Matt Taibbi tonight has an important story that is likely to be lost in reporting on the New York primary: an unheard-of effort to keep 11,000 government documents hidden. They aren’t terrorism or surveillance state related; they are instead about the state secret of what the government has done and intends to do with the the government sponsored enterprises Fannie and Freddie now that they’ve gone from being walking wounded to cash machines.
As Taibbi recaps, the basis for the row is minority shareholder suits over how the rescues were handled. The original rescue had the government taking an 80% stake and the right to future dividends. The GSE overseer, the Federal Housing Finance Agency, changed the deal willy-nilly in 2012, after Fannie and Freddie were generating tons of profits, to keep all of the dividends. The excuse was that the housing giants were still basket cases facing a “death spiral”. But that’s clearly nonsense, since the funds were hoovered up by Treasury rather than retained by Fannie and Freddie to strengthen their capital bases. As Taibbi writes:
It got weirder. Despite the fact that the GSEs went on to pay the government $228 billion over the next three years, or $40 billion more than they owed, none of that money went to paying off Fannie and Freddie’s debt. When Sen. Chuck Grassley asked aloud how it was that the company and its shareholders were not yet square with the government, the Treasury Department testily answered, in essence, that the bailout had not been a loan, but an investment…
Remember, the other bailout recipients after 2008 were mostly all allowed to pay off their debts as quickly as possible, to get out from under restrictions imposed upon them by the government. Firms that took bailout money were allowed to pay far earlier than expected, in less than a year in some cases, allowing companies like JP Morgan Chase, Goldman Sachs and Morgan Stanley to get out from under executive compensation restrictions and other temporary reforms.
Unhappy investors sued, and the Administration asserted that 11,000 documents must, must be kept out of the public’s view or the Market Gods would rise up in anger and eat the economy. Taibbi noted: “The sheer breadth of the effort to keep this material secret may not have a precedent in modern presidential times.”
Judge Margaret Sweeny didn’t buy it, and conclude the Feds are trying only to escape embarrassment. Nevertheless, a mere seven documents were unsealed last week. Even so, they bear out her contention, demonstrating that the “death spiral” story was a complete fabrication, and they were certain the mortgage giants would continue to be cash machines. Mortgage finance expert Josh Rosner provided a link to the unsealed documents here and concluded:
The documents unsealed by Judge Sweeney demonstrate that the UST [US Treasury] and FHFA knew, before implementing the 3rd Amendment to the PSPA which swept all future profits of Fannie Mae & Freddie Mac, the GSEs were:
1- On the verge of resumed profitability;
2- Were close to being able to use their deferred tax asset (DTA);
3- The DTA was worth close to $50 billion; and
4- The profit sweep likely was driven by the budget battle;
5- The FHFA violated key sections of the 2008 Housing and Economic Recovery Act by:
a) choosing to rely on new legislation rather than requiring the GSEs to submit a capital plan and rebuild capital;
b) violating HERA’s requirement that FHFA act independently and without interference by any other government agency or department;
c) forcing the dissipation of GSE assets.
However, it’s not clear how much of the rest will be unsealed, and Taibbi and other observers are scratching their heads as to what other dirty might be in the now-secret records. Taibbi’s best guess:
Likely also buried in the still-sealed documents is a wealth of information about the government’s plans for future reorganization of Fannie and Freddie, a huge looming event in the history of American finance.
Many of the government officials who were involved in the decisions surrounding the GSE conservatorship are now in the private sector, working on proposals for much-anticipated GSE reform.
Without getting too deeply into the weeds of this even more complicated tale, government officials have been working with Wall Street lobbyists for years on a plan to have a consortium of private banking interests step into the shoes of Fannie and Freddie.
If this concept actually goes through, it would be the unlikeliest of coups for Wall Street. Having nearly triggered a global depression eight years ago, the usual-suspect, too-big-to-fail banks would essentially be put in control of the same housing markets they all but wrecked last time around.
Do read Taibbi’s article and circulate it widely. One of the things that the Administration is counting on is lack of interest. Don’t let the fact that Fannie and Freddie aren’t in the headlines let them get away with past and probable planned looting.