The Net Worth Sweep is wrong for many reasons but a recent exposé published by InfoWars raises the jaw-dropping prospect that the Obama Administration illegally siphoned Fannie Mae and Freddie Mac’s profits to pay for provisions of the Affordable Care Act that Congress chose not to fund.
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Dr. Jerome Corsi, InfoWars Washington Bureau Chief, published stories this week that draw on documents posted on FannieFreddieSecrets.org as well as previously undisclosed documents that put the Obama Administration’s plan to “wind down” Fannie and Freddie in an even more unfavorable light. Corsi chronicles Oval Office meetings and internal communications that reinforce what has long been apparent to anyone who has followed Fannie and Freddie’s captivity in the government-induced conservatorship: The Obama Administration fully understood – even embraced – the fact that dismantling Fannie and Freddie would have negative consequences for working Americans who dreamed of owning their own home. Points Corsi’s analysis stresses include the following:
– The government sponsored enterprises (GSEs) were not in the dire financial condition initially assumed by policymakers when the Housing and Economic Recovery Act was enacted in 2008.
– As early as 2010, ideological determination to turn over the GSEs’ mortgage securitization function to the private sector (dominated by large banks) drove policy, even as officials readily acknowledged this could mean higher borrowing costs – and therefore less accessible homeownership.
– The sudden implementation of the Net Worth Sweep in August 2012 occurred as the Administration and Congress were at odds about the national debt and spending priorities.
– When investors sued the government for going beyond its authority under HERA and engaged in the unconstitutional taking of private property, the government pushed back hard. In one lawsuit, the government embarked on an unprecedented quest to wall off thousands of documents related to the Sweep.
These revelations are unsettling enough but Corsi then raises an intriguing and equally disturbing possibility: The Administration jettisoned any pretense about caring about affordable homeownership in order keep Fannie and Freddie’s profits available for getting around restrictions on spending on the Affordable Care Act, known more commonly as Obamacare.
His analysis starts with a decision on May 12, 2016 by U.S. District Judge Rosemary Collyer, in the case U.S. House of Representatives v. Burwell, (130 F. Supp. 3d 53, U.S. District Court for the District of Columbia). Judge Collyer ruled that Health and Human Services Secretary Sylvia Matthews Burwell had no constitutional authority to divert funds Congress appropriated to one section of the ACA to fund the law’s subsidy payments to insurers under Section 1402. Congress explicitly declined to appropriate any funds to Section 1402 for paying the insurance subsidy.
Without that money to subsidize lower-income peoples’ purchase of health insurance as Obamacare anticipated, insurers would be forced to charge people with higher incomes sharply higher rates. “Obamacare was dead in the water if the Obama administration could not find a way to circumvent the District Court’s decision U.S. House of Representatives v. Burwell to fund Section 1402 despite the fact Congress had refused to do so,” Corsi comments.
He posits that Administration officials turned to proceeds from the Net Worth Sweep, writing, “Miraculously, the Freddie and Fannie ‘pot of gold’ turned out to be almost exactly the amount the Obama administration needed to meet the anticipated insurance company subsidies required to keep Section 1402 in business.”
Pot of gold is an apt metaphor. As documents released in the course of shareholder litigation have revealed, Administration officials knew by the spring of 2012 that Fannie and Freddie were poised to start showing significant profits, allowing the companies to not only pay back the $187.5 billion in taxpayer funds provided in HERA to keep them from collapsing but also to yield potentially tens of billions of dollars on top of that. As one official put it, the future looked like a “golden era” for GSE profits. Indeed, by the end of 2013 alone, with Fannie’s profits of $82.4 billion and Freddie’s totaling $47.6 billion, the companies were well on their way. Corsi points out the coincidence that these figures add up to $130 billion – the very amount needed to fund Section 1402 in the ACA – which ended up in court not long thereafter. (Indeed, in a report issued in March 2016, the Congressional Budget Office estimated the cost for providing Section 1402 subsidies over the next ten years (2016-2026) was estimated to be $130 billion.)
Corsi goes a step further to establish a connection between tapping the GSE’s revenues for Obamacare. He looks at a Congressional Budget Office publication “The Budget and Economic Outlook: 2015 to 2025” and questions why items considered as part of “mandatory U.S. government spending” include “transactions with Fannie Mae and Freddie Mac.” Why would profitable companies in a conservatorship be considered an outlay?
A little more digging led to his discovery that the Fannie Mae and Freddie Mac “outlays,” projected at $74 billion in 2014 and $26 billion for 2015, were actually “negative dollar amounts.” That is, this was money the GSEs were providing Treasury, not the other way around. And how was the money used? To pay continued subsidies to insurers, as specified by ACA Section 1402, Corsi concludes.
He then points out a footnote that “lets the cat out of the bag.” The Obama Administration considered payments from Freddie and Fannie “to be outside of the federal government for budgetary purposes,” recording cash payments from Freddie and Fannie to the Treasury as “federal receipts.” For CBO’s part, money is money, whether it is called tax revenues or “federal receipts,” and it ends up in the same stream filling the government’s general fund coffers.
If Corsi’s analysis holds up, it leads to several inescapable conclusions. One is that the Obama Administration considered Fannie and Freddie profits to be money generated by companies with stock still held by private individual and institutional shareholders – distinct from revenue raised from taxation. Thus, the rights of shareholders were not obliterated by the conservatorship or the Net Worth Sweep – and are still relevant as they press their cases in court. Two, in its budget maneuverings to prop up the ACA, the Obama Administration cavalierly put aside a key Democratic constituency – affordable housing advocates and minority groups as well as well as all working families aspiring to homeownership. Third, if “receipts” from Fannie and Freddie end up in government coffers and therefore need a Congressional appropriation to be spent, then it will be clear that the Administration used a budget sleight of hand to try to keep the ACA alive, in violation of the law.
The ongoing battle over documents in shareholder litigation arising the Net Worth Sweep has left ample room for suspicion and intrigue so Corsi’s suggestion that the Obama Administration subverted affordable housing and home ownership priorities to get around Congressional intent and the law, while disturbing, is not shocking.
Once again, what is needed is a full accounting of the Net Worth Sweep. This will enable policymakers to move forward finally with true GSE reform that helps working families attain the American Dream and protects taxpayers, restores the rights of shareholders and ends the shameful saga of a conservatorship run amok.