At a time when major media outlets are loudly touting their sacrosanct roles as truthful and accurate chroniclers, it was dismaying to see a Washington Post editorial today so riddled with inaccuracies, mischaracterizations, omissions and bias.
The Post today expressed hope that last week’s Appeals Court ruling that upheld U.S. DC Circuit Court Judge Royce Lamberth’s holding that the government acted within its rights with regard to the Net Worth Sweep of Fannie and Freddie’s profits will be the “demise of an ugly lawsuit.” In the Post’s view, hedge funds have been trying to wrest control of Fannie Mae and Freddie Mac. In fact, it has been the government that was trying to wrest control from the shareholders who owned the companies in the first place. The lawsuits launched in response were aimed at thwarting overreach by the government and not an aggressive takeover by investors.
Allowing that this was an editorial rather than a news story, the Washington Post, as a “newspaper of record” in the nation’s capital still needs to back up its opinion with facts. It failed to do that on many counts.
First, in its editorial, the Post asserts that speculators were trying to make a “taxpayer-subsidized killing” by purchasing shares of Fannie and Freddie when the companies were thought to be in peril at the heights of the 2008 financial crisis. In fact there were tens of thousands of ordinary Americans who held shares in Fannie and Freddie before the crisis. When the government stepped in to prevent Fannie and Freddie from becoming insolvent, these shareholders had every reason to expect share value would recover. Similarly, those who purchased shares were not simply speculating but operating on the reasonable premise that the government would make sure the two government sponsored enterprises would be restored so they could again play their critical role of providing liquidity and stability in the home loan marketplace. That was the underlying basis of the Housing and Economic Recovery Act. The government clearly intended to reassure markets and investors that Fannie and Freddie would be okay. In essence, enactment of the HERA was the government’s declaration that the companies were in essence too big to fail and would be good bets for the long haul.
Second, the Post editorial board’s cynical sneering that the lawsuits by investors were ungirded by “high-minded rhetoric about property rights and the rule of law” was most unwelcome. The Post has taken principled stands for “property rights” and “the rule of law” – of late to contrast itself with President Trump. Are these concepts suddenly invalid when they are invoked by those the Post’s editors have decided deserve scorn? A more careful reading of the appeal’s court decision should have made it clear to the Post that the prohibition of the “takings” of property, provided for in the Fifth Amendment to the U.S. Constitution, remain an open question. The three-judge appeals panel said Judge Lamberth needs to evaluate whether shareholders are entitled to compensation even if the government acted within it parameters as conservator with regard to the Net Worth Sweep. So yes, even though the appeals court judges upheld Lamberth’s take on the government’s power, they affirmed the primacy of property rights and the rule of law. Too bad the Post was so flippant in its discussion of these concepts.
Third, the Post chided dissenting Judge Janice Rogers Brown for “hyperbole” in likening the government exceeding its authority with the Net Worth Sweep as a move more suitable to a “banana republic.” But it was the Post that then engaged in hyperbole in asserting that without the government’s “rescue” of Fannie and Freddie, the American economy and the Republic itself might have collapsed. Really?
Few people would quibble with the idea that Congress and the Bush Administration acted prudently to place Fannie and Freddie into conservatorship and provide $187.5 to shore them up when the entire financial system seemed to be crumbling in 2008. However, once policymakers and the markets caught their breath, it was apparent that Fannie and Freddie’s circumstances were not as dire as feared – certainly not as bad as the big banks that got bailouts. Congress wisely enacted HERA to provide for a conservatorship to restore the companies to a “sound and solvent condition” and a receivership if the companies were beyond saving and needed to be liquidated. The Post’s notion that the government’s “rescue” should include raking up profitable companies’ earnings and using the money for its spending caprices is itself hyperbolic. Does the Post really think that depleting the companies of their capital, keeping them hostage and kicking the can down the road for almost nine years helped stave off the collapse of America’s democracy and economy? Do taxpayers, shareholders or the mortgage market place benefit in any way from this reckless state of limbo that is entirely of the government’s making?
In fact, if the Post believes the protection of the Republic and markets justified the actions the government took, it should also consider the dangerous implications for the government’s overreach with regard to the Sweep for the long-term health and stability of capital markets. As Judge Brown wrote, “Today, however, the Court explains this rational investor was wrong. And its bold and incorrect statutory interpretation could dramatically affect investor and public confidence in the fairness and predictability of the government’s participation in conservatorship and insolvency proceedings.”
Fifth, the Post endorses as “reasonable” the Obama Administration’s view that the third amendment to the conservatorship, which resulted in the Net Worth Sweep, was justified to ensure that “bottom-feeding hedge funds should not reap a windfall from a recovery that massive investment by taxpayers made possible.” Putting aside the lazy innuendo directed against legitimate private sector investors, did the Post forget that Fannie and Freddie, which remain shareholder-owned companies, have paid taxpayers back for the $187.5 billion plus more than $60 billion? The question at this point is who is subsidizing whom and who is enjoying a windfall? While the Obama Administration created a piggy bank with Fannie and Freddie’s profits to mask the size of the budget deficit or to use for its own purposes, thousands of shareholders have been waiting for economic justice.
Sixth, if the government was so clearly empowered by the law to vacuum up Fannie and Freddie’s profits and if its justification for the Sweep was so unimpeachable, why have government lawyers been so aggressive and desperate to hide thousands of pages of documents related to its actions in another suit brought by investors? Considering that the Washington Post’s vaunted reputation grew out of its courageous move to publish the Pentagon Papers and its dogged pursuit of the truth in the Watergate scandal, it would have been useful for the editorial to raise the government’s lack of transparency in the Fannie and Freddie litigation. In fact, it would have been useful for the Post to have weighed in even once on the appalling breadth and depth of secrecy and obfuscation by the government over its actions in the