Another Step in Government’s Continuing Failure in the Financial Crisis

The government has sued 17 financial firms for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

Government Sues Banks over Risky Mortgages

by The Associated Press

September 2, 2011

http://www.npr.org/2011/09/02/140153932/government-sues-banks-over-risky-mortgages

The government says:

·         The securities were sold with registration statements and prospectuses that "contained materially false or misleading statements and omissions."

·         Banks and mortgage lenders also falsely represented that the mortgage loans in the securities complied with underwriting guidelines and standards.

·         They also included representations "that significantly overstated the ability of the borrower to repay their mortgage loans."

All true and all outrageous.  But here’s the thing:

·         The cost to bring these suits was enormous.

·         The cost to pursue these suits through the courts will be time consuming and very expensive for both sides.

·         When the defendants lose, they will pay billions to the government.

But every penny of these costs will be paid for by us and absolutely no behavior will be changed – neither on Wall Street nor in Washington.  We pay government costs through taxes and we pay the banks through fees – no officer, director, bureaucrat or investor will be affected in any way.  We all just pay more – mostly to lawyers – for the same old services.

The real fraud – after the rating agencies – was by the brokers, little specialty banks established for the purpose and home buyers – see, it’s OK to cheat and lie if some guy tells you it’s OK and anyway, it’s wrong to hold any person responsible for their bad decisions.   

All these culprits are either long gone or basically broke.  We only sue folks with money.  Except for a few homeowners, none of these opportunists will suffer even inconvenience.  We have already given the rating agencies a free pass under Dodd/Frank and bailed out the banks with no repercussions for the previously and richly compensated execs.  Congress remains exempt.  So the bureaucracy weighs in by finding a way to achieve nothing beyond a little very expensive grandstanding.

If we want change, individuals must be held accountable.  If we can’t jail a guy, we need to be able to fire them at least.  Folks who get rich doing wrong – or doing nothing – have to be made to give back the money.  The old adage that stupidity is not illegal needs modification and we need to enforce fiduciary responsibility again from corporate officers through the boardroom.

Dodd/Frank is an embarrassment doing little about capitalization and nothing about the rating agencies, securities regulators, Fannie and Freddie or the fiduciary responsibilities of corporate officers and directors.  Its focus was a new $360 million a year agency to “protect” consumers from banks, without eliminating any of the existing agencies that already do that.  You and I could knock the banks in line at the kitchen table in a few months.

Now this lawsuit;  it’s pathetic.