Politicians want to blame the big banks and Wall Street for our recession and housing crash. They want to bleed the banks and make the big moneymen pay up to government and then distribute these payoffs to the politically connected.
How Fannie Mae and Freddie Mac can claim to have been snookered by subprime-backed MBS (mortgage-backed securities) is hard to swallow. The FHA will likely settle with the big banks for a few hundred million, far short of the $30 billion the government lost on these MBS.
Wall Street were played for suckers by those who sold them packaged MBS, but the packagers had no way of knowing how worthless these bonds were because there was no historical data on the subprime market. Only on prime mortgages.
The suits represent one of the most forceful government legal actions against the banking industry nearly four years after the start of a severe recession and financial crisis brought on in part by the crash of the housing market.
The FHFA had been negotiating separately with the banks to recover losses from mortgage-backed securities purchased by Fannie and Freddie, but decided to get more aggressive.
“Over the last couple of years, they’ve been doing sort of hand-to-hand combat with each of the banks,” said Michael Bar, a University of Michigan law professor who was assistant Treasury secretary for financial institutions in 2009-10. “The suits are an attempt to consolidate those fights over individual loans.”