President Obama never was shy about
using his phone and pen to achieve what he could not get from Congress on
regulatory matters.
But documents revealed last week
show the Obama administration may have been willing to get around congressional
decisions on spending by using a slush fund of sorts funded by the profits of
Freddie Mac and Fannie Mae, the two government-sponsored home loan giants.
They are government-sponsored
enterprises, which means the government guarantees their loans. But they are
run as private enterprises, with private leadership, a board of directors and,
most significantly for this purpose, investors. They’re even listed on the
stock market.
In response to the mortgage crisis
of 2008, Congress passed the Housing and Economic Recovery Act, which provided
$187.5 billion in government loans for Fannie and Freddie and placed them in
conservatorship under the newly established Federal Housing Finance Agency.
But Fannie and Freddie were not in
such bad shape after all, and in just a few years, they were turning profits
and on course to pay back the government with interest and still have money to
pay dividends to their investors.
In 2012, the Obama administration
came up with a plan to divert
those profits to the
Treasury that became known as the Net Worth Sweep. Officials said the profits had to be diverted back into
the Treasury because Fannie and Freddie
were in a “death spiral”
and would have to return for loans, and this money would be used for those
loans. In other words, Treasury would take all the profits from Fannie and
Freddie and hold them for future loans when they again found themselves in
trouble.
But -- the administration
knew Fannie and Freddie were healthy for
the long term, were unlikely to need any more loans and, in fact, had enough
money to pay dividends.
The dividends were a problem for the administration
because it made it hard to explain why it needed to abscond (steal) with Fannie
and Freddie’s $241 billion in profits, execute an improper taking against the
shareholders, and spend the money without congressional approval.
Some even
pushed to change accounting methods to make Fannie and Freddie look worse on
paper and/or force them to “need” loans to survive.
In 2013, Fairholme Funds, one of
those investors, filed suit, charging that, in sweeping the money back into the
Treasury rather than pay dividends as required by law, the government exceeded
its authority and ignored the law’s requirements that it conserve the assets of
the enterprises.
The government’s response indicates Fairholme’s accusations
are probably dead on.
One of the
documents released last week said
the proposal to sweep the funds into Treasury would have “three primary benefits:”
It would “eliminate the circularity
of Treasury funding the GSE’s dividends payments to Treasury.” It would
“…capture all future earnings at the GSEs to help pay back taxpayers for their
investment in those firms,” and it would “reduce future draws… so such draws
would only be made when needed to fund quarterly net losses.”
The administration could have
“eliminated the circularity” by following the law and paying the dividends.
There is no legal basis for unilaterally deciding to “capture all future positive
earnings at the GSEs” -- in fact, the law specifies otherwise. And the
government’s own economists acknowledged future quarterly losses were highly
unlikely.
Another document suggested announcing the
change on Friday after
markets had closed. “Rationale: GSE’s will report very strong earnings on
August 7, that will be in-excess of the 10% dividend to paid to Treasury.”
In
other words, wait till late on an August Friday night -- a media dead zone
almost the equivalent of Christmas – to say that, even though the GSEs reported
“very strong earnings” earlier in the week, it needed these prudent
protections.
The documents released last week
were made public only after years of
government protest.
The government has tried to keep 77,000 related documents from being released
publicly and 11,000 from being shared even with attorneys for Fairholme.
The government’s out in this always
was to claim that “since we intend to wind down the GSEs over time, the GSEs do
not need to retain income in excess of amounts required to pay the 10 percent
dividend,” which by making the government the largest investor with preferred
stock, meant the money went to the Treasury and not the initial investors, such
as Fairholme.
But the administration never offered
a plan to wind down the GSEs, and the proposal would make little sense at this
point.
What happened here is not hard to
discern. The Obama administration had a convenient boogey man in the GSEs and a
need for cash because of a recalcitrant Congress. It did not take into account
the legal rights of the investors. The courts are slowly coming to this
conclusion.
In the meantime, we’re left with
another abuse of the public trust by double-dealing government insiders. If
that’s not an argument for limited government, what is?
http://www.americanthinker.com/articles/2017/07/obama_looted_fannie_mae_and_freddie_mac.html#ixzz4oHAt7ayP
