4th Amendment

Riddle: When is a contract amendment not an amendment?

Answer: When the parties are being sued under a previous amendment to said contract.

On December 21, 2017 the Treasury Department and FHFA entered into an agreement to change the terms of the SPSPA. In this “letter agreement” it states:

“For the avoidance of doubt, following the amendment of the Certificate as provided in this Letter Agreement…” (emphasis mine)

So, our long-awaited 4th Amendment will not be called the 4th Amendment (which it is) – it is dubbed the “letter agreement.”

By calling this latest amendment a “letter agreement” it sends the signal that the intent of the 3rd Amendment – the Net Worth Sweep – is still in full force.

There are number of reasons the Administration needs to cling onto the spirit of the 3rd Amendment. First, the Administration is fighting numerous lawsuits pertaining to the legality of the 3rd Agreement. Making any changes that would alter the terms of the 3rd Amendment could jeopardize the court cases.

Plus, the optics of the terminology signals to Congress that the Administration has not initiated a recapitalization program. The “letter agreement” merely winds the clock back to the beginning days of the 3rd Amendment.

The Treasury Department put this amendment into “letter format” versus the previously utilized “amendment format” in order to colloquially refer to it as “a letter agreement.”

In simple terms, this amendment reverts the retained capital of the companies from $0 (set to take place on December 31, 2017) to $3,000,000,000. It’s clear that $3 billion was chosen as the capital buffer as it is the maximum amount allowed under the 3rd Amendment.

The 3rd Amendment went into effect on September 30, 2012 (dated August 17, 2012) calling for a reduction of the capital reserve starting on January 1, 2013 in equal amounts ending at $0 on December 31, 2017 or by $600,000,000 each year:

“Applicable Capital Reserve Amount” means, as of any date of determination, for each Dividend Period from January 1, 2013, through and including December 31, 2013, $3,000,000,000; and for each Dividend Period occurring within each 12-month period thereafter, $3,000,000,000 reduced by an equal amount for each such 12-month period through and including December 31, 2017, so that for each Dividend Period from January 1, 2018, the Applicable Capital Reserve Amount shall be zero.

Perhaps if the Administration did not have to consider the ramifications of the 3rd Amendment, it likely would have increased the capital reserve in excess of $3 billion. But, it clearly wanted to stay within the guardrails of the 3rd Amendment.

Another interesting observation regarding the “letter agreement” is the following:

Section 2(a) of the Certificate provides that Treasury, as the holder of outstanding shares of Senior Preferred Stock of the Enterprise, shall be entitled to receive, when, as, and if declared by the Board of Directors, in its sole discretion, cumulative cash dividends quarterly on each Dividend Payment Date. The Enterprise agrees to declare and pay the dividend payable to Treasury for the Dividend Period that ends on December 31, 2017 in an amount equal to the Dividend Amount minus $2,400,000,000 (the Q4 Dividend).

The first sentence above states the Board of Directors can only declare a dividend, i.e. “when, as and if” and “in its sole discretion.” However, the second sentence nullifies the Board’s independence by stating that the companies “agree to declare and pay the dividend.” How’s that for legal doublespeak?

Of course under dictatorship – err, rather conservatorship – FHFA assumes the power of the Boards.

(note: the reason the amount above states $2.4 billion and not $3 billion is because the companies currently have $600 million in reserve which would have been included in the 4Q17 dividend payment, resulting in a $0 reserve amount)

The “letter agreement” also provides a history or background of the other amendments. For instance, it makes note of the original term of the SPSPA with a 10% dividend.

The paragraph in the “letter agreement” that discusses the 10% dividend is taken verbatim from the 3rd Amendment and is only used as historical reference, i.e. the 10% dividend has no bearing on the new $3 billion or the total liquidation amount on the senior preferred stock.

Our wait continues for the resolution of the conservatorships…

However, we are inching closer as Treasury Secretary Mnuchin has from day one said this Administration would resolve the fate of Fannie and Freddie but that Tax Reform needed to pass through Congress first.

This “letter agreement” was only to avoid $0 capital reserve. Real change finally seems attainable in the first half of 2018!



September 6, 2017

By Gary Hindes

We were all snookered.


Henry Paulson turns a smoldering fire into a worldwide conflagration.

Nine years ago today, the government seized Fannie Mae and Freddie Mac. Angry shareholders filed lawsuits, but the government’s lawyers convinced a federal judge no one should be allowed to see over 11,000 documents relating to its decision. Making them public, it told the court, might set off another financial crisis and affect national security.

But now the cat is out of the bag. Judge Margaret Sweeney of the U.S. Court of Federal Claims has lifted the seal on the first 3,000. As Richard Bove, the dean of Wall Street banking analysts, asserts in this 5-minute CNBC interview, the government has been lying to us all along. With each turn of the page, it becomes clear the September 6, 2008 takeover wasn’t a bailout, it was a stick-up. A heist. Billed at the time as a ‘rescue’, it was anything but.

The storyline put out was the two mortgage insurers were undercapitalized. (Yes, even Yours Truly fell for it at the time.) They weren’t. It was only after the government took control and ordered their accounting staffs to start booking massive non-cash paper losses that they appeared to be. But when the housing market turned around four years later and those accounting sleights-of-hand had to be reversed, the 2008 machinations were exposed for the accounting fraud they were. No longer burdened by the concrete life-preserver of ‘cookie jar’ accounting gimmicks, Fannie and Freddie became massively profitable in 2012 and were on the verge of rebuilding their capital bases and exiting the Conservatorships into which they had been forced. To ensure that didn’t happen, however, the Treasury Department stepped in and changed the rules. (As other documents prove, they lied about the reasons for that as well;  see The Cover-Up Unravels- HINDESightTM July 25, 2017.)

Tossing them another ‘concrete life preserver’ to replace the one which – despite Treasury’s best efforts – hadn’t lived up to its name, the 10 percent dividend which the government had been collecting for four years was cancelled and replaced with a new ‘dividend’: 100 percent of the companies’ net worths whatever the amount. No matter how much the companies wind up paying the government in ‘dividends’ (at this writing, it’s already over $100 billion more than it would have otherwise received), not a penny counts towards principal. Like the restaurant owner who borrowed from the Mob, Fannie and Freddie have found themselves in an unseverable relationship. Even though they are two of the most profitable companies in the world, as things currently stand, they will continue to owe Uncle Sam $187 billion in perpetuity. [1]

Securities fraud?

The government secretly plans to seize the companies – while allowing them to keep selling stock to an unsuspecting public. Despite the government’s line that the takeovers were hastily put together in the ‘fog of war’, newly-released documents reveal that at least six months earlier, nationalizing the companies was under active consideration. On March 8, 2008, a derogatory article about Fannie appeared in Barron’s Magazine with the front-page headline “Is Fannie Mae the Next Government Bailout?” The article appears to have been written almost verbatim from a confidential memo written by Jason Thomas, then a special assistant to President George W. Bush. The memo (and article) described a litany of Fannie’s perceived failings; both were riddled with seriously flawed assumptions. Proof the White House deliberately planted the smear piece is confirmed by an email sent by Mr. Thomas to then-Under Secretary of the Treasury Robert K. Steel on the day it was published:
“Attached is the document used as the sourcing for today’s Barron’s article on the potential collapse of Fannie Mae. This is for your eyes only. I send it…to help inform…discussions about the potential costs and benefits of nationalization. Thank you for your discretion.”

