As Bank of America nears a settlement with the department of justice over the toxic mortgages that they sold to Fannie and Freddie in the lead up to the financial crisis, I’d like to try and unweave the latest web of government deception. As with everything to do with Fannie and Freddie we can not simply believe what the government is attempting to feed us. Remember that this settlement is in addition to the settlement they reached with the FHFA last year. In the lawsuits that the FHFA filed against several major banks they made no attempt to calculate how much these faulty mortgages cost Fannie and Freddie. This was to prevent people from making the connection that Fannie and Freddie were not as bad as everyone thought; This should never have been left out. Because of this attempt to deceive coupled with the fact that the big banks have many in DC in their back pockets our government has made sweetheart deals and settled these suits for pennies on the dollar. The total amount of toxic mortgages dumped on Fannie and Freddie between 2005 and 2007 was about 200 billion dollars. These were not known risks this was fraud by the banks, yet Fannie and Freddie were the scapegoats. Judge Jed. S. Rakoff called this scheme a “brazen fraud.” A brazen fraud is exactly what it was.
As we attempt to formulate a true and accurate picture of Fannie and Freddies financial issues, we are discovering that the toxic mortgages are only one piece of the puzzle. Shortly after they were put into conservatorship in 2008 they were ordered to buy additional toxic MBS from the banks. This was billions of dollars worth of toxic mortgages in addition to the 200 billion between 2005-2007. There was also the accounting hijinks where Fannie and Freddie were forced to show about 60 billion in paper losses early in the conservatorship only to reverse them a few years later.
So folks let’s review the situation again with a little truth on our side. Fannie and Freddie needed to borrow 132 billion from the government. 55 billion of the 187 billion was borrowed only to pay it directly back in the form of the 10% cash dividend that the government demanded. The 132 billion becomes 72 billion if we adjust for the 60 billion accounting hi-jinx. The 72 billion would likely be zeroed out if it were not for the approximately 267 billion in toxic MBS that were dumped on them.
The fact of the matter is that if the rule of law was followed Fannie and Freddie had been allowed to pay the government back and begin rebuilding adequate capital reserves our housing market would be far more stable. Our government chose instead to enact the Soviet style profit grab in 2012 and engage in an unprecedented attempt to deceive the American people. The ramifications of this are massive, they have put our fragile economic recovery at risk. They have imperiled the very people they have sworn to protect.
Let me be perfectly clear here, I know I am not the only one who is seeing the puzzle coming together. It would sure be nice to see a few more articles that point out some of these simple facts. Keep the faith!