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January 12, 2010

Believe It Or Not, Freddie/Fannie Scandal Worse Than You Thought: It's Fraud on a Massive Scale

Oh my:

It's bad enough that Fan and Fred lowered the loan approval thresholds. [Former Freddie Mac Chief Credit Officer Edward] Pinto's point is that for 15 years, they doubled down by "routinely" misclassifying approved loans, effectively telling the capital markets and the public that these loans weren't as risky as they really were. Because of this, securities backed by these mortgages carried lower interest rates than they would have if the risks had been properly disclosed. Some of the offerings should probably never have been issued or should have been given junk bond pricing. Further, misrepresented loans Fan and Fred kept on their books enabled the two entities to continually make false claims of financial health.

Powerline blog comments:

. It seems that Fannie Mae and Freddie Mac--the U.S. government, in effect--"routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A...." The much-reviled Wall Street bankers relied on those representations by agents of the federal government when they bought and sold securities backed by those misrepresented mortgages.

Qualitatively, this is not quite as bad as Bernie Madoff's Ponzi scheme, but it is worse than anything Enron did. Quantitatively, it caused financial devastation compared to which Enron and Madoff are barely grains of sand in the ocean. So, wouldn't one expect our reporters to show a little curiosity? Silly question, perhaps: mainstream reporters don't like where that trail leads. Also, to be fair, most of them are not smart enough to understand it.

Forgive me for just linking without any commentary, but really, what the hell more is there to say?

These rotten bastards built the bomb, they detonated, they stuck us with the massive clean-up costs, and they're building an even bigger bomb right now.


Thanks to ArthurK.


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posted by Ace at 12:14 PM

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