If Treasury’s goal was to trash the stock, it worked – but not for long. As investors read through the article and started questioning its assumptions, many realized the emperor had no clothes. It was a “hit job” based on wildly inaccurate premises. In the months to follow, Fannie and Freddie would, at the urging of their regulator, the Federal Housing Finance Agency (“FHFA”), raise billions of fresh capital, culminating on May 13, when Fannie sold more than $2 billion of preferred shares bearing an 8¼ percent dividend and a AA- rating. The offering was oversubscribed, an indication that investors (and the rating services) had done their own analysis and concluded the companies were not even remotely close to bankruptcy. Nonetheless, Mr. Thomas’ memo would be used just weeks later as the accounting blueprint justifying their seizure. That so many sophisticated investors had read the government’s analysis of the situation and not only didn’t believe it, but instead purchased more shares means either they were all idiots – or the folks at Treasury were determined to grab Fannie and Freddie, the facts be damned. As Professor Richard Epstein later put it, if, instead of the government, it had been private parties involved, “they all would have gone to jail.”

It wasn’t Lehman Brothers.

Conventional wisdom is that then-Secretary of the Treasury Henry Paulson’s decision to stand by idly as Lehman teetered on bankruptcy on September 15, 2008 triggered the meltdown of the world financial system. A careful review of the timeline, however, reveals it was the seizure of Fannie and Freddie a week earlier which spooked the markets and plunged the world financial system into the abyss.

Earlier that summer, Mr. Paulson and the Bush Administration pushed Congress to enact the Housing and Economic Recovery Act (“HERA”), which, among other things, gave FHFA the authority to place either or both GSEs into Conservatorship if one of 12 conditions were met. [2]

The first 11 are what you might expect: being significantly undercapitalized; operating in an unsafe and unsound manner; fraud; money laundering, etc. As it turns out, all were inapplicable; neither company was in danger of insolvency and both had more than sufficient liquidity and billions in high-quality assets which could be pledged as collateral should they need more. Indeed, just two weeks prior to the seizure – on August 22 – James Lockhart, the head of FHFA, confirmed in a letter to the CEOs of both companies that they were operating with “adequate” levels of capital (“adequate” being the regulator’s highest rating). [3]
With 11 of the 12 conditions being nonstarters, Treasury had only one card left to play. As it turns out, the Companies could be placed into Conservatorship if their boards “acquiesced” or “consented”. The issue for Treasury thus became: what would it take to obtain that acquiescence or consent?

In hastily-convened, back-to-back meetings on Saturday, September 6, 2008 (with Federal Reserve Chairman Ben Bernanke seated alongside him), Mr. Paulson acquainted the directors with “the awesome powers of the government” – inferring armed personnel were at the ready. [4,5]

But he also offered a consolation prize, a ‘get-out-of-jail-free’ card, if you will, directing their attention to a provision of HERA which, were they to cooperate, absolved the directors from liability from shareholder lawsuits. [Think about that for a moment: the legislation actually included an inducement for the boards to abandon their responsibilities to shareholders who had been paying them hundreds of thousands of dollars each year in director fees to act in their best interest.] For his part, if we are to believe Mr. Paulson’s version of events, Mr. Bernanke basically urged the directors to ‘take-one-for-the-team’. [6]

With two of the most powerful people in the
world confronting them across the table, the
directors caved. [7]

In the chapter of his memoirs dealing with the Fannie/Freddie situation, Mr. Paulson ends by telling the reader: “. . . that Sunday afternoon in my office, placing calls all around the world, I couldn’t help but feel a bit relieved. We had just pulled off perhaps the biggest financial rescue in history. Fannie and Freddie had not been able to stop us, Congress was supportive, and the market looked sure to accept our moves . . . we had, I thought, just saved the country – and the world – from financial catastrophe. The next day, Lehman Brothers began to collapse.” (Emphasis added.)

In retrospect, it should have come as no surprise. That Mr. Paulson expected the markets to overlook the fact he’d just incinerated over $80 billion of shareholder equity shows an astonishing level of naïveté from someone who had spent his entire career in investment banking and the capital markets – and who was also the former chairman of Goldman
Sachs. Also of no small import, the affected shareholders included foreign central banks which had purchased shares in the May 13th stock offering. [8]

As noted British economist Anatole Kaletsky describes in Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis (PublicAffairs/Perseus Books Group) [9], by the time the Asian markets opened on Sunday evening, investors around the globe were forced to confront a terrifying new reality: if the U.S. Government could seize two of the world’s largest shareholder-owned public companies – which were in full compliance with their regulatory capital requirements (and had recently reported the highest capital levels in their histories) – they could do the same to any financial institution: no one was safe. As the expression goes, the s—t had hit the fan. Monday morning, U.S. banks immediately stopped lending and trading, fearful of counter-party risk. Loans were called in and lines of credit cancelled.

The contagion spread quickly: the bond market froze up and stock markets plunged. From that point forward, any company with even the slightest whiff of financial difficulty could no longer hope to raise capital. (Even GE was having trouble rolling over its commercial paper.) As Dr. Kaletsky puts it, “the (seizure of Fannie and Freddie) thus raised a Sword of Damocles over every U.S. financial institution that might conceivably need to raise any new capital in the foreseeable future…the almost inevitable result was a run on every major bank and financial institution, first in America and then around the world.” (Emphasis added.)

Within the week, Lehman filed for bankruptcy. The day after, Merrill Lynch, AIG, Morgan Stanley, Citigroup, Washington Mutual, Wachovia, and Bank of America (all highly leveraged) were under attack by short sellers, for – as Dr. Kaletsky puts it – Mr. Paulson had created a financial “doomsday machine…whose mechanism began its inexorable grind within 24 hours of the…seizure (of Fannie and Freddie).” Lloyd Blankfein, chairman of Goldman Sachs, predicted his firm would be bankrupt “in 15 minutes” were its then-teetering major competitor, Morgan Stanley, to succumb to the rapidly-escalating panic. As Dr. Kaletsky concludes, Secretary Paulson’s “punitive treatment of the Fannie and Freddie shareholders had started a chain reaction that was going to blow up the entire U.S. financial system…”

At the risk of sounding inflammatory (no pun  intended), pouring gasoline on a fire is not an inapt analogy here. Had Treasury truly wanted to help Fannie and Freddie get through the crisis (even though, as has been demonstrated, neither needed it), [10] both it and the Federal Reserve had programs available that would have allowed either to make repayable loans, fully collateralized by their ample holdings of Mortgage Backed Securities, at absolutely no risk to the taxpayer. After all, that’s what they did for AIG, Goldman Sachs, and all the banks to which it gave TARP money. But as the unsealed court documents now make clear, Treasury’s goal wasn’t to help Fannie and Freddie; it was to put an end to them for once and for all and turn their lucrative businesses over to the Big Banks which had long coveted them.

