cost, SEC can feel good they're doing something about something ( and can report that they're doing it ), and some report gets released at the end of the day, whenever . . . whatever.

Fri, 12/16/2011 - 11:52 | 1986915 SheepDog-One
SheepDog-One's picture

Is this our good news for excuse to ramp equity stawks today?

Fri, 12/16/2011 - 11:51 | 1986916 BluPoint
BluPoint's picture

Anyone remember the Fannie Mae CFO that offed himself at home back in 2009?  The story was pretty hushed.  Nice family, nice house, nice salary and bonuses too.  All gone.  what did he know and when did he know it? 

Fri, 12/16/2011 - 12:34 | 1987078 JR
JR's picture

Funny how many placed people flick the “off” switch.  Vince Foster set a “suicide” trend?

Fri, 12/16/2011 - 12:41 | 1987109 Widowmaker
Widowmaker's picture

Only justice served so far in my opinion.

He knew the shit was systemic, an epidemic and presidential.

To those involved in the mortage gutting of the United States and the poisoning of liberty using 9/11 as a shield, you have a lot to be ashamed of.

By the time history is done with the George W Fuckin Bush administration of war criminals, just the sound of the name will make US citizens vomit.

 

 

Fri, 12/16/2011 - 11:55 | 1986924 LeBalance
LeBalance's picture

very poorly played. this action is an implicit admission of incompetence/complicity by the SEC.

if they were ever going to bring this action it had to have been done in a timely fashion after the event, by say mid 2009 at the latest.

bringing the action now makes it obvious that they knew there was illegality, but chose not to exercute their function for approximately 3 years.

at this point this is the worst gambit to make.

not only does it roil the waters, it destroys the SEC by their own hand.

Fri, 12/16/2011 - 12:05 | 1986959 Mark123
Mark123's picture

Like all other authorities their prime directive is to support the overall markets and encourage confidence - their excuse to justify their lack of enforcement.  The way they do that is to make sure all evidence that the markets are rotten is swept under the carpet, and at a senior level the offenders are given a stern warning (e.g. - you better clean things up or we will have to really intervene).

If one applied this to the rest of the world, we would have no prisons or courts.  The police would visit the bank robbers house and give him a stern talking to.

 

Fri, 12/16/2011 - 14:57 | 1987139 FreedomGuy
FreedomGuy's picture

You have to realize that with leftist-collectivist democrats there is no concept of personal responsibility. That is the connection between Obama, Corzine, Frank, Holder and government, in general. None of them takes responsibility for anything. The FBI can illegally sell illegal weapons to people in an illegal business, have one of their own killed and it's not the Director's fault. In fact, he didn't even know. Obama will not own the economy. It is Bush's fault still. Corzine is innocent because he doesn't know where a billion went. Frank said Fannie and Freddie were solid on video and defended them and even though he controlled that committee it's not his fault. See the theme? These guys may take the fall...maybe but it will not get back to the prime movers. They all had good intentions and that is enough.

Fri, 12/16/2011 - 11:56 | 1986931 monopoly
monopoly's picture

It is a start. Lets see if it is just window dressing. But ya gotta start somewhere.

Fri, 12/16/2011 - 11:56 | 1986933 G_T_A_44
G_T_A_44's picture

Was Mary Schapiro the Lead Blocker for Corzine?

 

"Corzine, I know from (an) inside source at the SEC, there were going to be rules to prevent them from doing exactly what they are doing.

Corzine went down (to the SEC), met with Mary Schapiro, she personally revoked it. That's information I have from inside the SEC. So the whole thing is a joke. When I speak to people on the (Capitol) Hill, they even say the SEC is bought and paid for."

 

OK. Back to shredding and Porn.

Fri, 12/16/2011 - 11:58 | 1986940 monopoly
Fri, 12/16/2011 - 12:54 | 1987102 NuYawkFrankie
NuYawkFrankie's picture

I hope you're not suggesting that Franklin Raines be held accountable?

Surely you must be aware that Mr. Raines is an esteemed FOB (Friend of Bill)? Nothing untowards ever happens to Slick Willie's buddies.

BTW Jonny "I'm Dreaming of a Re-hypothecated Christmas" Corzine is also a Friend of Bill's - and also pretty snug with Hillary, from what I hear. So fuggedabout him as well.

