Monday, October 6, 2014

Fannie references in Stars AIG lawsuit

Fannie references in Stars AIG lawsuit

(a) Geithner: “Of the twenty-five largest financial institutions at the start of 2008,
thirteen had either failed (Lehman, WaMu), received government help to avoid failure
(Fannie, Freddie, AIG, Citi, BofA), merged to avoid failure (Countrywide, Bear, Merrill,
Wachovia), or transformed their business structure to avoid failure (Morgan Stanley,
Goldman)” (PTX 709 at 271-272).

1.4 On September 6, 2008, the Federal Housing Finance Agency (“FHFA”)
placed the two Government-Sponsored Entities (“GSEs”), Federal Home
Loan Mortgage Corporation (“Freddie Mac”) and the Federal National
Mortgage Association (“Fannie Mae”), into conservatorship (PTX 2097 at
15; PTX 2020 at 26).

(a) Financial Crisis Inquiry Commission Report: Over “the course of the second half of
2008, the OTC derivative market would undergo an unprecedented contraction, creating
serious problems for hedging and price discovery” (PTX 624 at 328). See also id. at 329
(“The market for nonconforming mortgage securitizations (those backed by mortgages
that did not meet Fannie Mae’s and Freddie Mac’s underwriting or mortgage size
guidelines) had also vanished in the fourth quarter of 2007”).

25.1.4 On or about March 26, 2014 Bank of America agreed to pay $9.3
billion to settle claims brought by the Federal Housing Financing
Agency under its statutory mandate to recover losses incurred by
Fannie Mae and Freddie Mac accusing the bank of misrepresenting
the quality of loans underlying residential mortgage-backed
securities purchased by the two mortgage finance companies
between 2005 and 2007 (PTX 2504).

25.1.8 On or about February 4, 2014, Morgan Stanley “agreed to pay $1.25
billion to the Federal Housing Finance Agency to resolve claims that
it sold shoddy mortgage securities to Fannie Mae and Freddie Mac. .
. . According to the agency’s lawsuit, Morgan Stanley sold $10.58
billion in mortgage-backed securities to Fannie and Freddie during
the credit boom, while presenting ‘a false picture’ of the riskiness of
the loans. . . . Many of the loans involved were originated by
subprime lenders, like New Century and IndyMac, bundled into
bonds and sold to Fannie and Freddie. One group of loans had
default and delinquency rates as high as 70 percent, according to the
lawsuit.” (PTX 2485).

(o) Rodgin Cohen (“Cohen”), who was then Chairman of Sullivan & Cromwell LLP,
advised AIG between March 2008 and the end of September 2008 (Cohen Dep. 35:13-
19). Cohen also advised Bear Stearns’ Board of Directors on its merger with JP Morgan
Chase in March 2008, Lehman Brothers in the period prior to its bankruptcy in
September 2008, and Fannie Mae in September 2008 (Cohen Dep. 6:15-24, 34:3-6,
34:16-35:4; PTX 709 at 163).

25.1.5 Defendant said on July 14, 2014 “after collecting nearly 25 million
documents relating to every residential mortgage backed security
issued or underwritten by Citigroup in 2006 and 2007, our teams
found that the misconduct in Citigroup’s deals devastated the nation
and the world’s economies, touching everyone” (PTX 2527 at 2).

2.1 As early as March 10, 2008, the Federal Reserve recognized that the prices
for subprime backed securities did not reflect underlying values and that:
“The prices out there were just being driven by fear” (PTX 1196 at 22).

2.2 During the days after Lehman’s collapse, it was virtually impossible to get a
price for subprime backed securities, including because of “Lack of liquid
quotes from market participants”; the fact that industry standard CDS
agreements “didn’t consider illiquid markets”; and the “Subjectivity
involved in pricing” (PTX 221 at 4).

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From the lawsuit today AIG STAR:

Boies didn't draw much out of Paulson regarding how the government arrived at the terms for bailing out AIG. Paulson said he didn't recall many of the details of the rescue package.

The case is being heard by U.S. Court of Federal Claims Judge Thomas Wheeler.

Wheeler has rebuked government attorneys for attempting to rely on hearsay testimony, introducing exhibits in violation of trial rules about redactions, and dragging out proceedings by reading lengthy passages from documents.

rebuked:
express sharp disapproval or criticism of (someone) because of their behavior or actions


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