In their zeal to accomplish that end, Mr. Paulson and his colleagues had run up against the ‘law of unintended consequences’. Instead of “saving the country – and the world – from financial catastrophe,” their weekend exploits had plunged the world into an abyss from which many investors were never able to recover. [11, 12]

Nine years and counting.

In August 2012, when Treasury decided to change the terms of the 2008 ‘bailout’, a battle in Congress to extend the debt ceiling limit and avoid a government shutdown was fast approaching. It was utilizing what it called “extraordinary measures” to manage the government’s cash flow. Whether by happenstance or design, the extra money from the GSEs came in very handy: it extended the runway.

The longest Conservatorship of an FDIC insured commercial bank reportedly lasted 18 months. However, despite their being two of the most profitable companies in the world (or perhaps because of it) – and the fact they also happen to be the government’s most lucrative venture since the Louisiana Purchase – Fannie and Freddie are about to enter their 10th year as wards of the state. With the current Treasury secretary, Stephen Mnuchin, projecting September 29 as the latest deadline for extending the debt-ceiling limit, Treasury is again using their profits to keep the lights on (with another $5 billion ‘dividend’ payment expected to be paid shortly). Enough is enough. The looting has gone on for far too long. The only countries which seize private property without compensating their owners are Cuba, Iran, North Korea, Russia, Venezuela and Zimbabwe. It is time to stop using Fannie and Freddie as piggy banks and return them to their rightful owners.

Gary E. Hindes
September 6, 2017


1 “They (aren’t going to be allowed to) repay their debt and escape, as it were.” — Jim Parrott, senior advisor to President Obama in an August 18, 2012 email to Tim Bowler, deputy assistant secretary of the Treasury.

2 In July, Mr. Paulson famously told a Congressional panel considering the HERA legislation “if you’ve got a squirt gun in your pocket, you may have to take it out. If you’ve got a bazooka, and people know you’ve got it…you’re not likely to take it out.”

3 Treasury subsequently demanded that the letter be withdrawn because it was inconsistent with its soon-to-be-announced position the GSEs were in such dire financial straits that placing them into Conservatorships was the only option.

4 “We preferred that they voluntarily acquiesce. But if they did not, we would seize them . . . I explained that we had teams of lawyers, bank examiners, computer specialists, and others on standby, ready to roll into (their) offices and secure their premises, trading floors, books and records, and so forth.” Henry M. Paulson Jr: On the Brink © 2010 Hachette,
excerpted at http://abcnews.go.com/GMA/Books/book-excerpt-brinkhenry-paulson-jr/story?id=9713451 (Emphasis added).

5 Mr. Paulson refers to it as an “ambush”. “‘Do they know it’s coming, Hank?’ President Bush asked me. ‘Mr. President,’ I said, ‘we’re going to move quickly and take them by surprise. The first sound they’ll hear is their heads hitting the floor’.” (Ibid.)

6 “Ben Bernanke followed and made a very strong speech. He said he was very supportive of the proposed actions. Because of the capital deficiency, the safety and soundness of Fannie Mae was at risk, and that in turn imperiled the stability of the financial system. It was in the best interests of the country to do this, he concluded.” (Emphasis added.)

7 To this day it is unclear whether the boards “acquiesced” or “consented”. Attempts by shareholders to obtain minutes of the meetings have been stonewalled by the government and the courts. The (former) directors have refused to comment. However, I spoke with a person who was in the room during the Fannie Mae meeting. He also clammed up, but walking away and shaking his head bitterly, told me “it was done at the point of a gun with six bullets in the chambers”.

8 Treasury had snookered some of the most sophisticated investors and research analysts in the world – along with a “Who’s Who” of Wall Street investment banks which had underwritten the issue: Merrill Lynch; Citibank; Morgan Stanley; UBS; Bank of America; Barclays; Wells Fargo, and Wachovia.

9 Available at Amazon.com; I draw the reader’s attention to Chapter 10: The Economic Consequences of Mr. Paulson.

10 With FHFA’s prior approval, they were still paying dividends on their common stock!

11 To this day, the anti-GSE crowd claims Fannie and Freddie needed a bailout because they were running out of liquidity and were unable to tap the capital markets. Nonsense. “Fannie Mae, Freddie Mac Debt Funding Smooth . . . drew solid demand for $5 billion of new securities today”, Reuters reported on September 3. That was Wednesday. On Saturday, Mr. Paulson showed up with his bazooka.

12 Among other victims, 15 FDIC-insured banks failed after being forced to write off their Fannie and Freddie holdings. (Their shareholders were wiped out.)


The views and opinions expressed herein are solely those of the author, and not necessarily those of The Delaware Bay Company, LLC, Arcadia Securities, LLC and/or their principals and/or affiliates, which may, from time to time, have long or short positions in the securities of companies mentioned herein. We make no representations or warranties as to the accuracy of any of the facts contained herein and investors are warned that past performance is no guarantee of future results. Investors are also urged to consult their own legal, accounting, and other financial professionals before acting upon any of the recommendations made herein. Invest at your own risk. The author is a co-plaintiff in Jacobs, et al. v. the United States, which challenges the legality of the Net Worth Sweep under Delaware law.

Sen. Corker’s relationship with real estate industry highlighted in voting record

Bethany McLean
Yahoo Finance December 2, 2015

Bethany McLean is a contributing editor at Vanity Fair and bestselling author. Her recent book is “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants,” published by Columbia Global Reports.

As you may have seen, the Campaign for Accountability (CFA), a D.C. watchdog group, has called for an SEC and ethics investigation of Sen. Bob Corker (R-TN) for insider trading. Between 2008 and 2015, Corker, his wife and daughters made approximately 70 (70!) opportune and very profitable trades in the stock of a company called CBL & Associates Properties (CBL), which is one of the country’s largest shopping mall REITs. (Just FYI, investors usually own REITS for their dividends, not as trading vehicles. It’s also worth noting that the senator told Yahoo Finance several years ago that he had a Bloomberg terminal.) Nor was the full extent of Corker’s trading disclosed until very recently, after the Wall Street Journal began asking questions. Corker has blamed his accountants for a technical mistake involving the use of a methodology that didn’t require disclosure of the date of purchase. His spokesperson downplayed the CFA complaint and added that “these baseless accusations from a political special interest group are categorically false and nothing more than a smear campaign.”

It’s true that the picture is far from complete, but there’s another element worth noting. In its complaint, the CFA suggests UBS was a likely source of tips. But if Corker has benefited from buying and selling CBL, there’s an argument that the company has also benefited from its relationship with the senator. To wit: Corker has voted in favor of at least several pieces of legislation for which CBL, via its membership in several trade groups, has lobbied. Right now, there’s legislation in need of reauthorization, for which Corker’s real estate constituents are pushing hard. To complicate matters, it involves a controversial industry for which Corker’s fundraising consultant works.

