No surprise here:

“Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.

The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating . . .

Although the figures are not broken down by case, the largest costs are being generated by a lawsuit centering on accounting improprieties that erupted at Fannie Mae in 2004. This suit, a shareholder class action brought by the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio, is being heard in federal court in Washington. Although it has been going on for six years, the judge has not yet set a trial date. Depositions are still being taken in the case, suggesting that it has much further to go with many more fees to be paid.”

A corrupt, mismanaged firm with an implied government guarantee — how could that ever go wrong?



Mortgage Giants Leave Legal Bills to the Taxpayers
NYT, January 24, 2011

Category: Bailouts, Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “GSEs Huge Taxpayer Funded Legal Bills”

  1. Super-Anon says:

    The fact that people aren’t “in the streets” yelling and screaming about this kind of thing tells me that the US population can and will have all their wealth pilfered before they do anything about it.

    It’s like the first time I stole 5 dollars from my dad’s wallet and he didn’t do anything about it.

    He’s bankrupt and I’m rich now.

  2. louis says:

    And some people have moral problems because they wont honor their obligations.

  3. budhak0n says:

    Just another reason why we need to put all the silly backbiting behind us. Certain “legal” arguments aren’t worth making even if you are in the right in terms of the intellectually correct analysis of the situation.

    At times, it’s better to move on with what you have rather than rehashing stuff that’s simply past history.

    I’ve been trying to get this point across to folks for well over a year.

  4. carleric says:

    Just more reasons to disband, dismantle, and totally destroy both GSEs. I know Barney Frank might cry but who cares? Let him find other campaign financing and I am sure that Chris Dodd stole enough that he really doesn’t need the money. Not that they share total responsbility for the mess but Raines and Frank seemed abnormally close.

  5. AHodge says:

    they the biggest non federal govt deep pocket ever, by a factor of at least 10
    this is a peanuts part of it except for the buying the courts part, $160 million buys a lot of “justice” or at least immunity.

  6. Dow says:

    $160 million is equal to the annual budget of the National Endowment for the Arts – which the new majority in Congress wants to eliminate.

  7. maddog2020 says:

    Gov’t stimulus for the legal industry! Unless the law firms offshored that work to India.

  8. Rescission says:

    Why are we focusing on this? This isn’t the real story. Let’s talk about the unlimited backstop the taxpayers are now funding for all the bad loans the GSE’s are guaranteeing.
    Per BR on June 14, 2010:
    “My estimates are for about half of that — between $450-500 billion dollars. But with just the right — or wrong — economic policies, bailouts and bad decisions, I wouldn’t rule out a trillion dollar loss. And if we keep allowing banks to dump all of their bad loans onto the GSE’s books, I would raise my odds of a trillion dollars in losses from 25% to 100% . . .”
    Well, I haven’t seen any policy changes in the last six months, so can we now say 100%?

  9. MeanReverter says:

    And don’t forget that Fannie’s fraud was larger than WCOM’s. Bernie Ebbers sits in jail and Franklin Raines was never charged.

  10. willid3 says:

    well we could make it so CEO’s have to pay their own legal fees? and replace F&F with what? the private label version (mortgage backed securities??? any one????) are so toxic now that no investor (that doesn’t have amnesia or dementia will touch them

  11. DeDude says:

    As it is we have problems with CEO’s that are to willing to gamble. If you don’t offer the CEO a contract that covers legal costs, only those who are both gamblers and also retarded will apply. I would not feel confident with CEO’s that have an IQ of 68. So yes this is just part of the cost of doing business, and microscopic compared to the cost of actual legal mistakes made by CEO’s who were not quite smart enough for the job.

  12. cognos says:

    So there are some stupid statements here.

    Fannie and Freddie are big businesses with significant complex legal aspects. $160 million is TRIVIAL.

    Then some idiot above quotes “$1T loss possible”. This is idiotic. It likely won’t be 1/10th that.