Fri, 12/16/2011 - 12:02 | 1986951 midgetrannyporn
midgetrannyporn's picture

At least no laws were broken. LOLMAOHAHA

Fri, 12/16/2011 - 12:10 | 1986973 vegas
vegas's picture

All animals are equal, but some of the animals are more equal than the others.

 

http://vegasxau.blogspot.com

Fri, 12/16/2011 - 12:12 | 1986980 user2011
user2011's picture

It's all dog and pony show.   Obama need to show some productivities.  That's why SEC start doing something for news.      SEC had done jack about quote stuffing and all these scams going on.   Now, they will just pick on some buddies of their own.   Don't worry, these CEO won't get jail time or nothing,  their cases will be eventually thrown out, after election is over.    Or push come to shove,  executive pardon....  A bunch of scammers.

 

Fri, 12/16/2011 - 12:16 | 1986999 Mark123
Mark123's picture

Watch for Obama reference to this in an upcoming speech. 

 

I want to throw up....

Fri, 12/16/2011 - 12:21 | 1986982 SheepDog-One
SheepDog-One's picture

In the same sort of 'We just missed it by THAT much!'...in this case 10 years or so..and 1 ten year war on 'Oops, guess they were the wrong guys after all', here comes right on desperately needed cue to stir up the war drums comes news that a Federal Judge has ruled IRAN was responsible for 9-11!

Enjoy the ongoing puppet show.

Judge FALSELY Rules Iran Connected To The Zionist False Flag Attack on 911 - YouTube

Fri, 12/16/2011 - 12:12 | 1986983 PulauHantu29
PulauHantu29's picture

Porn traffic lighter these days I read. Now I know why.

Fri, 12/16/2011 - 12:13 | 1986986 The 100 Trillio...
The 100 Trillion Dollar Man's picture

Nothing fishy here. Move along please, and eat your peas.

Fri, 12/16/2011 - 12:13 | 1986988 Hard1
Hard1's picture

Tyler:  Put a note on Zynga IPO scam, priced at 11, now trading under 10, current managment and their bankers just milked another non profitble business model out of the suckers of the "investment community"

Fri, 12/16/2011 - 12:15 | 1986994 SheepDog-One
SheepDog-One's picture

Cram it all into pensions and 401K's, mission accomplished.

Fri, 12/16/2011 - 12:38 | 1987091 Hard1
Hard1's picture

Thanks again Tyler...if finished typing my post above and there it was!!!!

Fri, 12/16/2011 - 12:23 | 1987020 G_T_A_44
G_T_A_44's picture

Were shares of ZNGA allocated to the FOTH (Fools On The Hill)?

If so, it's a 'Hot' deal. If not, a Dud!

Fri, 12/16/2011 - 12:15 | 1986993 punxsutawney phil
punxsutawney phil's picture

2's 10's 30's butterfly blowing real wide vs spoos right here, implies higher fly lower spoos to close spread.....context

Fri, 12/16/2011 - 12:16 | 1986998 Mitzibitzi
Mitzibitzi's picture

Dan Mudd? Any relation to Harcourt Fenton Mudd? The honesty level seems to be about the same...

http://www.youtube.com/watch?v=wlMegqgGORY&feature=related

Fri, 12/16/2011 - 12:45 | 1987137 Mark123
Mark123's picture

Elmer Fudd?

Fri, 12/16/2011 - 12:19 | 1987007 NOTW777
NOTW777's picture

franklin raines ????????

Fri, 12/16/2011 - 13:14 | 1987280 Joebloinvestor
Joebloinvestor's picture

They don't want to piss off Barry by going after one of his buddies.

Fri, 12/16/2011 - 12:22 | 1987019 digalert
digalert's picture

CNBS: Mudd is pissed!

"Every piece of material data about loans held by Fannie Mae was known to the United States government and to the investing public. The SEC is wrong, and I look forward to a court where fairness and reason — not politics — is the standard for justice."

Yah! Let the mud fly (no pun)

Fri, 12/16/2011 - 12:51 | 1987171 slewie the pi-rat
slewie the pi-rat's picture

true

hey, everything was above-board! [all the crimes were committed in broad daylight!]

  • each property was appraised according to professional bullshit & fraud standards
  • the loans were then bundled into securities which were professionally rated bullshit & fraud AAA
  • after we participated in a fraudulent system of title/mortgage transfer run by professional bullshitters
  • we just tried to do our best professional job for the industries involved, and for the nation, too
  • L0L!!!
Fri, 12/16/2011 - 12:24 | 1987024 williambanzai7
williambanzai7's picture

REGULATORY RAPTURE

Fri, 12/16/2011 - 12:39 | 1987104 vegas
vegas's picture

As is usually the case, totally priceless.

