The New York Times reports. This is not exactly robbing Peter to pay Paul, because the SEC wants to go after the CEO's of Freddie and Fannie personally. The case appears to turn on how the phrase "subprime" is defined in relation to crappy mortgages. It turns out, this is not as easy as it appears. There are some inherent trappings of a subprime loan (no documentation of borrower income, low borrower credit), Yuliya Demyanyk explains that these loans are not so easy to categorize, and their rate of default does not necessarily line up with the housing crash. And, of course, the elephant in the room when discussing the causes of the subprime crash is the lack of regulation of the financial services industry, as Joseph Stiglitz explains.
While the question of who should have disclosed what to whom and when is interesting, especially in the context of Freddie and Fannie, it does not answer the question of what to do now. Freddie and Fannie are hemorrhaging taxpayer money. There is no indication that Freddie and Fannie will ever be in a position to repay the bailout money spent on them, and Fed Chief Tim Geithner wants to see the companies wound down. However this could add an additional $5 trillion in debt to the US Government if it occurs.
There does not appear to be a good solution to this problem, and while everyone will enjoy a public flogging of the individuals ostensible responsible for their failures; that is not a solution.
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