The Times reports that the FBI is investigating a number of executives from Fannie Mae, Freddie Mac, Lehman Brothers and AIG.
The Times states that are investigating as to whether the executives lied to shareholders, and whether fraud helped caused some of the troubles at these organisation.
The investigation includes whether executives deliberately misled the stock market about the state of their businesses.
Needless to say the politicians who oppose the $700BN Paulson bailout have latched onto this as another reason not to give money to greedy Wall Street bankers.
All well and good.
However, moral hazard and regulation can be addressed after the crisis has been dealt with.
When your neighbour's house catches fire (even if he started it deliberately) you do not stand idly by watching it burn (remonstrating with him about his stupidity), you help him put it out.
Another point that those who hate greedy bankers should remember is this, people were happy enough to borrow the money when it was cheap and to saddle themselves with debt; no one put a gun to their heads.
Showing posts with label freddie mac. Show all posts
Showing posts with label freddie mac. Show all posts
Wednesday, September 24, 2008
Monday, September 08, 2008
Freddie and Fannie Balied Out
President Bush bailed out Freddie Mac and Fannie May yesterday, as he announced that the two mortgage lenders would be taken over by the US government.
Seemingly they were weeks away from collapse.
President George Bush is quoted in The Times as saying that the failure of Freddie or Fannie would have been "unacceptable".
"Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing.
Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."
Henry Paulson, the US Treasury Secretary, said:
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit.
Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
This robust and decisive action contrasts with the dithering of the British government last year, when faced with the Northern Rock fiasco.
British banks have invested billions into bonds insured by Freddie and Fannie, had they collapsed the banks would have made significant losses.
We can breath a short sigh of relief, and be thankful that the US government did not shy away from a tough decision or dither over it.
Gordon Brown take note!
Seemingly they were weeks away from collapse.
President George Bush is quoted in The Times as saying that the failure of Freddie or Fannie would have been "unacceptable".
"Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing.
Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."
Henry Paulson, the US Treasury Secretary, said:
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit.
Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
This robust and decisive action contrasts with the dithering of the British government last year, when faced with the Northern Rock fiasco.
British banks have invested billions into bonds insured by Freddie and Fannie, had they collapsed the banks would have made significant losses.
We can breath a short sigh of relief, and be thankful that the US government did not shy away from a tough decision or dither over it.
Gordon Brown take note!
Monday, July 14, 2008
Ruined Reputations
The US, with characteristic speed and vigour, moved to steady the finances of Freddie Mac and Fannie Mae yesterday.
The LA Times reported:
"Acting to prevent a severe disruption of the mortgage market, the federal government stepped in Sunday with plans for a sweeping aid package designed to bolster confidence in battered home-loan giants Fannie Mae and Freddie Mac.
The Bush administration said it would ask Congress to authorize the Treasury Department to lend Fannie and Freddie more money than current limits permit and buy stock in the two companies.
Also Sunday, the Federal Reserve agreed to permit the companies to borrow directly from the central bank, as investment firms were allowed to do after the near-collapse of Bear Stearns Cos. in March. The money would tide Fannie and Freddie over while the administration and Congress rush the emergency measures through."
This action provides an opportunity to reflect on what the British authorities and Bank of England would have done under similar circumstances. To some extent we already know, using Northern Rock as an example, they would have done very little and it would have been too late.
Our monetary authorities have been proven to be asleep at the wheel and, like rabbits frightened in the headlights, frozen with fear when confronted with a serious issue that needs resolute and muscular action.
As I recently noted, leading British banks have met with the Bank of England to ask for more help in stabilising the lending market; the £50BN injection, made earlier this year by the Bank of England, was simply not enough and the actions taken by the Bank and government since then have been too cautious and slow to have any meaningful impact on the confidence of the banks.
However, let me make it clear, whilst the inaction of the monetary authorities has contributed to this crisis the primary blame can be laid at the feet of our "respected" banks.
They willingly chose to buy and sell toxic sub prime debt from the US, in the hope that they could make a fast buck. The sub prime scheme was a classic pyramid selling scam, so long as you could keep selling the debt on without it crystallising the pyramid would keep growing. However, as with all pyramid scams, there is always an end.
Either the directors of our banks were incredibly stupid and did not know/understand what they were buying/selling (what were the risk and compliance departments doing during this period?), or they knowingly participated in the pyramid scam in the full knowledge that at some point it would collapse.
Either way, the reputation of the banks and those who run them has been ruined; it will take many years for the banks to restore their reputations.
The reputations of the British government, monetary authorities, financial services industry, City of London and banks have all been ruined by this scam.
Lessons will need to be learned and senior people removed from office if trust and confidence are ever to be restored.
The LA Times reported:
"Acting to prevent a severe disruption of the mortgage market, the federal government stepped in Sunday with plans for a sweeping aid package designed to bolster confidence in battered home-loan giants Fannie Mae and Freddie Mac.
The Bush administration said it would ask Congress to authorize the Treasury Department to lend Fannie and Freddie more money than current limits permit and buy stock in the two companies.
Also Sunday, the Federal Reserve agreed to permit the companies to borrow directly from the central bank, as investment firms were allowed to do after the near-collapse of Bear Stearns Cos. in March. The money would tide Fannie and Freddie over while the administration and Congress rush the emergency measures through."
This action provides an opportunity to reflect on what the British authorities and Bank of England would have done under similar circumstances. To some extent we already know, using Northern Rock as an example, they would have done very little and it would have been too late.
Our monetary authorities have been proven to be asleep at the wheel and, like rabbits frightened in the headlights, frozen with fear when confronted with a serious issue that needs resolute and muscular action.
As I recently noted, leading British banks have met with the Bank of England to ask for more help in stabilising the lending market; the £50BN injection, made earlier this year by the Bank of England, was simply not enough and the actions taken by the Bank and government since then have been too cautious and slow to have any meaningful impact on the confidence of the banks.
However, let me make it clear, whilst the inaction of the monetary authorities has contributed to this crisis the primary blame can be laid at the feet of our "respected" banks.
They willingly chose to buy and sell toxic sub prime debt from the US, in the hope that they could make a fast buck. The sub prime scheme was a classic pyramid selling scam, so long as you could keep selling the debt on without it crystallising the pyramid would keep growing. However, as with all pyramid scams, there is always an end.
Either the directors of our banks were incredibly stupid and did not know/understand what they were buying/selling (what were the risk and compliance departments doing during this period?), or they knowingly participated in the pyramid scam in the full knowledge that at some point it would collapse.
Either way, the reputation of the banks and those who run them has been ruined; it will take many years for the banks to restore their reputations.
The reputations of the British government, monetary authorities, financial services industry, City of London and banks have all been ruined by this scam.
Lessons will need to be learned and senior people removed from office if trust and confidence are ever to be restored.
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