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Mortgage Giants Under Investigation; Lawmakers Consider $700 Billion Bailout

By 316Networks.com

Published: September 24, 2008

On Tuesday, two law enforcement officials confirmed reports that the FBI is investigating four major U.S. financial institutions whose recent collapse have triggered the Bush Administration to create a $700 billion dollar bailout plan.

President Bush and Treasury Secretary Henry Paulson

The four mortgage finance giants are Fannie Mae and Freddie Mac, insurer American International Group Inc., and according to one senior law enforcement official, Lehman Brothers Holdings Inc. is also under investigation.

Federal Reserve Chairman Ben Bernanke, and Treasury Secretary Henry Paulson, both testified on Capitol Hill on Tuesday before the Senate Banking Committee hearing on the recent credit market turmoil.

On last week, FBI Director Robert Mueller raised the number of large financial firms under investigation at 24. Mueller did not name any of the companies under investigation but said the FBI also was looking at whether any of them have misrepresented their assets.

This year's housing market crisis has caused the FBI to open a wide-ranging probe of companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors. The FBI's hunt for culprits, according to Mueller, focuses in on accounting fraud, insider trading, and failure to disclose the value of mortgage-related securities and other investments.

These investigations come just as lawmakers began considering whether to approve emergency legislation, a move that would give the government broad power to buy up devalued assets from troubled financial firms.

The bailout proposed by the Bush administration is aimed at helping unlock credit and to stabilize the U.S. economic markets that have sent shockwaves throughout the globe.

In the past two weeks, the government has already taken over bothFannie Mae and Freddie Mac, the country's two biggest mortgage companies, with a bailout plan that could require the Treasury Department to put up as much as $100 billion for each of them. And just a few days later, the Federal Reserve also approved an emergency $85 billion loan to AIG, which teetered on the brink of bankruptcy.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have both admitted that the only way to stop the ongoing financial crisis is to deal with 'the root cause of all the problems.' They attribue the crisis to billions of dollars of bad mortgage debt sitting on the books of major financial companies.

The FBI is now extending its investigation into failed bank IndyMac Bancorp Inc. for possible fraud, as well as Countrywide Financial Corp., formerly the nation's largest mortgage lender which is now owned by Bank of America Corp.

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