    Just makes no sense. The portfolio is showing about 4% annual defaults but then earns CARRY which offsets this and the companies had near $100b in equity, AND loss reserves.

    Reasonably expected taxpayer losses look like $10B to $100b (extreme high end).

    These were GOVT entities. This IS a problem of congress’ creation. NO reason this is not a fair bill to pay.

    (PS – congress wastes at least $10b every single month. Kinda puts the “Fannie Freddie” problem in a diff light?)

  13. …..Losses on Fannie Mae and Freddie Mac Assets

    The accounting rule change will also allow the Fed to hide losses on MBS garbage on its balance sheet. Those toxic assets have a much longer duration. Can the Fed get rid of them for no losses?

    The answer is yes, but it has nothing to do with accounting rule changes. The damage was done in late 2009 by Congress.

    Timothy Geithner Meets Vladimir Lenin

    Please consider John Hussman’s January 4, 2010 article Timothy Geithner Meets Vladimir Lenin
    “The best way to destroy the capitalist system is to debauch the currency.”

    Vladimir Lenin, leader of the 1917 Russian Revolution

    Last week, while Congress and the nation were preoccupied with the holidays, the Treasury made a Christmas eve announcement that it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years.

    Put simply, in a single, coordinated stroke, the Treasury and the Federal Reserve have encroached on spending powers that are enumerated for the Congress alone. Under the Housing and Economic Recovery Act of 2008 (HERA), the Treasury has no such open-ended authority. Indeed, the applicable portion of the Act explicitly limits the total amount of mortgage principal (not losses, but total principal) as follows:

    “LIMITATION ON AGGREGATE INSURANCE AUTHORITY.—The aggregate original principal obligation of all mortgages insured under this section may not exceed $300,000,000,000.”

    That’s $300 billion of original principal. If there is some loophole by which the Treasury’s action is legal, it’s clear that it was no part of Congressional intent, and certainly not broad public support. Taxpayers are now being obligated by the Treasury and the Fed to make good on a potentially much larger volume of bad mortgage loans, made by reckless lenders, guaranteed by Fannie Mae and Freddie Mac in return for a pittance (called a “G-fee”), and packaged into securities which are now largely owned by the Federal Reserve, which has acquired them through outright purchases (not traditional repurchase agreements)….”

  14. Francois says:

    As long as the support provided to the big banks with Freddie and Fannie as backdoor bailout engines, the illusion of a viable financial system will be maintained, ergo, the elite classes will be able to keep their power intact.

    It should go without saying that said elites shall do whatever it takes to make sure it stays that way. 160 millions to prevent loyal servants to spill the whole bag of beans is truly a small price to pay.

    BTW, justice is getting mightily expensive in this country, no? Guess it is why our government can act with almost total impunity against those who are not rich.

    If anyone think the last sentence is pure melodrama, just put With Liberty And Justice For Some on your Amazon wish list. I assure you this is the kind of reading that will prove very educative in that respect.

  15. Moss says:

    The whole industry is corrupt and mismanaged. Look at the legal fees that BOA has incurred over the last quarter. Who do u think is paying for that. TPTB have made a complete mockery of our purported democracy. Justice is bought and paid for just like regulators, politicians and the SCOTUS.

  16. Defining Quality says:

    Money = Power … Period…! A truth and obvious fact throughout all recorded history!
    In America we are free to be lied to, brainwashed, manipulated and stolen from and then forced to support this Government Sponsored corruption.
    Corruption is always paid for by the ignorant cowardly masses, manipulated into believe that their government is special. When in fact all governments only truly care about one thing, who gets to keep all the money. Our government is run by Billionaires and wannabes with their never ending greed and thirst for it all. The end is clearly in sight, the price to the consumer will be great!
    Of the rich – by the rich – for the rich – they will not be denied – and they refuse to pay to fix it!
    America – land of the free… to be stolen from… and home of the brave… too afraid to know when to stand up for themselves and end greed!