How to Send an Email to President Obama

Contact the White House
President Obama is committed to creating the most open and accessible administration in American history. To send questions, comments, concerns, or well-wishes to the President or his staff, please use the form at
http://www.whitehouse.gov/CONTACT/

Fannie Mae Lawsuit (from WSJ)

OCTOBER 18, 2008 Fannie Suit Vexes Regulator, May Pay Shareholders
By APARAJITA SAHA-BUBNAArticle
Comments
more in Politics & Campaign »NEW YORK -- Fannie Mae shareholders, battered by the federal takeover of the mortgage finance giant, may yet have checks coming their way.
A class-action lawsuit alleging securities fraud by the company could yield a hefty payment to shareholders. That suit, now in U.S. District Court in Washington, puts the regulator running the company in an awkward position.
A similar securities-fraud case against Freddie Mac was settled in April 2006 for $410 million. At the time, the settlement was the eighth-largest in a securities-fraud case in U.S. history.
But since the Fannie suit was filed, the government in early September seized control of Fannie and Freddie, citing the risk that growing losses on mortgage defaults would wipe out their capital. The government's control of Fannie puts taxpayers potentially on the hook for hundreds of millions of dollars in damages stemming from the lawsuit.
Moreover, Exhibit A in the suit is a highly critical report about Fannie, written a few years ago by the regulator that now runs the company. A vigorous defense on Fannie's part would require rebutting the agency's own report. An acknowledgment of the report's veracity could mean admitting wrongdoing and an even bigger payout. "The regulator is between a rock and a hard place," said Tom Ajamie, a securities lawyer at Ajamie LLP in Houston. Mr. Ajamie isn't involved with the Fannie case.
The Federal Housing Finance Agency, Fannie and Freddie's regulator, is the new, more powerful incarnation of the companies' former overseer, the Office of Federal Housing Enterprise Oversight. James Lockhart, who oversaw Ofheo, is the director of the new agency.
The regulator grabbed control of the two companies -- the main providers of funding for U.S. home mortgages -- under a legal process known as conservatorship last month. Under the takeover, in which the government can buy nearly 80% of both companies at a nominal price, shareholders have suffered crushing losses. Fannie and Freddie shares have lost more than 95% of their value this year.
Former Ohio Attorney General Jim Petro filed a class-action securities-fraud lawsuit against Fannie and its top executives in November 2004, accusing the company of manipulating its accounting to artificially inflate its stock price. The lawsuit is filed on behalf of the Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio and other investors who bought or sold Fannie shares from April 2001 through December 2004. This period may be extended to investors who bought or sold Fannie shares to September 2005 or even February 2006.
On average, affected Freddie shareholders got back about $1.20 per share minus litigation-related expenses. While any Fannie award is likely to be different in size than the Freddie award, it is noteworthy that the $1.20 award now exceeds the current stock price of Fannie, which early Friday afternoon was trading at $1, up 1%.
A so-called status conference, or a progress report, on the Fannie case is being held Oct. 20.
The regulator's 340-page report found Fannie's board and management responsible for a corporate culture that allowed managers to manipulate accounting in order to alter earnings and trigger millions of dollars in bonuses. Former executives have denied that they sought to inflate their bonuses through improper accounting.
"The image of Fannie Mae as one of the lowest-risk and 'best-in-class' institutions was a facade," Mr. Lockhart said in a statement related to the report in May 2006. "Our examination found an environment where the ends justified the means."
The regulator's predicament may work to the advantage of shareholders, securities lawyer Mr. Ajamie said. "The report so strongly describes the misbehavior and supports the case. It's hard to get a better piece of evidence than this," he said. "A settlement would be the best resolution."
Write to Aparajita Saha-Bubna at Aparajita.Saha-Bubna@dowjones.com

Shareholder Information - Class Action Lawsuit Website

What Happened Last Week? from Randall Forsyth at Barron's

Home > Markets > Markets Page > Current Yield
MONDAY, SEPTEMBER 22, 2008
CURRENT YIELD



Credit Where Credit Is Due
By RANDALL W. FORSYTH

When credit collapses, nothing else can stand.