Some may say this messy state of affairs is business as usual in today’s Washington. They might be right. Members of Congress simply don’t want to have to behave in transparent, conflict-free ways that they themselves would probably mandate for everyone else. But remember that old-fashioned thing about public office being a public trust?

A long relationship

As the complaint—filed with the SEC and the Senate Select Committee on Ethics—details, Corker and CBL go way back. Corker began his career at a company whose primary business was subcontracting for CBL and which is now substantially owned by CBL. CBL executives were Corker’s “first and most generous donors,” as the complaint put it, when Corker filed to run for Congress in 2006. CBL is run by the Lebovitz family, whose members are also involved in several real estate trade groups. Stephen Lebovitz, the CEO of CBL, is currently the chair of the International Council of Shopping Centers, or the ICSC. He is also a member of the advisory board of governors of the National Association for Real Estate Investment Trusts, or NAREIT. (CBL did not return an email requesting comment.)

Both directly and indirectly, CBL have given generously to Corker. According to the complaint, CBL’s executives, directors and their spouses rank among the senator’s top campaign donors, contributing $88,706 to his campaign committee and PAC since his 2006 run. Since Corker’s arrival in the Senate, CBL executives have contributed more than $50,000 each to NAREIT and ICSC—which, in turn, were part of a nine-PAC consortium that held a fundraiser for Corker in Washington in 2011. NAREIT and ICSC also donated $15,000 directly to his campaign committee since his arrival in the Senate.

There are at least several examples where Corker has supported or co-sponsored legislation that the ICSC and NAREIT have wanted.

A few years ago, the Environmental Protection Agency and the Army Corps of Engineers issued a rule called “Waters of the United States,” which would have expanded the EPA’s jurisdiction. In announcing the implementation of the rule, President Obama called it “another step towards protecting the waters that belong to all of us.”

Both the ICSC and NAREIT were among the many who fought against it. “If the rule is enacted in its current form, developers can expect major project permitting delays, costly resource outlays,” the ICSC wrote in June 2014. Along with NAREIT, the ICSC was also part of a coalition that wrote to the EPA in August 2014 to “express their opposition to most of the rule,” as NAREIT put it in an update. Using a rarely used tool called a Congressional Review Act, the Senate passed a resolution last month by a vote of 53 to 44 to rescind the rule. Corker’s vote in favor of rescinding the rule was celebrated on Twitter.

Taxing Internet sales

Then there’s the long, vicious fight over online retailers not charging sales tax, because states are barred from collecting sales tax from out-of-state companies. This has been an area of particular concern to companies like CBL, which own shopping malls, and which stand to lose out if consumers choose to buy online.

Back in 2013, a measure called the Marketplace Fairness Act, which would have required online retailers to collect sales taxes, failed in part because some top Republicans opposed it. Corker supported it. Just this spring though, a bipartisan group of senators including Corker reintroduced the measure. The ICSC applauded Corker, along with the others, for his support; a blog post notes that if supporters “remind elected officials on Capitol Hill just how important this legislation is to American shoppers, businesses and communities,” that support would “go a long way to supplementing the current efforts of the International Council of Shopping Centers, Marketplace Fairness Coalition, NAREIT” and others.

Time will tell what happens to the 2015 version of the bill.

In addition, the CFA’s complaint notes that CBL would be a beneficiary of another bill sponsored by Corker. This one, which passed the Senate Banking Committee—where Corker serves—in the spring of 2014, would lead to the demise of Fannie Mae and Freddie Mac. One firm that probably would have benefited from that bill is Wells Fargo (WFC), because without Fannie and Freddie, the big banks would be able to capture more of the mortgage industry’s profits. Wells Fargo is CBL’s chief bank. (As CBL’s CFO noted on a 2009 conference call, Wells “has been our lead bank since 1978… it’s totally a relationship driven business.” The retired head of Wells Fargo’s commercial real estate business, A. Larry Chapman, joined CBL’s board in August 2013.)

It is probably a coincidence — and this is not in the complaint — but on July 11, 2014, Corker personally invested in a shopping center called McGowin Park that is being developed by the Hutton Company in Mobile, Ala. Several top executives at the Hutton Company, including its president, joined Hutton after stints at CBL. According to Corker’s disclosure form, his investment is worth between $1 million and $5 million. His investment came six days before Wells Fargo filed its financing statement with the Alabama secretary of state. Wells Fargo declined to comment. Hutton’s CEO says “that assessment of the timing is inaccurate,” that investors “are not involved with the banks,” and that Hutton “interviewed and worked with several lenders and was working with several banks to select the best fit.” She adds that there are limited options in Chattanooga for people to move between commercial real estate developers.

Visa program controversy

Although CFL didn’t highlight this, there’s also an interesting nexus between Corker’s campaign finance manager and a program that is a favored child of the real estate industry. The so-called EB-5 visa program was started some 20 years to enable foreigners who wanted to start businesses in the United States to get lawful permanent residence here as long as they invest a minimum of $500,000 to $1 million, and create jobs for U.S. workers.

This has morphed into a convenient source of cheap capital for the real estate industry (one industry publication calls it a “vital capital source”). But a key part of it, which allows foreign investors to pool their capital into things like real estate projects, was due to expire this fall, and at least some are desperate to hang onto it. The ICSC has held panels about how to use EB-5 funds. The Real Estate Roundtable, which has highlighted “the urgent need to reauthorize the EB-5 investment program by December 11, 2015,” and also describes itself as a “founding member” of a “broad-based EB-5 coalition that seeks to reform and reauthorize the program.” Stephen Lebovitz, the CEO of CBL, is a member of the Real Estate Roundtable’s FY 2016 board of directors.

The program is highly controversial. At the end of 2014, Corker, who chairs the Senate Committee on Foreign Relations, along with Sen. Chuck Grassley (R-Iowa) and then-Sen. Tom Coburn (R-OK), called upon the GAO to investigate. “I’ve had too many whistleblowers coming forward expressing concerns…to not have some trepidation,” said Grassley. The resulting report, which was issued in August, highlighted a number of problems with the program, including “unique fraud risks,” like “uncertainties in verifying that the funds invested were obtained lawfully.” But do these senators want to kill the program? Actually, no. Grassley and ranking member Sen. Patrick J. Leahy (D-VT.) are now pushing a reauthorization bill that would reform, but preserve, the key part of the program. The Washington Post wrote in an editorial that “even if it were reformed…the EB-5 would still be a bad idea. It’s corporate welfare, enabling certain businesses to attract capital more cheaply than others based on a government-conferred sweetener — namely, a visa.”

Meanwhile, Corker’s campaign finance chair, Kim Kaegi, is also the managing director of investor relations for a firm called LCR Capital Partners. According to its website, LCR “sources its capital from global high net worth investors seeking permanent U.S. residency through the EB-5 investment visa program.” (In 2010, Kaegi caused a bit of a dust-up, when during the height of negotiations over Dodd Frank financial reform, she sent an email offering prospective donors the opportunity to dine with Corker. “We are hoping for $10,000 for meal events or $5,000 for small meetings,” she wrote. Kaegi still serves as a fundraising consultant for Corker, according to her biography.)

