Posted on 09/02/2011 2:44:17 PM PDT by Qbert
Professor Eliot Spoon discusses whether the government can win its lawsuits against the nation's banks over the quality of mortgages they sold during the housing boom, and unintended consequences that could occur.
JEREMY HOBSON: The federal government is on the verge of filing lawsuits against the nation's biggest banks. The New York Times reports this morning that the suits will accuse the banks of selling bad mortgages during the housing boom and saying they were top quality. The government mortgage companies Fannie Mae and Freddie Mac suffered losses of more than $30 billion. For more on this, let's bring in Eliot Spoon. He teaches mortgage finance at the Michigan State University Law School. He's with us from East Lansing. Good morning.
ELIOT SPOON: Good morning.
HOBSON: Do you think that this is a winning argument for the federal government?
SPOON: I think this it is a good argument for the federal government, but it is not a slam-dunk lawsuit that they can win. There are a number of obstacles that lay before them.
HOBSON: What do you think the banks are going to say?
SPOON: I think the banks are going to say 'number one, we didn't make any material misstatements. Two, that we didn't know about the misstatements because they came from the mortgage originators. And three, Fannie Mae and Freddie Mac, you're big sophisticated investors, you know this business better than we do. You have to rely on your own expertise when making these kinds of investments.'
HOBSON: Is this really about recouping losses or is this about assigning blame for the mortgage mess that led us into this recession?
SPOON: I think it's about both. I think that any time one of these lawsuits are brought, one party's essentially trying to say 'I was innocent, I was just acting in the ordinary course of business.' So in that sense it's about one party saying I'm not to blame and the other party is. But it also -- as a necessary consequence -- has to allocate the losses. In this case, Fannie Mae and Freddie Mac have already been supported by the taxpayer, upwards of $150 billion, so if they win this suit, it will soften the blow for the
HOBSON: If the federal government wins this case down the road -- however long it takes -- and the banks have to cough up another $30 billion, doesn't that then put the financial system in a weakened position and therefore weaken the entire economy?
SPOON: I think there's something to that. I think that one of the unintended consequences is that if these kinds of suits prevail -- Fannie Mae and Freddie Mac are not the only parties that are bringing these types of suits against the banks -- in this case it might help the taxpayer in the short run by lessening the amount we have to fund Fannie Mae and Freddie Mac, but if it ultimately weakens seriously major banks, taxpayers are going to have to give the money right back.
HOBSON: Eliot Spoon teaches mortgage finance at Michigan State University Law School. Thanks so much for joining us.
SPOON: My pleasure.
Yes. Why else would this administration do it?
I think they’re trying to distract people from Obama’s failures by going after the banks. The administration will blame them for the miserable economy (and the case probably won’t even be settled before the 2012 elections anyway, so the actual result at this point is moot to them- it’s all about the rhetoric).
Of course, the unintended consequence of this will be that the economy gets worse as the banks get beat up, and the underlying problems of Fannie-Freddie (and everything else) never get addressed. Idiots.
Putting frauds behind bars is always good for the economy.
The federal government is suing the banks for selling freddie and fannie misrepresented securities. Is this going to cost the banks anything? I think not. Were the banks forced to make bad loans? To an extent ,yes. Did the rating companies have to commit fraud rating these tranches? No. Could this suit diminish salaries and bonus’? No. If the banks could exert enough influence to be recapitalized to the tune of many trillions, could they have also declined those loans? Of course. Could this have been all planned? I do not know but the banks and the managers therein have more control (money) than ever.
Just to be clear, is the government doing the suing is the same government that has legislated, cajoled, threatened, and twisted arms to make the banks extend loans to marginally, if at all, qualified borrowers ever since the CRA of 1977? I think it may be.
Sure - the same way Ken Starr’s investigation of Bill Clinton weakened the Presidency.
Need more money, http://m.nypost.com/p/blogs/capitol/after_billion_fannie_and_freddie_Pn1V98PFoVtIOSwvGGSqiJ
All true, no one forced the banks to make interest only mortgages and balloon seconds and all the other BS that happened.
It seems a pointless Kabuki dance about a time when the industry was heavily in flux due to governmental pressure. A saner administration would seek to make reforms, not play pointless games to try to get the legal and media pundits du jour to declare that the kettle is blacker than the pot.
At most favorable to the government, it looks like the government is trying to say “you banks gave an overly rosy report about the situation we were pushing you into.” It’s like the girl who shot her mother and father, then pleaded that the court should have mercy upon her as an orphan.
As if no blame attaches to Fannie and Freddie, and to government policies that seemed to put the full-faith and credit of the US Treasury behind these two private agencies. The irony is that when the state of Georgia realized that lenders were bilking the poor who were supposed to benefit from easy loans, Frannie and Freddie were among those lobbying to strangle that law. The heads of the two agencies, such as Johnson and Raines, made out like Bandits, along the ratings agencies and the banks. No one is talking about making them cough up their money, or goinr to jail. We won’t mention certified crooks like ChrisDoDD.
Can we just agree that all these bastards are guilty and stop arguing which of these whores is the most virgin.
The timing of the S&P investigation and now the bank lawsuits tells me S&P may have received some false info from the banks.
Concerning the bundled mortgages sold to Europe, of course.
What is this kind of suit going to do to those of us with legitimate mortgages with these companies? That’s what I want to know.
We’re not underwater, and although we had gotten behind because of my husband being out of work for nearly 3 years, but we’ve gotten that all straightened out without going the government bailout route and are now back where we are supposed to be, without our home worth more than what we owe on it.
Nothing at all.
Thanks. That’s been my big concern with all of this going on.
We weren’t stupid. We didn’t buy more than we could afford and put down 15%. Then all the mortgage buying started and now we’re with BoA.
Well, all this is a gunfight in a cat house. To put it another way, this is like the politics of the Gilded Age, when—as Henry Adams put it—no one in banking,. industry or politcs. escaped with his reputation intact.Socialists once haughtily spoke of capitalism as a mad scramble. Until they got their time in power and started killing people en masse. The same human nature controls us all. That is always too much of a good thing. A scientist studying chimps in a jungle one tried an experiment: he set out a huge bunch of bananas in a clearing near group of chimps. Animals which peacefully gleened the normal food sources went literally “ape” over the superabundant fruit. We seem to be the same.
Andrew Cuomo: CRA Should be Abused to Force Banks to Give Risky Loans
http://www.youtube.com/watch?v=PFlYmLAMbrw
So what impact might this type of video/transcript have if numerous statements by Govt types like this exist?
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