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How Historic Are the SEC’s Lawsuits Against Top Fannie May and Freddie Mac Executives?

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by Publius
Posted December 21, 2011, 7:29 PM

Writing in the Wall Street Journal, Peter Wallison argues for the historic significance of the SEC's lawsuits against Fannie Mae and Freddie Mac executive:

The Securities and Exchange Commission's lawsuits against six top executives of Fannie Mae and Freddie Mac, announced last week, are a seminal event.

For the first time in a government report, the complaint has made it clear that the two government-sponsored enterprises (GSEs) played a major role in creating the demand for low-quality mortgages before the 2008 financial crisis. More importantly, the SEC is saying that Fannie and Freddie--the largest buyers and securitizers of subprime and other low-quality mortgages—hid the size of their purchases from the market. Through these alleged acts of securities fraud, they did not just mislead investors; they deprived analysts, risk managers, rating agencies and even financial regulators of vital data about market risks that could have prevented the crisis.

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