LCR is also listed as part of the coalition to protect the EB-5 program. Last summer, a coalition member named Jeff Campion wrote in a post that he had “been fortunate to meet with Senators Grassley, Cornyn and Corker,” among others.

Congress has extended the deadline for reauthorization until mid-December.

In its complaint, the CFA notes that the Senate Ethics manual says that “the public has a right to expect members, officers and employees to exercise impartial judgment…the receipt of gifts…may interfere with this impartial judgment, or may create an appearance of impropriety that may undermine the public’s faith in government.” In Corker’s case, they argue that “the receipt of stock tips from company insiders creates exactly the sort of appearance of impropriety that the Gift Rule was designed to address.” That’s all the more true if there’s even a hint of the appearance of a quid pro quo.

A spokesperson for Corker says that “Sen. Corker supports legislation based on what he believes is the best thing for Tennesseans and our country. She notes that 31 states have filed suits against “Waters of the U.S.,” while 26 governors, along with 348 organizations, support the Marketplace Fairness Act. That’s very fair: Each of these pieces of legislation are broad-based enough that it’s hard to argue beyond a reasonable doubt that he was doing a specific favor for one constituent, or even a group of constituents. On the EB-5 program, she notes that Corker has been very clear that the program needs to be reformed, and says that “while it is unclear at this time how EB-5 may be reauthorized (whether through a standalone bill or attached to other legislation), the senator would oppose a straight reauthorization if it were to be considered as a standalone bill.” She adds that Corker had nothing to do with the financing for McGowin Park.

It’s probably naïve to want the behavior of our elected officials to be above even this type of questioning. But according to a new report from the Pew Research Center, only 19% of Americans say they can trust the government always or most of the time, among the lowest levels in the past half-century. Maybe if we knew elected officials were devoted to legislating, instead of to investing and trading, we’d have a little more faith.

What’s up with this Blog!?

March 18, 2017

I started this blog in November 2014 as a result of writing my first blog post — “You Can’t Handle the Truth!”  I actually wrote that piece without the desire to start a blog. I had been reading and participating on the timhoward717 blog up until that point, but the piece I wrote was too big to post there (admittedly it is a bit long).

I started this blog mainly to post that piece, but one thing led to another and now have exceeded 200 posts. Granted, some of those posts are frivolous (music videos, song lyrics, etc.). However, some posts required intense research and took several hours to write…many consumed an entire weekend…

About the Blog

Why did you write so many blog posts?  At the time, the truth needed to be told.

Why have you slowed down on the postings?  The truth is out. It’s clear there are people on both sides of the truth, but for the most part, the top line elements of the Bush and Obama Administration actions – along with the assistance of their external contributors (journalists, congressmen, lobbyists, etc. etc.) – have been publicized.

How much money do you make from the ads on this blog?  Nothing! Hopefully, the ads are just a slight annoyance to readers. I operate a free site, so WordPress makes money on posting ads on bloggers’ free accounts like mine.

Why are you anonymous?  Because I don’t want people to know my identity! Seriously though, I felt I could go further with my accusations, speculations and commentary if I didn’t have to worry about it affecting my personal and business relationships. One may have assumed because I work to expose government malfeasance that I don’t want Big Bro to know who I am. I have no delusion of being able to hide my identity from the US government… (my wife frequently asks why there is a red laser dot in the middle of my forehead — I tell her to just ignore it…ha!)

That’s it for the Q&A

As you can see, I am not in this to make money on the blog. However, with full disclosure, I am a shareholder of both Fan and Fred; both common and preferred.  I don’t try compete with anyone else. In fact, I have posted work by others on this blog — journalists, other bloggers, etc. I have no affiliation to any group or person…a completely independent, average joe…

My background is irrelevant. If you like what you read – keep reading. If not, that’s cool, too!

I’m motivated by the truth…  I’ve fought — and won — wrongdoing on many other occasions, but obviously Fanniegate has been the biggest nut to crack!  …we’re getting closer by the day!

Even though it is time consuming to keep a blog current, I will try to get back into posting more pieces. There is interest in Fanniegate and all that remotely goes into it. The story has many, many angles… And there is recent, new interest in Fanniegate.  After Donald Trump was elected and after Steven Mnuchin made references to Fan/Fred immediately after his nomination, there have been many new people attracted to the story…trying to figure it all out for themselves.

By no means do I have it all figured out…there are people much smarter than me that can be consulted to learn more about specific details on Fanniegate. But I do appreciate the interest in my blog. I’ve had readers from over half the countries in the world — 110 out of 196. Besides the US, the top five countries are Canada, Germany, Singapore, Switzerland and Argentina.

One request I’ve received a few times is to update my post FANNIEGATE FOR BEGINNERS. I wrote that one in September 2015, so much has happened since. I will work on that update this weekend. It’s also been recommended to condense that piece into a one-page, bullet point summary…which I’ll try to get that one done, too.

Again, thanks for your interest in the blog.  If interested, below is a screenshot of the top blog hits by views (I personally don’t think those represent the best posts, they just receive the most views for whatever reason – timing of post, Google searches, etc.).

The blog has a search function that is easily seen on the right side of the page if viewed on a computer. On a tablet, you need to view in landscape (sideways) vs. portrait (up & down) mode. I can’t get the search bar to pop up when viewing this blog on my phone (there’s probably a way, but I can’t figure it out…).

Reach me on twitter @fanofred_ or email fnffight@gmail.com if you want to chat.


Top Blog Views:

top blog hits

What to look for: Budget 2018

Accompanying every administration’s budget each year is a supplement titled, “Analytical Perspectives” which provides additional detail to support the overall budget.

The Obama 2017 Analytical Perspectives can be found here.

There are numerous references to Fannie Mae and Freddie Mac in the 2017 document including the following passage:

Future of the GSEs To finish addressing the weaknesses exposed by the financial crisis, the housing finance system must be reformed, and Fannie Mae and Freddie Mac should be wound down. The bipartisan progress in the Senate in the previous session was a meaningful step towards securing a system that aligns with many of the Administration’s principles for reform, including ensuring that private capital is at the center of the housing finance system so that taxpayer assistance is never again required, and that the new system supports broad access to credit and affordable rental housing through programs like the Housing Trust and Capital Magnet Funds.

Further, the Consolidated Appropriations Act, 2016, included a provision that prohibits Treasury from selling or otherwise disposing of the preferred stock it holds in Fannie Mae or Freddie Mac until January 1, 2018, unless legislation instructing Treasury on how to do so is enacted into law. Further, this provision recommends that legislation regarding the future of Fannie Mae and Freddie Mac be enacted and, notwithstanding the previous limitation, suggests that Treasury should not sell or dispose of its stock until such legislation is enacted.

