F & F Lied; our Economy Almost Died

So much for the president's oft-stated line that Wall Street is to blame. "New evidence Fannie Mae and Freddie Mac hid their subprime exposure from Wall Street," writes Paul Sperry, and the evidence "delegitimizes both the diagnosis of the crisis and its prescription—the Dodd-Frank Act."

The Obama Administration claims Fannie Mae and Freddie Mac (F&F) played only a 'marginal' role in the nation's financial meltdown and blames Wall Street "greed" and "predatory" Wall Street bankers instead. To fix the problem, the Democrat-controlled House and Senate passed—and the president signed—the Dodd-Frank Act with harsh new regulations on the banking industry.

New evidence in recently filed SEC lawsuits against F&F for massive fraud reveals a very different story:

• F&F held/guaranteed $1.6 Trillion in subprime risky mortgages, but only reported $600 Billion of it, hiding $1 Trillion of their liabilities from Wall Street investors, rating agencies, risk managers and analysts.
• F&F caused Wall Street to underestimate the risks of continuing to acquire, hold and distribute mortgages and mortgage-backed securities
• According to the SEC's court filing, Fannie officials "created the false perception that Fannie Mae's participation in high credit risk loans ... was small and contained, and reinforced this false and misleading impression, telling investors that Fannie Mae was in the prime—not subprime—market with a different, higher set of standards and underwriting."

"If the crisis diagnosis is wrong, then the prescription--Obama's regulatory government takeover of the financial industry--must also be wrong," concludes Sperry.  "And if in fact government-controlled agencies caused the crisis, the answer is less government; and freer markets."