Campaign against Banks: U.S. Files Suit against Consequences of Its Own Policy

Washington apparently wants compensation from banks. They were the ones that put Fannie Mae and Freddie Mac over a barrel; indeed, buying junk credit belonged to the business model of both of the semi-governmental institutions.

Four years after the onset of the financial crisis, the government of the United States apparently plans a big clean up: According to information in the New York Times, the regulatory agency, FHFA (Federal Housing Financing Association), has prepared a wave of lawsuits against the major banks. The complaint: The prime lenders of Wall Street palmed off junk to the semi-governmental mortgage lenders, Fannie Mae and Freddie Mac.

That many of the mortgage securities purchased by Fannie and Freddie turned out to be junk is indisputable.

Fannie and Freddie must put up with the question of why they were taken in. Because the fact that Americans with little in their wallet received generous loans during the real estate boom had to have been known by these two institutions. After all, they were created precisely for the purpose of making it possible for those U.S. citizens, who would not have been able to receive bank credit in a purely private market, to acquire their own homes

Fannie Mae and Freddie Mac were organized under private law until the crisis, but benefited from a government guarantee — therefore, they were designated as Government-Sponsored Enterprises (GSE). This made it possible for them to buy large quantities of documented homeowner credit and, thereby, promote the awarding of further loans. The GSEs fueled the bubble to which they ultimately fell victim.

That a system invites abuse naturally doesn’t justify the abuse. Insomuch as sloppiness on the part of the banks in the credit assessment of borrowers can be substantiated, they should have to pay for it. But, at first glance, the suspicion arises that one wrongdoer is trying to lay the blame at the other’s door.

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About Sandra Alexander 451 Articles
I have retired after 33 years teaching German at a high school in suburban Philadelphia and am now teaching undergraduate German courses at a small, private college in Philadelphia. I have an M.A. in German and keep my German language skills current by translating. I hope to someday translate novels from German into English or maybe even write my own novel.

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