The Administration will continue to work with Congress to pass comprehensive reform, centered on several core principles: require more private capital in the system; end the Fannie Mae/Freddie Mac duopoly business model in order to improve system stability and better protect taxpayers; ensure broad access for all creditworthy families to sustainable products like the 30-year fixed rate mortgage in good times and bad; and help ensure sustainable rental options are widely available.

The above language was repeated for years throughout the Obama Administration. However, the Trump Administration has indicated many times that it will take a different approach to Fannie and Freddie vs. the previous administration.

The 2018 Analytical Perspectives is likely being drafted as we speak and is due out in May. In President Obama’s first term, the Fiscal 2010 Analytical Perspectives was published May 11, 2009. In subsequent administrative years the documents are published in February due to the team already in place.

Therefore, we should look forward to receiving Trump’s 2018 Analytical Perspectives this May. That document should provide the Administration’s intentions regarding how they plan to deal with Fannie and Freddie, if they have not already provided detail ahead of this publication.



The Time is Now

It was clear the Obama’s administration never wanted to deal directly with Fannie and Freddie, instead deferring to Congress. Obama happily received and spent Fan/Fred’s profits while “waiting for Congress.”

Even when it was clear Congress was unable or unwilling to pass legislation dealing with Fan/Fred, Obama’s team was comfortable “kicking the can” to the next Administration despite knowing that Fan/Fred’s capital reserves would go to $0 by the end of their first calendar year in office – 2017.

There have been a number of indicators from the Trump Administration stating they will deal with the situation sooner than later. Both Steven Mnuchin and Gary Cohn have publicly stated the need to address Fan and Fred as one of the Administration’s important agenda items.

Yesterday, an Executive Summary for Trump’s 2018 Budget was released. It was more or less a top line summary of a more detailed budget due out in May. In the detailed budget, we will look for items involving the Net Worth Sweep. But, in the mean time we can consider what Mick Mulvaney wrote in the Exec Summary regarding Fan/Fred.

There is one passage that seems to directly or indirectly reference Fannie and Freddie:

“Empowers the Treasury Secretary, as Chairperson of the Financial Stability Oversight Council to end taxpayer bailouts and foster economic growth by advancing regulatory reforms that promote market discipline and ensure the accountability of financial regulators.”

Ending Taxpayer Bailouts: for a  fiscal 2018 budget, the only “bailout” still on the Administration’s books is Fannie and Freddie (after a record 8 years and 6 months in conservatorship).

Foster Economic Growth: ending the uncertainty of Fannie/Freddie will inject life into the housing industry – roughly 20% of our economy.

Promote Market Disciplineput to rest the notion of private gain/public loss. Recapitalize Fan/Fred and allow them to compete in the free market without an explicit or implicit government backing.

Ensure Accountability of Financial Regulators: FHFA, under Obama-appointee Mel Watt, has refused to deal (at least publicly) with the Net Worth Sweep – after 4 years and 7 months! Again, this reference is in a fiscal 2018 budget…which other financial regulator needs to be held accountable more than Fan/Fred’s regulator — who has been doing the opposite of what is required by law from a conservator. This summary was written by Mulvaney, who as a Congressman, challenged Watt during a Banking Committee hearing asking why FHFA was ignoring the law regarding the conservatorship and the net worth sweep. He famously asked, “How can an agreement between two agencies trump the law!?”

Video clip of that exchange can be seen here: https://youtu.be/t7dqiiG0l4s

So, again, we’ll need to wait until May for the details of the budget to realize what this means for Fannie and Freddie in 2017.

However, in addition to the budget details, it will certainly be instructive to see if the quarterly dividends on the senior preferred stock are paid at the end of the month… a short two weeks away.

Another indicator of timing may be in the recent executive order on the financial system. President Trump stated he wanted action within 120 days (from February 3) on items that might involve Fan/Fred… or by the beginning of June.

We’ve waited long enough… now is the time for action…!!

Here is the Executive Order:

Presidential Executive Order on Core Principles for Regulating the United States Financial System


– – – – – – –


By the power vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1. Policy. It shall be the policy of my Administration to regulate the United States financial system in a manner consistent with the following principles of regulation, which shall be known as the Core Principles:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(f) make regulation efficient, effective, and appropriately tailored; and

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

Sec. 2. Directive to the Secretary of the Treasury. The Secretary of the Treasury shall consult with the heads of the member agencies of the Financial Stability Oversight Council and shall report to the President within 120 days of the date of this order (and periodically thereafter) on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles and what actions have been taken, and are currently being taken, to promote and support the Core Principles. That report, and all subsequent reports, shall identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.

Sec. 3. General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect:

(i) the authority granted by law to an executive department or agency, or the head thereof; or

(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.


February 3, 2017.

Guns N’ Roses – Sweet Child O’ Mine

She’s got a smile it seems to me

Reminds me of childhood memories
Where everything
Was as fresh as the bright blue sky
Now and then when I see her face
She takes me away to that special place
And if I’d stare too long
I’d probably break down and cry

Oh, oh, oh
Sweet child o’ mine
Oh, oh, oh, oh
Sweet love of mine

She’s got eyes of the bluest skies
As if they thought of rain
I hate to look into those eyes
And see an ounce of pain
Her hair reminds me of a warm safe place
Where as a child I’d hide
And pray for the thunder
And the rain
To quietly pass me by

Oh, oh, oh
Sweet child o’ mine
Oh, oh, oh, oh
Sweet love of mine

Oh, oh, oh, oh
Sweet child o’ mine
Oh, oh, oh, oh
Sweet love of mine

Oh, oh, oh, oh
Sweet child o’ mine
Sweet love of mine

Where do we go?
Where do we go now?
Where do we go?
Oh, oh
Where do we go?
Where do we go now?
Where do we go?
Oh, (sweet child)
Where do we go now?
Where do we go now?
Where do we go?
Where do we go now?
Where do we go?
Where do we go now?
Where do we go?
Where do we go now?
No, no, no, no, no, no
Sweet child,
Sweet child of mine

Steve Mnuchin

As most of us know by now, Steve Mnuchin announced the Trump Administration’s intention to end the conservatorship of Fannie and Freddie during an interview on Fox News on November 30 seen here: https://youtu.be/WAFLne-LRxw

The results were likely predictable – stock prices rose and Mnuchin was attacked by the opposition. Many articles ran in the big bank-influenced media soon after, including one in the WSJ titled, Mnuchin Has Stake in Fund That Would Gain From Fannie Mae Revival.

The attack against Mnuchin was simple – the only reason he stated the eight year long conservatorships must end was his desire to enrich his friends and himself.

During his confirmation, in response to the attacks, Mnuchin preemptively stated his opinion on Fan/Fred was based on his decades-long experience in the mortgage industry (and not motivated by potential personal gain) as seen here: https://youtu.be/KySH-n7TbKE?t=3m34s

The Senate Finance Committee is set to hold an Executive Session tomorrow at 6:00 PM EST to consider endorsing Mnuchin’s nomination. Orrin Hatch, committee chairman, stated:

“Committee members and the American people heard a strong case from Steven Mnuchin on why he should be Treasury Secretary,” Hatch said. “His seasoned career as a financial leader equip him with the ability to steer the American economy in the right direction. And his commitment to work with Congress to reform our outdated tax code and explore ways to improve our nation’s broken infrastructure system should garner the support of my colleagues on both sides of the aisle. I look forward to the Committee voting on his nomination.”

