Fannie Mae and Freddie Mac taken to account...a bit late!

        It’s a bit late, but according to news reports six former top Fannie Mae and Freddie Mac executives will have to respond to the U.S. Securities and Exchange Commission for misleading statements about their subprime loans and mortgages. The legal action might well indicate whether the beguiling subterfuges of the mega corporations was more than just tinkering with data or whether it was intentional manipulation of the market for self benefit. Speculative activities of this sort practiced by numerous gigantic corporations triggered the financial and economic crisis now affecting most of the world’s economies.

     Behind the legal jargon the case will certainly reveal essential information on how the predominant neo-liberal mentality has down-graded controls and allowed corporate power excessive freedom of action for the manipulation of the market; as a result of this capitalistic power struggle those who have had nothing to do with the marketeering at the top are being asked to tighten their belts to “solve” the economic crisis: employees, government workers, retired persons and job seekers.

      “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” according to a statement by Robert Khuzami, the head of enforcement for the S.E.C. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”

     The action of  S.E.C. against the executives hinges  heavily on whether the two mortgage companies underreported or misled investors concerning their ownership of subprime loans and mortgages that required few documents from borrowers in the years leading up to and including the bursting of the housing bubble.

    The complaint alleges, among other charges, that Fannie Mae executives described subprime loans as those made to individuals “with weaker credit histories” while only reporting one-tenth of the loans that met that criteria in 2007. The S.E.C. complaint contends that Freddie Mac executives falsely proclaimed that certain businesses had virtually no exposure to ultra-risky loans.

    It was precisely the S.E.C., which was maligned for failing to detect the crisis or punish its culprits. The agency has filed 38 separate actions in related financial cases.

     Curiously enough, in view of the predominant ultra-liberal mentality at the time, Fannie Mae and Freddie Mac were created by Congress to facilitate homeownership. They are not allowed to loan money to borrowers themselves, but buy mortgages from lenders and resell them in packages to investors, allowing banks and others to issue more loans.

     Suspicious practices appeared around 2005, when the two companies began an aggressive push to expand their mandate to include less-fortunate borrowers, who were typically excluded, an effort encouraged by lawmakers and lenders. The companies were also looking to reclaim business from Wall Street, which was thriving in the world of subprime mortgages.

    By the middle of 2008, as the housing market was sinking, exposure to subprime and other weak borrowers threatened the two companies. The Bush administration stepped in to rescue the two mortgage giants in September 2008, taking control of them in the process. Since then, the government has loaned the Fannie Mae and Freddie Mac more than $100 billion, according to the New York Times.

     One well known result of the financial crisis that has been growing in complexity ever since has been the massive intervention of governments and central banks: printing money, and handing millions to giant financial groups and corporations to prevent their bankruptcy.

     Not strange that many of the world’s leading banks have reported record profits. However, those who are asked to foot the bill are workers, employees, retired people, job seekers and youths.