GSEs: See the Real Sins, Not the Imaginary Ones

Joe Nocera’s latest in the NYT, An Inconvenient Truth, is an interesting look at the SEC case versus those six GSE execs.

Note that Nocera has been dead right about Fannie & Freddie, The GSEs were bad enough, had engaged in enough accounting fraud, lobbying excesses, regulatory capture, all with vastly inadequate capital for their bizarre hybrid model — that critics don’t have to make stuff up. The reality is ugly enough:

“Eventually, their quest for profits led them to make a belated, disastrous foray into subprime mortgages, which ended with their collapse, and which has cost taxpayers about $150 billion. Tragically, Fannie and Freddie could have led a housing recovery — if they hadn’t become crippled wards of the state instead.

Yet these real sins have been largely overlooked in favor of imagined ones. Over at the conservative American Enterprise Institute, two resident scholars, Peter Wallison and Edward Pinto, have concocted what has since become a Republican meme: namely, that Fannie Mae and Freddie Mac were ground zero for the entire crisis, leading the private sector off the cliff with their affordable housing mandates and massive subprime holdings.

The truth is the opposite: Fannie and Freddie got into subprime mortgages, with great trepidation, only in 2005 and 2006, and only because they were losing so much market share to Wall Street. The reality is that Fannie and Freddie followed the private sector off the cliff instead of the other way around.”

Next, we get to the SEC’s case against the GSE execs. I hope they are solid cases, and we begin to get some real convictions versus the banking execs who were so reckless and dangerous.

However, Nocera fears that the SEC used a rather expansive definition of SubPrime in the claim against Fannie and Freddie’s CEOs and others. The SEC may even have pulled a page straight from GSE crazies Peter Wallison and Edward Pinto. If that is the case — and I am not yet convinced it is — the SEC claims will be weaker than originally believed.

I hope Nocera is wrong . . . but I would not want to bet against him.


An Inconvenient Truth
Joe Nocera
NYT, December 19, 2011

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