American

George Will makes another interesting point that Prez Johnson sold Fannie Mae into semi-privatization to fund the Vietnam War. Democrats haven't been able to keep their hands off of it since they invented it.

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It's Obama's fault!

obvious Child

That's not fraud on Fannie Mae's side.

It's actually really simple. A pack of mortgages that have been securitized are bought because of the mortgage payments are paid to the holders of these derivatives. If mortgage payments stop, the derivative is worthless. Therefore, those who were buying these should have looked into how good the mortgages were and what the fundamentals of those mortgages. They didn't and bought them with loans.

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"Maybe God doesn't care how you say your prayers, just as long as you say them" - Jeffery Sinclair

JayDickB

I don't think you can pin all of this on any one person.

I say the problem was caused by poor regulation, especially by Alan Greenspan & Co., greed, and the ability to make bad business decisions and pass the associated risk on to someone else. The FED and the SEC both could have stopped this in its tracks early on.

Barney Franks had a role by encouraging bad loans and refusing to address the growing problems at Fannie and Freddie when they were pointed out to him; in fact he insisted there was no problem. But he wasn't the root cause any more than many others who are now having fingers pointed at them.

Over the long term, additional regulation won't help and may hurt if done poorly. Better regulation would help, but that's very difficult to achieve. The best way to prevent this problem in the future is to make the businesses who made bad decisions pay, really really pay. That extends down to the people who originally made the bad loans, some of whom are probably guilty of fraud.

SFLRN

Did I ever specifically say Fannie Mae? It was a point relating to general accounting fraud within the markets that fueled excessive trading based off of false information.
Like I said, investment banks and hedge funds don't make their money like a mutual fund does. It is more relient upon quickly responding to markets. There weren't defaults initially (or they were rather limited). When a bunch of securitized mortgages are bought together it's somewhat hard to evaluate the long-term returns of each. There were certainly gaps in information, and of course if banks are "cooking the books" then it's hard to make a wise decision in the face of faulty numbers.