By Investors Unite
Not surprisingly, every time a document related to the government’s Net Worth Sweep of Fannie Mae and Freddie Mac’s revenues is unsealed, the narrative of a premeditated strategy to dismantle the institutions – in direct defiance of the law – solidifies.
Among the dozen documents unsealed on June 22 is a transcript with portions of a lengthy deposition from July 1, 2015 of Timothy Bowler, then a top Treasury official intimately connected with the decision-making process. Bowler affirmed repeatedly that a major factor driving Treasury’s approach to the GSEs heading into the Sweep was the Administration’s policy to “wind down” the institutions. This was the central thrust of a 2011 Treasury report, he noted. Indeed, a briefing memo for then Treasury Secretary Tim Geithner for a January 6, 2012 meeting with acting Federal Housing Finance Agency Director Ed DeMarco says that FHFA and Treasury have a “shared goal . . . to provide the public and financial markets with a clear plan to wind down the Government Sponsored Enterprises over time.”
Bowler turned back questions as to whether the rationale for the Sweep was consistent with the purpose of facilitating Fannie and Freddie’s emergence from conservatorship “to resume private operations outside of the government’s control.” This goal, of course, was spelled out in the Housing and Economic Recovery Act in establishing the conservatorship.
Bowler sought to narrow how the team at Treasury evaluated the merits of the Sweep to more technical and procedural issues. Ultimately, however, he framed the impetus for Treasury’s actions broadly as, “… protect solvency, protect system, protect taxpayer.” As for shareholders, he explained that, so long as the underlying expectation was that Fannie and Freddie would be unable to make the full ten percent dividend payment owed to Treasury, officials had no “expectation that common shareholders would receive dividends from Fannie Mae or Freddie Mac.”
In an exchange apparently intended to establish that the decision to enact the Sweep was brought to Secretary Treasury Geithner’s attention in May of 2012, Bowler tried to resist being pinned down. Interestingly, however, when the question arose as to whether Gene Sperling, then the head of the National Economic Council at the White House, was apprised of the Sweep at that time, Bowler was instructed to not reply. The reason, according to government counsel, was that the response could wade into the area of “presidential communications privilege.” Thus, the question of who knew what and when has been in the minds of government attorneys for quite some time.
Whatever deference can be given to Bowler in wanting questions framed with specificity, it is hard to conclude that his deposition, like others by government officials involved in these deliberations released to date, is a study in obfuscation and avoidance of providing relevant information.
Finally, it is notable that just days before the Sweep, there was high level meeting of Treasury officials as well as the CEOs of both Fannie and Freddie. Bowler characterized the Sweep as a fait accompli at that point, rather than a chance to get input from them. He said, “I don’t recall anybody saying that, asking the companies are you okay with this. I said, here’s what we’re doing, we would like your feedback, here’s the agreement that we’ve reached with FHFA as conservator, we would like your feedback on this…”
The latest documents to enter the public record come as the U.S. Court of Appeals for the DC Circuit is deliberating a group of shareholders’ appeal of U.S. District Court Judge Royce Lamberth’s October 2014 decision to dismiss their suit over the Sweep. What bearing these and other documents will have on Appeals Court judges’ thinking is difficult if not impossible to discern. What it does show, however, is that they want to look at the facts carefully. The more the facts can come to light and be weighed against the rights of shareholders, the better.
