This story is basically an entire MBA in how business and government, and especially how government businesses, operate in the 21st century. From zerohedge.com:
Last month, we discussed a government report which showed that, much to the chagrin of a few billionaires and a long line of retail investors who bought the proverbial dip, Fannie Mae and Freddie Mac may be destined, by design, by decades of reckless behavior, and by Treasury decree, to be insolvent most of the time. Today, we learned that when it comes to accountability for the executives who helped put the companies in a position whereby receivership became necessary in mid-2008, we can forget about it.
In what was billed as a “high profile” case, the SEC had sought financial and other penalties against three former Freddie Mac executives who allegedly “misled” investors in 2006 by understating the amount of subprime exposure the GSE had on its books while it was simultaneously still sucking up and packaging bad loans. If the SEC allegations are indeed accurate, it’s probably safe to say that using the term “understated” to describe the executives’ misrepresentations is, well, an understatement, because it appears they may have lowballed the figure by a factor of 28. Here’s AP:
According to the SEC, Fannie and Freddie misrepresented their exposure to mortgages for borrowers with weak credit in reports, speeches and congressional testimony.
The SEC said Freddie told investors in late 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books — but its actual subprime holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008.
But all’s well that ends in a catastrophic housing market meltdown apparently because as WSJ notes, everyone seems to have gotten a pretty good deal considering their actions may have contributed mightily to the worst financial crisis since The Great Depression:The civil case, filed in 2011, had alleged that three Freddie executives, including former Chief Executive Officer Richard Syron, knowingly misled investors about the volume of risky mortgages the company purchased as the housing boom came to an end. The SEC had sought financial penalties against the executives and an order barring them from serving as officers and directors at other companies.
Instead, the executives agreed for a limited time not to sign certain reports required by chief executives or finance chiefs and to pay a total of $310,000 to a fund meant to compensate defrauded investors.
The breakdown of the fees is as follows: Richard Syron, $250,000; Donald Bisenius, $50,000; Patricia Cook, $10,000. As you can see, Ms. Cook got off pretty easy, but then again, they all did because they don’t actually have to pay the fines:Those amounts will be paid by insurance from Freddie Mac that covered the executives.
And no one had to admit to anything of course:The pact said both sides agreed to the settlement “without conceding the strengths and weaknesses of their respective claims and defenses.”
To continue reading: SEC Reaches “Appropriate Settlement”
