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[Buddy Kidd]

Fannie, Freddie Suits Negate Dodd-Frank

By PAUL SPERRY

New evidence Fannie Mae and Freddie Mac hid their subprime exposure from Wall Street delegitimizes both the diagnosis of the crisis and its prescription — the Dodd-Frank Act.

First the diagnosis.

After the crisis, President Obama joined Senate Majority Leader Harry Reid and then-House Speaker Nancy Pelosi in framing Wall Street while exonerating Washington-based Fannie and Freddie and the affordable-housing charter that has governed the agencies' mortgage underwriting since the early 1990s.

To officially certify their false narrative, the Democrat troika appointed a commission to "investigate" the root causes of the crisis. The Financial Crisis Inquiry Commission (FCIC) concluded that — surprise! — Fannie and Freddie played only a "marginal" role in the mess.

But recently filed SEC lawsuits against Fannie and Freddie for massive fraud contradict that finding.
They offer a mountain of evidence that the government-sponsored mortgage giants played a leading role in the crisis.
Instead of $600 billion in subprime and other risky mortgages, Fannie and Freddie held or guaranteed $1.6 trillion. That means they failed to disclose a whopping $1 trillion in risk to investors.

The new total is close to the $1.8 trillion estimated by former Fannie chief credit officer Ed Pinto and cited on these pages the past couple of years. The SEC complaints completely discredit the findings of the FCIC, which rejected Pinto's data and validated the phony numbers.

When at the start of the investigation the evidence fell into FCIC Chairman Phil Angelides' lap, he "began a concerted effort to suppress it," according to FCIC Commissioner Peter Wallison. Here's what happened:

• After Pinto in March 2010 provided commission staff with a 70-page memo containing Pinto's data, Angelides refused to set up a meeting between the commission and Pinto.

• After Wallison asked that Pinto be given a chance to testify in an open hearing, Angelides declined to let the American public hear his testimony.

• Instead, Angelides in August 2010 circulated a staff memo to all the commissioners challenging Pinto's data as "flawed," then refused to give Pinto a chance to respond.

• After Wallison pressed the issue, Angelides tried to discredit the data in the media by having a leftist think tank founded by Angelides' partner, John Podesta, put out a report smearing Pinto. (The report by the Center for American Progress' David Min has now been rendered a howlingly bad piece of scholarship.)

• After a fed-up Wallison included Pinto's research in a 100-page dissent from the FCIC's majority report last year, Angelides censored it almost in its entirety from the copy of the report he made available for purchase in bookstores.

"The facts in the SEC's complaints make clear that the numbers I used in my dissent were correct," Wallison said. "And as I said in the dissent, Fannie and Freddie failed to disclose they were buying huge numbers of subprime and other high-risk loans."

The federally chartered agencies misled not only Wall Street investors, but also rating agencies, risk managers and analysts.
Which brings us to Dodd-Frank, the prescription for the financial crisis.

The financial overhaul is predicated on the notion that "greedy," "predatory" Wall Street bankers recklessly pushed subprime and other risky loans and investments on unsuspecting pensioners and borrowers. So they need to be brought to heel by the government through tougher regulations.

But the SEC complaints suggest that Fannie and Freddie — which dominated the mortgage and mortgage-backed securities markets — caused Wall Street to underestimate the risks of continuing to acquire, hold and distribute mortgages and mortgage-backed securities.

Fannie officials, for instance, "created the false perception that Fannie Mae's participation in high credit risk loans such as Alt-A and subprime was small and contained, and reinforced this false and misleading impression, telling investors that Fannie Mae was in the prime — not the subprime — market with a different, higher set of standards and underwriting," the SEC's court filing says.

From SEC data revising Fannie's and Freddie's holdings, we can extrapolate that a whopping 74% of the 28 million subprime and other risky loans outstanding before the crisis were on the books of federal government agencies and firms subject to government housing policies and regulations.

These revelations nullify the legal arguments for the most sweeping banking changes since New Deal. They make Dodd-Frank — which punishes Wall Street while punting on Fannie and Freddie — illegitimate and unnecessary.

This is not a moot point. As former Reagan White House official Peter Ferrara said, "This is not a matter of historical interest. It will be central to the debate throughout the 2012 election cycle."

Every Republican lawmaker in the 111th Congress voted against Dodd-Frank. And Mitt Romney and other GOP presidential contenders have vowed to repeal the law.

If the crisis diagnosis is wrong, then the prescription — Obama's regulatory government takeover of the financial industry — must also be wrong.

And if in fact government-controlled agencies caused the crisis, the answer is less government; and freer markets.

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[wing]

It's too damned bad they don't GENUINELY negate those two clowns.

[Buddy Kidd]

YUP

[Lead Dog]

OOOOOH Yeah!!