CREDIT COUNTS. IF YOU don't believe it now, you never will.

While multi-hundred-point gyrations in the Dow grabbed the media headlines, credit borrowing and lending -- the basic functions of finance, on which the real economy of producing, buying and selling depend to function from day to day -- came close to breaking down.

Nothing compares with what's happened in the past fortnight.

The government bailout of Fannie Mae and Freddie Mac, as announced Sunday, Sept. 7, was no surprise. It had been foretold on another balmy Sunday evening in mid-July, and became inevitable as the government-sponsored enterprises' ability to finance themselves was called into question.

But the Treasury bailout of Fannie and Freddie failed to stop the downward spiral. The following Sunday, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke declined to help fund a takeover of Lehman Brothers, as the central bank had done with JPMorgan Chase's acquisition of Bear Stearns in March. Lehman was left with no choice but to file for bankruptcy the following day.

Faced with the possibility it could meet a similar fate, Merrill Lynch rushed to merge with Bank of America. The Thundering Herd had always been fiercely independent, unlike Lehman or Morgan Stanley. (Remember their respective divorces from American Express and Dean Witter?) But getting $29 a share was a lot better than the $10 Bear got, and the zip Lehman received. Yet the prospect of failure by American International Group posed a bigger risk. AIG has a monstrous $1 trillion balance sheet and its "tentacles" were everywhere, as New York Gov. David Paterson characterized the reach of the nation's largest insurer.

Tuesday afternoon, the Federal Open Market Committee opted to hold its key target rate for federal funds unchanged, at 2%, confounding expectations of a cut by Fed watchers and the futures market. The reasoning would become apparent that evening. The central bank decided to provide a massive $85 billion loan to AIG at stringent terms, and an equity stake of 79.9%, the same as Treasury got for bailing out Fannie and Freddie.

But even that didn't calm the markets. Strains worsened after a major money market fund "broke the buck" -- that is, saw its share price fall below the sacrosanct $1.00-a-share level -- and suspended redemptions.

This was the result of unintended (but foreseeable) consequences. The money fund held Lehman paper, which it wrote down to zero, knocking its NAV to 97 cents. Holders, who had assumed they would always get a dollar out for every dollar they put in, bolted for the exits. This was especially the case of institutional money funds, which yanked $173 billion out in the week ended Wednesday, most of it that day. Instead, these investors fled for the safety of T-bills, sending their yields to virtually nil.

The tide ultimately was turned Thursday afternoon, after news reports indicated Washington was cooking up a massive scheme: A plan recalling the Resolution Trust Corp., which worked out the savings-and-loan failures of the late 1980s and 1990s, was in the works.

By Friday morning, it was official. Treasury Secretary Paulson announced that the plan would involve "hundreds of billions" of taxpayers' dollars to buy up bad assets.

In addition, the Treasury would provide insurance for money funds analogous to FDIC backing for bank deposits. That was aimed at stopping the modern-day bank run on the money funds and thus alleviating the strains on the money market. The Fed, for its part, also instituted an array of new lending facilities to stop the crunch. And, the SEC called a halt to short sales of financial stocks. That came in reaction to the wholesale selling of icons such as Goldman Sachs and Morgan Stanley. But their credit default swaps-derivatives insuring the credits of the investment banks-cratered to levels that implied imminent bankruptcy. Sellers of credit protection hedged their position by shorting the stock. The resulting plunge in the stock further tightened the credit vise.

The government's actions does help address the liquidity crisis, for now. Stocks soared Thursday and Friday, and the strains in money markets eased. But the crux of the crisis remains. Lenders can't lend while they're laden with underwater, illiquid assets and can't raise capital.

The government may have put out the fire. The rebuilding lies ahead.