The White House spent tremendous political capital passing the Dodd-Frank financial-regulation law, and missed no opportunity to demonize Wall Street for its role in the financial crisis. The administration has blamed big banks, rating agencies, and the derivatives market, and the massive bill itself was sold as a way to prevent future crises. But the White House narrative and the bill itself completely ignore the two mortgage giants' role in the financial collapse.
Despite the White House's rhetoric, there have been no high-profile prosecutions of the supposed villains. When suits have been filed, the charges have had little to do with issues covered by Dodd-Frank or even Sarbanes-Oxley, another massive regulatory layer created in 2002.
Instead, it's the same story again and again: fraud. Misleading investors has been illegal for a long, long time. But because fraud at government-sponsored companies like Fannie and Freddie doesn't fit the White House line, unloading the story on a Friday was the logical choice.
The market boom of the 1980s produced archetypal corporate villains such as Ivan Boesky and Michael Milken. Their high-profile trials yielded significant sentences - three years for Boesky and 10 for Milken. Enron's Ken Lay and WorldCom's Bernie Ebbers filled the same role after the tech bust of 2001. Their fall was, in some ways, more spectacular; both were convicted of misstating earnings - acts of fraud that resulted in massive bankruptcies. Even Martha Stewart was sent to jail on obstruction-of-justice charges, with prosecutors arguing that it was necessary "to protect the integrity of the system."
Just scapegoats?
These personalities contrast sharply with mild-mannered Dan Mudd and Richard Syron, the two CEOs charged in the recent SEC complaint. Five years ago, I met with both separately over breakfast in the Senate Dining Room. At the time, both companies were still riding the housing boom.
