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Finally, Finally, Finally

Almost 3 years after the financial crisis of 2008, a governmental agency has filed very serious lawsuits against 17 banks, including all the big ones.

It's about time.  

While it is rarely mentioned, many of the millions of fraudulent mortgages created, underwritten, packaged, sold, resold, and securitizied by the banking industry ended up in the portfolios of the government sponsored entities (GSEs) like Fannie Mae and Freddie Mac.  But, the GSEs only purchase mortgages if those banks made specific representations and warranties as to the quality and underwriting of those mortgages.  Given that so many of those mortgages defaulted so fast, those reps and warranties had to be inaccurate and/or false.

If the reps and warranties are false, then the GSEs get to rescind those purchases, which is only right because the purchase was based on the reps and warranties.

There's been lots of disinformation put out by the banks and their allies about why these suits lack merit.  My favorite is that the GSEs were large, sophisticated financial market participants that should have known the markets conditions and/or could have and should have protected themselves.  That's absurd.  That would mean that the reps and warranties were meaningless and, of course, they were not.  Because the reps and warranties were made - with the right of rescission if they were false - the GSEs didn't have to do due diligence or otherwise protect themselves.  The reps and warranties were their protection.  It's a pretty simply concept and every bank that sold mortgages to the GSEs were fully aware that they were assuming the risks of the mortgages they were selling the GSEs.

After all the baseless attempts to blame the financial crisis on the GSEs, these lawsuits should make clear where most of the GSEs losses really came from:  the private banking industry that created, packaged and sold worthless, toxic mortgages to the GSEs, made false and/or fraudulent reps and warranties about the quality of those mortgages, pocketed huge fees, and gave themselves huge bonuses.  

The Federal Housing Finance Agency (FHFA) is the regulator and supervisor  of the GSEs, which were nationalized in the dark days of the financial crisis in 2008.  That means the taxpayers are on the hook for all the losses of the GSEs unless the FHFA prevails in these lawsuits.  

Let's hope the FHFA takes all these cases to a jury.  Let the American people see the evidence of the finance industries conduct in the years leading up to the financial meltdown.  It's long over due.  

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