 

http://vegasxau.blogspot.com

Fri, 12/16/2011 - 12:25 | 1987033 stock trout
stock trout's picture

Next time I get a speeding ticket for doing 100 in a 30 zone I hope the police sue me in civil court rather than haul my ass to jail and prosecute.

Fri, 12/16/2011 - 12:43 | 1987127 Cow
Cow's picture

Ah pleads da FIF

Fri, 12/16/2011 - 12:46 | 1987144 jay28elle
jay28elle's picture

Oh, shucks, there ain't nothing wrong with Fanny or Freddie, right Barney?

Fri, 12/16/2011 - 12:57 | 1987208 digalert
digalert's picture

"entered into non-prosecution agreements" WTF?

Ok, SEC won't prosecute, so that leaves the Justice dept. AG...oh Holder?...nevermind.

Fri, 12/16/2011 - 12:58 | 1987212 Dr. Engali
Dr. Engali's picture

Okay. How about going after Bawney Fwank and his cohorts? All these fuckers need to go to jail.

Fri, 12/16/2011 - 12:59 | 1987218 non_anon
non_anon's picture

ha ha, I just knew that one of the biggest crooks and demoRat, Raines, wasn't amongst them

Fri, 12/16/2011 - 13:02 | 1987220 ebworthen
ebworthen's picture

Get busy boys!

Bring 'em down.

Let's see some perp walks, orange jump suits, and Fannie/Freddie execs scrubbing skidmarked toilets.

The robbed taxpayers demand it!

Clawbacks!  Clawbacks!  Clawbacks!

Let their elitist neighbors see the house up for sale, the kids having to attend the public school, the need to sell the Jaguar and the Range Rover.  Oh the horror!  Yes, the horror.

Fri, 12/16/2011 - 13:01 | 1987228 JR
JR's picture

It’s the principle of follow the money, wherever it leads…oh, wait! It might lead to Goldman and the Federal Reserve and the U.S. Treasury. So let’s stop, instead, and hang a few well-paid underlings and call it a day; no sense tampering with the financial markets at this time. It might destroy the system.

The real story is fraud and Sean Olender, a San Mateo, California, attorney laid it out in the SF Chronicle back on December 9, 2007 in MORTGAGE MELTDOWN… :

(excerpt)

New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.

Now… comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.

But unfortunately, the "freeze" is just another fraud... The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process...

The real story is fraud…The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC…

What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back. The time to look into this is before the shredders have worked their magic - not five years from now…

The government is trying to accomplish wide-scale refinancing by tricking bond investors, or by tricking U.S. taxpayers. Guess who will foot the bill now that the FHA is entering the fray?...

Goldman Sachs is the only major investment bank in the United States that has emerged as yet unscathed from this debacle. The success of its strategy must have resulted from fairly substantial bets against housing, mortgage banking and related industries, which also means that Goldman Sachs saw this coming at the same time they were bundling and selling these loans.

http://hw71.blogspot.com/2007/12/usa-rettungsversuch-fr-notleidende.html

Fri, 12/16/2011 - 13:05 | 1987249 Burgess Shale
Burgess Shale's picture

Civil lawsuits but no criminal prosecution.  Wow.

 

I keep hearing about record gun sales.  My only question is this: why aren't the guns being used?

Fri, 12/16/2011 - 13:10 | 1987261 Flounder
Flounder's picture

Robert S. Khuzami: "You ready to be fucked, man? I see you rolled your way into the semis. Dios mio, man. Liam and me, we're gonna fuck you up"

Daniel H. Mudd: Yeah, well, you know, that's just, like, your opinion, man."

http://dealbook.nytimes.com/2011/12/16/s-e-c-sues-6-former-top-fannie-an...

 

Fri, 12/16/2011 - 13:27 | 1987328 Restcase
Restcase's picture

Civil cases have lower standards of evidence, ergo, higher win rates. Also, SEC cannot prosecute, only sue. SEC gets these cases that DAs feel they cannot win.

Fri, 12/16/2011 - 14:05 | 1987478 DosZap
DosZap's picture

Way past time for this, lets CLAWBACK those millions in salary, and esp the departing Uber million bonus bucks.

Sorry bastards.