The long-awaited beginning of the end of Fanniegate is finally here…


Seems like “expert opinion” can be swayed by the highest bidder.

Yesterday, William Isaac, former chairman of the Federal Deposit Insurance Corporation, teamed with Richard Kovacevich, a retired chairman and CEO of Wells Fargo & Co.

The two penned an OpEd that ran in the Wall Street Journal: Winding Down Fannie and Freddie Is Easier Than It Seems.

In the piece, the former bank regulator and former banker state:

“No other country has the equivalent of the private-public model of Fannie Mae and Freddie Mac—crony capitalism at its best.

The solution is straightforward: The public-private hybrid of Fannie and Freddie—“government-sponsored entities”—should be abolished, their existing business sold or liquidated, and the mortgage market privatized. This can be done in a few easy steps.

The current $686,000 cap on new mortgages guaranteed by Fannie and Freddie should be reduced by $100,000 a year. This would put the companies out of originating new mortgages within seven years.”

Messrs. Isaac and Kovacevich are evidently calling for the elimination of Fannie Mae and Freddie Mac. This recommendation from Mr. K is not at all surprising because the TBTF banks have been circling Fan/Fred like crazed vultures ever since the US Government seized the two companies.

However, Mr. Isaac seems to have a new — and completely different — outlook on Fannie and Freddie. Perhaps, FTI Consulting (Isaac’s employer) has a new client that wants to see the demise of Fan/Fred.

What’s odd is the 180 degree, about-face…

In April 2015, Mr. Isaac co-wrote with former senator Bob Kerrey, How The Fannie Mae, Freddie Mac Conservatorship Has Undermined The Resolution Process.

In this article they state:

“By diverting all profits away from the GSEs, FHFA effectively precluded any ability of the companies to boost their capital levels and over time “earn” their way out of conservatorship. Moreover, the profit sweep contradicts FHFA’s mandate to “preserve and protect” enterprise assets and property.

Such public-private partnerships at times of crisis require consistency in the federal government’s respect for, and protection of, private property rights. No private party will put capital at risk if they think the government can take it away from them in conservatorship or bankruptcy, however noble the underlying policy goals or inspiring the associated political rhetoric.

But the conservatorships have left the enterprises in a state of suspended animation; neither private nor public entity and yet their business must continue. The government’s decision to violate HERA in 2012 by invoking the so-called “profit sweep” has deprived the GSEs of their ability to rebuild capital and has put taxpayers at greater risk. It also undermines the government’s role in times of future crisis. If private capital can’t count on the rule of law, it won’t participate in the future and taxpayers will have to pick up the pieces of what’s left of the financial system.”

Earlier this year in February, Mr. Isaac wrote, U.S. Government Must Make a Decision on Freddie, Fannie.

Comments include:

“This action by the Administration created the worst of all worlds. Instead of trying to restore the companies to health, as HERA requires, the government’s actions stripped Fannie and Freddie of all their capital. The result: They again pose a substantial risk to taxpayers.

When faced with litigation and demands from the public to know why it took this action, the government initially told the courts that the profit giveaway was intended to save the companies and avoid an upcoming “death spiral.” But documents released in litigation have proven that assertion to be false. The truth, it seems, is that the profit giveaway was intended to facilitate the companies’ demise while providing windfall profits for the Treasury. As former Treasury Secretary Geithner colorfully testified, the government actually wanted to dismember the companies.

Even to a layperson, dismemberment does not heed the mandate of a conservator to restore the companies to sound condition and preserve their assets.

By the FHFA’s own admission and the government’s newly concocted litigation rationale, the government’s goal in stripping the companies of future profits was to fill the government’s coffers while ushering in the demise of Fannie and Freddie. But despite its supposed intent to wind the companies down, the government is keeping them alive and stripping them of all of their capital. This is incompatible with both current law and millennia of conservatorship history.

While taxpayer protection may sound good, it does not relieve the FHFA of its legal obligations to place the companies in sound condition, preserve their assets, and restore them to normal operations.”

$omething must have happened between February and December that Mr. I$aac would go from saying, “restore them to normal operations” to “should be abolished.”

One wonder$ what motivate$ $omeone to change their “expert opinion” so dra$tically, so $wiftly…

“If you don’t read the newspaper…

…you’re uninformed. If you read the newspaper, you’re misinformed.” Mark Twain

If you’ve followed Fanniegate for some time, you’re well aware that any time anything positive happens relating to Fannie and Freddie there will invariably be a negative article or response by a) a “journalist,” b) an “industry expert” or c) by a paid-for politician.

All of these folks have one thing in common; they do not want to see Fannie and Freddie succeed.

The “journalists” either work for a company that has taken a political/financial position (advocacy journalism) or some of these reporters are motivated by their ability to gain access to high government officials to interview for their articles… providing the reporters write the news (spin) in the officials’ favor (access journalism).

Oftentimes the “industry experts” are merely promoting the position for their clients…plain and simple.

Bought politicians are even easier to understand…

For those of you that are relatively new to Fanniegate, it is important to know that there are credible, respected people on the other side of the discussion.

One of these people is Gretchen Morgenson, Pulitzer Prize-winning financial reporter from the New York Times. Gretchen was the first mainstream media reporter to write an unbiased article on Fanniegate.

In February 2014, Gretchen wrote “The Untouchable Profits of Fannie Mae and Freddie Mac” which effectively broke the silence with major media. In this article, she highlighted the discovery of a secret government memorandum that outlined their plan to undermine shareholders:

“Furthermore, nationalization would have required the government to provide compensation to shareholders for what it took. Now the government gets the benefits of the companies’ profits while avoiding any compensation payments.”

Gretchen even made news when she addressed the issue of access journalism in a presentation at the 2015 Page One Awards:

“My second issue is closer to home — and it concerns the state of journalism today. That is, the rise of access journalists — those whose stories help their hidden sources promote themselves and their views — and the decline in accountability journalists. These are the folks who seek to hold powerful people responsible for their actions. Who, as the saying goes, seek to afflict the comfortable and comfort the afflicted.”

Gretchen’s presentation at this awards ceremony even addressed Fanniegate with her acknowledgement of unusual circumstances of the government secrecy:

“In response to the lawsuit, the government has demanded an extreme level of secrecy surrounding documents the judge has ordered it to produce. Those documents would shed light on how the decision to divert the profits was made, an important question given that the 2008 law written by Congress to handle the company’s problems was supposed to stabilize them and let them build up capital after the crisis receded.”

Gretchen is the lead, major journalist that has written the most articles regarding the saga involving Fannie Mae and Freddie Mac. Highlights of Gretchen’s articles are as follows:

December 2015: “Fannie and Freddie’s Government Rescue Has Come With Claws:”

“The August 2012 profit sweep surprised investors, but documents show that it came long after Treasury officials had indicated privately that they wanted to ensure Fannie and Freddie shareholders would receive none of the companies’ future profits.”

