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Th e M Rep o RT | 11 cover story I t has never been more en vogue to be a critic of the GSEs. From politicians to private citizens to watchdogs within the federal government, if you want to score political points or push an agenda, calling for an end to Fannie Mae and Freddie Mac or just castigating the conservatorship itself as somehow unfair is a popular way to get there. And it's not just talk. There have been approximately 20 lawsuits filed in federal courts by investors to recover some of the millions in profits generated by the GSEs that have been funneled to the U.S. Treasury. As if that wasn't enough, members of Congress are lining up to determine how to reorganize the GSEs, while others conspire to eliminate them entirely. Even the FHFA Office of the Inspector General got into the game recently. But are the criti- cisms fair? And what (if anything) should be done about them? The Threat From Private Investors I n a recent lawsuit filed by Perry Capital and Fairholme Funds, investors sued for breach of contract regarding promised dividends and what they termed to be an illegal "taking" under the U.S. Constitution. U.S. District Judge Royce Lamberth ruled against the plaintiffs. This out- come pleased those who believe that profits generated by the GSEs should to go to the U.S. Treasury. In support of Judge Lamberth's decision, Wall Street Journal published an editorial, lauding the judge for "dismissing claims against the federal government brought by private investors." They congratulated the judge for "seeing through plaintiffs' argu- ment that combined dubious legal reasoning with junk economics." In the decision, Judge Lamberth maintained that he was just interpreting the details of the conservatorship, and that if investors have a gripe, it's with Congress for writing the law. The editorial continued, quot- ing an official from the Federal Reserve Bank, who said that "the profits being used to pay divi- dends did not arise from the con- tributions of private shareholders, but entirely reflect risks borne by the Treasury and taxpayers." The opinion of the WSJ edito- rial agrees with that of Edward Pinto, co-director and chief risk officer at the American Enterprise Institute. He said that without the support of the government in 2008, and the continuing support of the taxpayers, Fannie Mae and A multitude of slings and arrows have been directed toward the GSEs. But despite their profitability, there are those who would just as soon see them disappear. By Sandra Lane Royce Lamberth U.S. District Judge