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Fannie and Freddie’s Role

Fannie, Freddie Suits Negate Dodd-Frank

By PAUL SPERRY Posted 02/10/2012 06:33 PM ET

New evidence Fannie Mae and Freddie Mac hid their subprime exposure from Wall Street delegitimizes both the diagnosis of the crisis and its prescription — the Dodd-Frank Act.

First the diagnosis.

After the crisis, President Obama joined Senate Majority Leader Harry Reid and then-House Speaker Nancy Pelosi in framing Wall Street while exonerating Washington-based Fannie and Freddie and the affordable-housing charter that has governed the agencies’ mortgage underwriting since the early 1990s.

To officially certify their false narrative, the Democrat troika appointed a commission to “investigate” the root causes of the crisis. The Financial Crisis Inquiry Commission (FCIC) concluded that — surprise! — Fannie and Freddie played only a “marginal” role in the mess.

But recently filed SEC lawsuits against Fannie and Freddie for massive fraud contradict that finding.

They offer a mountain of evidence that the government-sponsored mortgage giants played a leading role in the crisis.

Instead of $600 billion in subprime and other risky mortgages, Fannie and Freddie held or guaranteed $1.6 trillion. That means they failed to disclose a whopping $1 trillion in risk to investors.

The new total is close to the $1.8 trillion estimated by former Fannie chief credit officer Ed Pinto and cited on these pages the past couple of years. The SEC complaints completely discredit the findings of the FCIC, which rejected Pinto’s data and validated the phony numbers.

When at the start of the investigation the evidence fell into FCIC Chairman Phil Angelides’ lap, he “began a concerted effort to suppress it,” according to FCIC Commissioner Peter Wallison. Here’s what happened:

• After Pinto in March 2010 provided commission staff with a 70-page memo containing Pinto’s data, Angelides refused to set up a meeting between the commission and Pinto.

• After Wallison asked that Pinto be given a chance to testify in an open hearing, Angelides declined to let the American public hear his testimony.

• Instead, Angelides in August 2010 circulated a staff memo to all the commissioners challenging Pinto’s data as “flawed,” then refused to give Pinto a chance to respond.

• After Wallison pressed the issue, Angelides tried to discredit the data in the media by having a leftist think tank founded by Angelides’ partner, John Podesta, put out a report smearing Pinto. (The report by the Center for American Progress’ David Min has now been rendered a howlingly bad piece of scholarship.)

• After a fed-up Wallison included Pinto’s research in a 100-page dissent from the FCIC’s majority report last year, Angelides censored it almost in its entirety from the copy of the report he made available for purchase in bookstores.

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