FBI Investigation

The Times reports that the FBI is investigating a number of executives from Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

The Times states that are investigating as to whether the executives lied to shareholders, and whether fraud helped caused some of the troubles at these organisation.

The investigation includes whether executives deliberately misled the stock market about the state of their businesses.

Needless to say the politicians who oppose the $700BN Paulson bailout have latched onto this as another reason not to give money to greedy Wall Street bankers.

All well and good.

However, moral hazard and regulation can be addressed after the crisis has been dealt with.

When your neighbour's house catches fire (even if he started it deliberately) you do not stand idly by watching it burn (remonstrating with him about his stupidity), you help him put it out.

Another point that those who hate greedy bankers should remember is this, people were happy enough to borrow the money when it was cheap and to saddle themselves with debt; no one put a gun to their heads.

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Freddie and Fannie Balied Out

President Bush bailed out Freddie Mac and Fannie May yesterday, as he announced that the two mortgage lenders would be taken over by the US government.

Seemingly they were weeks away from collapse.

President George Bush is quoted in The Times as saying that the failure of Freddie or Fannie would have been "unacceptable".

"Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing.

Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."

Henry Paulson, the US Treasury Secretary, said:

"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit.

Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."

This robust and decisive action contrasts with the dithering of the British government last year, when faced with the Northern Rock fiasco.

British banks have invested billions into bonds insured by Freddie and Fannie, had they collapsed the banks would have made significant losses.

We can breath a short sigh of relief, and be thankful that the US government did not shy away from a tough decision or dither over it.

Gordon Brown take note!

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