The Five Dumbest Things on Wall Street This Week

4. Raines Storm

Former Fannie Mae (FNM Quote - Cramer on FNM - Stock Picks) chief Franklin Raines may soon have his day in court.

The Washington-based mortgage giant's top regulator -- James Lockhart of the Office of Federal Housing Enterprise Oversight, or OFHEO -- said this week that he expects to sue Raines and his former finance chief, Tim Howard.

Lockhart's comments come less than a month after federal prosecutors said they wouldn't pursue criminal charges against Fannie Mae itself. They left open the prospect of actions against individuals.

Fannie agreed in May to pay $400 million to end an investigation into the accounting missteps that have mired the firm in an ongoing $11 billion restatement. OFHEO and the Securities and Exchange Commission blasted Fannie for having fostered an "arrogant and unethical corporate culture."

That comment was seen as a shot across the bow of Raines and Howard, who spent years raking in huge checks as Fannie's accounting errors piled up. Before the two were forced out in December 2004, Raines engaged in an unseemly public lobbying campaign against his chief critic and Lockhart's predecessor, Armando Falcon.

Falcon was among the first to highlight Fannie's chicanery. But Raines screamed until he was blue in the face, against much evidence to the contrary, that Fannie's accounting was not only proper -- it was too sophisticated to even discuss. "The accounting standards," he advised in testimony before a 2004 House subcommittee, "are highly complex and require determinations over which experts often disagree."

The prospect of a civil suit doesn't seem likely to shake Raines, who saw May's settlement between Fannie and regulators as just another opportunity for grandstanding.

His lawyer said with some pride back then that Raines had "promised in October of 2004 that he would hold himself accountable if it was determined that Fannie Mae misapplied accounting rules."

You'll get your chance yet, Frank.

Dumb-o-Meter score: 85. Few experts would disagree with a suit against these clowns.

To watch Colin Barr's video take of this column, click here.

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