April 2016, “Documents Undercut U.S. Case for Taking Mortgage Giant Fannie Mae’s Profits:”

“Further testimony unsealed on Monday came from Mario Ugoletti, a former Treasury official who was a former special adviser to the director of the Federal Housing Finance Agency, the conservator overseeing Fannie and Freddie.

In December 2013, Mr. Ugoletti signed an affidavit for the case stating unequivocally that neither the Treasury nor the Federal Housing Finance Agency envisioned that the companies’ deferred tax assets were about to be reversed in the months leading up to the profit sweep, generating huge profits. He also said that the move was not intended to “increase compensation to Treasury.”

 But in the deposition in May, Mr. Ugoletti said he did not know whether the Treasury or the Federal Housing Finance Agency officials knew about the potential for the profits at Fannie and Freddie at the time of the sweep.

Mr. Ugoletti, who left government in the fall could not be reached for comment”.

May 2016, “Fannie, Freddie and the Secrets of a Bailout With No Exit:”

“An email from Jim Parrott, then a top White House official on housing finance, was sent the day the so-called profit sweep was announced. It said the change was structured to ensure that the companies couldn’t “repay their debt and escape as it were.”

The documents also show the Treasury moving to modify the terms of the mortgage finance giants’ $187.5 billion bailout shortly after a July 2012 meeting when the Federal Housing Finance Agency, Fannie’s and Freddie’s regulator, learned that they were about to enter “the golden years” of profitability.

October 2016, “Fannie and Freddie Investors Win Round in Suit Against U.S.:”

“The government initially argued that it acted to protect taxpayers from future losses because the companies were in a death spiral, but the decision to funnel the profits into the Treasury’s general fund came just before Fannie and Freddie returned to profitability.”

December 2016, “Trump Treasury May Mean Independence for Fannie and Freddie:”

“When the government changed the terms of their bailouts in the summer of 2012 and began expropriating all of Fannie’s and Freddie’s profits every quarter, it seemed as if that unsatisfactory setup would go on forever. After all, it is hard for the government to give up a honey pot that has returned over $60 billion more to the Treasury than the companies received from taxpayers during their troubles.” 

If Judge Sweeney were to order the release of more documents, the current administration would probably appeal. It is not as clear that a Trump administration would do so, however. This opens the possibility that all those materials that the Obama administration has fought so hard to keep secret might just emerge.

That would be a huge service for anyone interested in holding government officials accountable for their actions.”

The following articles and highlights were also written by credible journalists:

Matt Taibbi, Rolling Stone magazine, “Why Is the Obama Administration Trying to Keep 11,000 Documents Sealed?”

“Are the gory details of that plan what the government is working so hard to keep under seal?

We may never know. Judge Sweeney has yet to rule on the vast majority of the documents, and there’s no guarantee that she will ultimately unseal the remainder of the material. We may never find out what the government was so keen on keeping secret.

The only thing that is clear is that there’s something odd going on, with the Obama administration asserting privilege over a volume of papers so large, it would make Nixon blush.”

Roger Parloff, Fortune Magazine: “How Uncle Sam Nationalized Two Fortune 50 Companies:”

“Yet on Aug. 17, 2012—about 10 days after the terrific second-quarter results were announced—something singular happened. For reasons that remain shrouded in secrecy to this day, the Treasury Department and the companies’ conservator, the Federal Housing Finance Agency (FHFA)—two arms of the same government—agreed to radically change the terms of what the GSEs would owe in exchange for the moneys they had already received.

If this strikes you as, well, un-American, you’re not alone.”

Bethany McLean, “Mend, Don’t End, Fannie and Freddie:”

“Rhetoric aside, conservatorship is supposed to be governed by the law, which in essence says that the conservator must either “preserve and conserve” the GSEs and release them back, or throw them into receivership, in which case their assets would be distributed to shareholders. The investors argue that even a few years after the crisis, there were sufficient assets that the preferred stockholders would have gotten all the money they were owed.

But then on August 17, 2012, a sleepy summer Friday, Treasury and the FHFA changed the rules of the game. Going forward, instead of paying a 10 percent dividend, Fannie and Freddie would be required to send every penny they made to Treasury. If everything went to the government, then there was no value left for investors. Both the common and the preferred shares plunged in price.

The official explanation for this change is that the administration had no idea that the GSEs were about to become so wildly profitable, and so they executed the sweep of profits to prevent the GSEs from owing money they couldn’t pay. The sheer amount of money the GSEs started making immediately following the sweep makes it hard to believe this.”

Attorneys that specialize in these issues have also commented:

Richard Epstein, NYU School of Law, has written several articles on the subject including:

“Untangling the GSE Foolishness: The D.C. Circuit Should Upend Treasury’s Net Worth:”

“But no matter which route the transaction takes, the private shareholders are entitled to have a hearing to determine the size of their residual interest under the most elementary principles that insist that no property can be taken without the hearing required as a basic matter of procedural due process.

So the deal is really simple. Treasury took all residual shares for a zero price, and now pleads its own poverty as a defense.”

In a previous blog post here, I highlighted the many articles by Tara Helfman, Yale Law School graduate and Associate Professor at Syracuse University College of Law.

Logan Beirne, Fulbright Scholar and Yale Law School graduate: “Have FHFA and the Treasury Exceeded Their Limited Authority under HERA?”

“However, rather than work as conservator to benefit Fannie Mae and Freddie Mac’s shareholders, as is its obligation under traditional conservatorship law, the FHFA acted for the benefit of the U.S. government – and to the detriment of those private shareholders. In a surprise deal, the FHFA effectively wiped out the private shareholders and essentially turned the proceeds of Freddie and Fannie to the U.S. Treasury.”

Additional industry specialists wrote several articles including the following by Glen Corso and Josh Rosner:  “Why it’s Time for True GSE Reform:”

“A growing chorus of small lenders, affordable housing advocates, civil rights groups and capital market participants have asked that the GSEs’ regulator and conservator exercise the authorities provided him under HERA, and permit the GSEs to build adequate levels of capital so that they do not pose a risk to the public. 

These same groups have also asked that once the conservator is satisfied the GSEs are adequately capitalized, the GSEs regulator then begin the process of releasing the GSEs – as required by HERA — from direct government control.”

Lastly, David Fiderer, “How the $187 Billion GSE ‘Bailout’ Went Awry:”

“None of it seems to make any sense. Under federal statute, the FHFA, as conservator, must, “take such action as may be necessary to put the regulated entity in a sound and solvent condition.” No one has ever given a cogent explanation as to how the original cash drawdowns, and the subsequent cash distributions, including a 100% dividend sweep, serves that goal.”

Again, if your goal is to understand all of the issues related to Fanniegate, you should read as much as possible. Fortunately, there is recent, increased interest and debate over Fannie and Freddie, predominately since the presidential election. Read much and form your own, independent opinion!