Fri, 12/16/2011 - 14:35 | 1987614 Bolweevil
Bolweevil's picture

Will someone please sue The Newt too?

Fri, 12/16/2011 - 15:07 | 1987716 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

and so Newt "the Toot" Grinch is proud to have been a "con-sultan-t"

and taken money for what advice, really what did he have to contribute the scheme???........and he taught Generals strategy, how insulted they must have felt.

Fri, 12/16/2011 - 19:48 | 1987898 Gromit
Gromit's picture

About ******* time.

In August '08 FNMA sold its "T" preferred based on a prospectus which was somewhat economical with the truth at $25 per share and never paid a dividend.

I think that they were mostly sold to financial institutions who are allowed to record them at par for regulatory capital purposes.

Which is interesting because they are trading at 1.34/1.38. Including a few thousand to me today ar $1.37,

 

 

Fri, 12/16/2011 - 19:38 | 1988798 Shizzmoney
Shizzmoney's picture

“He’s (Richard Syron) an outstanding businessman,’’ said Kevin Kiley, chief operating officer of the Massachusetts Bankers Association. “I’m surprised that they have taken the action.”

They really are all clueless shills.  Damn them all.

Sat, 12/17/2011 - 01:26 | 1989478 Cadavre
Cadavre's picture

THAT WAS THE F*CKING PLAN ALL ALONG - WASN'T IT. FANNIE AND FRED DON'T COVER MORTGAGE LOSSES, OR OTHER KINDS OF LOSSES, INCLUDING CIVIL PENALTIES. THAT SHIT BE PAID FOR BY US TAXPAYERS - AND MOSTLY WITH DRAWS FROM THE SOCIAL SECURITY TRUST FUND - WHICH IS WHY THE FEDERALIES DO NOT WANT TO EXTEND PAYROLL TAX CUT - THEY GOT VACATION EXPENSES COMING UP - THEY NEED THE MONEY.

Correct if misstated - but - wasn't it the congress who told FNMA to guarantee the bad loans the the SEC allowed that the mortgage factories, at the invitation of DoT, to sell the fruits of their fraud collars to FANNIE?

We got three government entities: FANNIE, THE SEC AND CONGRESS. One, FANNIE, who was just a following HFA and congressional orders to double up their acceptance of bad loans is now being sued by the SEC.

THE SEC IS NOT SUING FANNIE.  THE SEC IS SUING TAXPAYERS. PERIOD!

Why ain't the taxpayer owned SEC suing the Wall Street Mortgage/ Bond Boiler Shops? At least taxpayers would not have to assume the liability because a taxpayer owned NGE, FANNIE, was instructed by taxpayer empoyees in the taxpayer funded congress to accept the toxic TP that taxpayer funded fannie was told to accept by taxpayer owned DoT!

How very convenient, indeed, that the SEC allowed, and the FED urged the Wall Street Bond Manufacturers, of whom some, like Lehman Sisters, that actively leached themselves into main street as strip mall retail sub prime mortgage kiosks, for the express purpose of selling the pig in a poke paper that included, for example, a mortgage with a 2,200$ coupon to a retiree on disability living on a fixed income of 700$.

This be extortion setup from the git-go-a-go-go sleepy Joe, Curly Larry and Moe - whiles you was polishing your brand new i-Phone or checking the contrast ratios of the big screen bling things you was about to card swipe into your living room - you got your pocket picked lickidy split by a bunch of Wall Street thugs and dumb downed government twit accomplices! Still feeling exceptional?

So - leme see if weze gotz this un fully out the zipper: The taxpayer funded/owned SEC is suing the taxpayer funded/owned FANNIE for possible taxpayer funded civil penalties? That's like a circle jerk with only one guy in the circle - the taxpayer! I be Dwit the dim wit twit if that ain''t it or be a good approximation of this here situation for sure.

Perhaps the Wall Street Legal Industry is experiencing a lull in business because the SEC did not sue Wall Street Rackets and this is a way of providing those poor Lexington Ave barristers with a Salvation Army Christmas bailout from us most appreciative taxpayers? Have a heart - lawyers are (almost) people too! So - if we be reading this right, then, it's seem like it very similar to drawing money from a bank account downtown and then driving 20 miles to re-deposit it back into that very same bank account at another branch in the suburbs.

And me be thinking I be nigh near about to get a handle on the world. Dis one be a keeper and dat be for sure.

In other news, the LHC says it believes it spotted a higgs boson particle chilling in a 1.6 GeV event!

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