The Federal Housing Finance Agency is expected to sue a dozen major banks — including Bank of America, JPMorgan Chase, Goldman Sachs, and Deutsche Bank — either today or early next week. It would be the biggest and most high-profile effort yet to hold somebody accountable for those months in 2008 and 2009 when the fall of western capitalism was all anyone could talk about. (So much has changed.)
The suits will reportedly accuse the banks of neglecting to perform appropriate due diligence on the mortgage-backed securities they put together and sold to Fannie Mae and Freddie Mac (which the FHFA oversees) at the height of the housing market. Which is to say, they'll allege the banks conveniently forgot to check whether the assets were any good. In the manic bubble of the mid-aughts, the banks figured anything was worth buying as long as they could sell it later. Even if that something was rotted at the core.
Fannie and Freddie suffered $30 billion in losses after the securities tanked as borrowers couldn't make their mortgage payments. Most of that loss was absorbed by you, me, and everyone we know after the government more or less annexed Fannie and Freddie by giving it hundreds of billions in funding.
So, why this suit, and why now? It could be that the feds were simply running out of time. The Times reports that a three-year statute of limitations was set to expire Wednesday, so it was best to do it now rather than never. Until the suit is officially announced, it's tough to know whether the feds actually have a case, or if they rushed the action because of that deadline. Either way, prepare to hear a lot of people on TV say catharsis for the rest of the day.
This post was updated with new information.