18
Mar
11

Time for a little rose-tinted nostalgia

Remember the good ol’ days of, say, 2008?  Back when the TSA was only finger-fucking people with disabilities at airports and we were only fighting two under-funded under-supplied wars in the Middle East?  Back when gas prices were falling, kind of, and a trillion-dollar deficit was seen as a temporary emergency measure that would of course never be repeated because everyone knows we can’t afford to do that shit on a regular basis?

Back when I was posting a bunch of shit about the banking system and mortgage-backed securities?

Let’s try to reclaim some of that magic.

I love that title.  So.  Much.

The Securities and Exchange Commission is moving toward charging former and current Fannie Mae and Freddie Mac executives with violations related to the financial crisis, setting up a clash with the housing regulator that oversees the companies, according to sources familiar with the matter.

The SEC, responsible for enforcing securities laws, is alleging that at least four senior executives failed to provide necessary information to investors about the companies’ mortgage holdings as the U.S. housing market collapsed.

Following the link to the original story (WaPo — mind the dumbworms), we find this gem:

The agency alleged that executives at both companies misled investors about their exposure to dangerous mortgage products, such as subprime loans, sources familiar with the matter said.

[…]

The allegations are slightly different for both the companies. One of the chief allegations against Fannie executives is that it characterized mortgage loans as “prime” — meaning high-quality — when they should have been classified in a more risky category of loans.

Meanwhile, Freddie executives are accused of not fully warning investors about the risks associated with subprime loans.

Bear in mind that all of this happened whilst Fannie and Freddie were quasi-private GSEs, albeit regulated by the Federal Housing Finance Agency.  So we’re not talking about a conspiracy within the government to paper over the credit risks derived from the housing bubble, or collusion with Teh Ebil Bankers of Wall Street to paper over the &c. The timing is, however, a bit suspicious.

Next we find a keynote paper by Steven Schwarcz on systemic risk and financial regulatory reform (Dodd/Frank):

(Hat tip: The Volokh Conspiracy)

If you’re looking for a short, readable, and compelling high-level guide to the credit contagion that turned the housing bust into a full-on global credit crisis — as well as some discussion of what we are and ought to be doing about it, Dr. Schwarcz’s keynote is your huckleberry.  He makes a reasonable case for systemic market risk as a collective-action problem requiring federal regulation — I’m inclined to think that a sufficiently creative insurance market would do better, and recent history suggests it could hardly do worse — but generally focuses on Dodd/Frank’s effects on systemic market stability and efficiency.  I won’t spoil it for you beyond commenting that you can probably guess how things turn out.

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