Opinion | Editorials

Banks alone are not to be blamed

US regulatory authorities and credit rating agencies failed to warn of investment dangers

  • Gulf News
  • Published: 00:00 September 5, 2011
  • Gulf News

The US government is suing 17 banks to recoup $196 billion (Dh719 billion) spent on mortgage-backed securities by Fannie Mae and Freddie Mac, the agencies it used to support the housing market in the country.

The agencies purchased the securities from the biggest banks in the world, which had wrapped up sub-prime loans into the investment products. When the US housing market collapsed, sparking the global financial meltdown, the losses incurred by Fannie Mae and Freddie Mac were so huge they had to be taken over by the government. Now, the Federal Housing Finance Agency wants the courts to rescind the transactions and award damages. It is difficult not to believe the administration is doing little more than trying to ensure that the banks remain the target of popular anger, at a time when the economy remains unable to create jobs and is still under threat of recession.

While the banks seemingly did not make it clear how vulnerable the securities were, as investors, Fannie Mae and Freddie Mac had a responsibility to ensure that they understood the products they were buying. The US regulatory authorities and credit rating agencies also failed to adequately warn of the dangers of the investments. While the banks are by no means innocent, they should not stand alone in the dock.

Gulf News
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