Where were the auditors?

As I watched the economic crisis unfold and then read yesterday that over 100 economists had come out with a united statement about the government bailout I wondered, where were the auditors? This blogger is wondering which big 4 firms will be auditing the failing banks and noting that they were also involved in creating this crisis. But I also wondered if government auditors had been warning about this risk or not.

I did a quick search on the Government Accountability Office (GAO) website and found two reports that are interesting to say the least. In 2000 the GAO issued an audit about the roles of Freddie Mac and Fannie Mae. At that time the GAO said, "Federal sponsorship creates significant risks and costs because taxpayers might end up paying part of that more than $2 trillion debt."

An audit released on March 6, 2008 and titled, HOUSING GOVERNMENT-SPONSORED ENTERPRISES: A Single Regulator Will Better Ensure Safety and Soundness and Mission Achievement, contained these statements. "While the GSEs (government sponsored enterprises) provide certain public benefits, they also pose potential risks." and "While not obligated to do so, the federal government could provide financial assistance to the GSEs, if one or more experienced financial difficulties, that could result in significant costs to taxpayers." The GAO recommended "that Congress establish a single regulator that is equipped with adequate authorities to fully oversee GSE activities and governed by a board or hybrid board structure."

And, in 2007, a report was issued on default and foreclosure trends. That report stated "According to mortgage industry researchers and participants, the number and percentage of loans in default and foreclosure are likely to worsen through the end of 2007 and into 2008, due partly to scheduled payment increases for many ARMs." So the auditors were not silent.