Nader, Epstein on Fannie Mae, Freddie Mac by Todd Sullivan, ValuePlays

Full transcript:

Operator: Good day and welcome to today’s Investors Unite Teleconference hosted by Investors Unite Executive Director Tim Pagliara with special guest Mr. Ralph Nader and featuring New York University Law Professor Dr. Richard Epstein. On today’s call, Mr. Pagliara and Professor Epstein will provide an overview and analysis of current litigation challenging the Department of Treasury Conservatorship of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). I will now turn the conference over to Mr. Pagliara. Please go ahead.

Tim Pagliara: Well, good morning everyone. Thank you for joining us today. We have two distinguished guests. First we have nationally known consumer advocate, author and presidential candidate Ralph Nader. Second, joining us is New York University law professor Richard Epstein. Professor Epstein is a very influential legal scholar and a Laurence A. Tisch professor of law at New York University School of Law. He’s also an adjunct scholar at the Cato Institute, the Peter and Kirsten Bedford Senior Fellow at Stanford University’s Hoover Institution, the James Parker Hall Distinguished Service Professor Emeritus of Law and a Senior Lecturer at the University of Chicago Law School and a policy advisor for The Heartland Institute. He also serves as a consultant to several institutional investors that are concerned with Judge Lamberth’s recent decision. A constitutional law expert, Professor Epstein’s most recent publication is The Classical Liberal Constitution: The Uncertain Quest for Limited Government. So we’re going to have a great program for you this morning and an opportunity for you to ask questions after both of our guests speak, but before I turn the program over to them, I want to give you two brief updates.

First, today we posted a clip of former Federal Housing Finance Administrator Ed DeMarco’s speech at a recent Washington, D.C. forum. We posted it to the website and here’s what it says and the DeMarco clip goes like this. “During my tenure, I believe that the Federal Housing Finance Agency had a responsibility not just to operate the conservatorships according to the law, but to be attentive to the direction the administration and lawmakers were going.” Now, let me read you what HERA says about DeMarco’s role in the Federal Housing Finance Administration. “Federal Housing Finance powers as conservator as outlined in HERA is to take such action as may be, one, necessary to put the regulated entity in a sound and sovereign condition, and two, action that is appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.” So our point for putting this up on the website is that here we have an unelected bureaucrat like DeMarco deciding what he thought HERA meant and admitting that he thought he could expand upon the law himself based upon conversations he had with members of Congress. The fact is that if Congress wants to change the law, it can do so, but it’s not okay for DeMarco to make laws on his own and with select members of Congress. This is outrageous. It ought to be outrageous to Congress; it ought to be outrageous to the American people, and this is exactly what the litigation is about – the Federal Housing Finance Administration violating its duties as a conservatorship, the unconstitutional taking of shareholder property with no compensation. So you can find this clip of DeMarco on our website, and the accompanying information.

The second point and update that I want to give you today is that yesterday there was a column in The Wall Street Journal defending the administration committing the largest unconstitutional taking in the history of this country. So putting aside the obvious bias against Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and shareholder rights that The Wall Street Journal has shown throughout this whole process, I’d like to set those records straight about something that John Carney said that was completely inaccurate. He said that the third amendment sweep was required because Fannie Mac and Freddie Mac were insolvent and needed another bailout. The government had to turn over documents, part of this administrative record, in some of the litigation so far and none of those documents show anything to support their claim. In fact, there were no projections or financial analyses whatsoever showing Fannie Mae and Freddie Mac needed more money or that the conservatorship financing from the treasury would be exhausted. This is probably because the government knew they were already profitable in 2012 and would be for the foreseeable future, and I’ll remind you, these are still publicly-traded entities. They still have to file quarterly and annual statements with the Securities and Exchange Commission, and it was less than three months after the implementation of the third amendment sweep that they delayed their filing with the Securities and Exchange Commission, and in the filing when they finally made it in April of 2013, they made the statement publicly on the record, under oath, that they were profitable and they would be profitable for the foreseeable future.

So what Carney said was that there was absolutely nothing to support what he put in his column on the record. The only justification for the sweep is that it was self-serving, it’s unsupported, it’s an after-the-fact declaration by the Treasury and the Federal Housing Finance Administration in 2013 a year after the sweep began and the government had already been sued to undo the sweep as improper. The story never existed before the litigation. In fact, the government’s own documents tell a very different story from the one they’re putting out now. We know that the government first considered taking all of the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) profits in 2010 when they discussed their policy not to let private shareholders share in future earnings. The New York Times put this memo on their website when Gretchen Morgenson reported on it. Blackstone told the Treasury Department in 2011 that Fannie Mae and Freddie Mac would be profitable and that they would have to deal with the private shareholders. It was only after we saw two quarters of profits in 2012 that the government moved to seize those profits immediately before the enterprises started making enough money to repay the government in full. Now the profits are being taken without any knowledge or any acknowledgement that the Treasury is paid back, and keep this riddle in your head: who borrows $189.5 billion dollars at 10% interest and pays it back in an average of three and a half years? Answer: somebody that didn’t need it in the first place.

So at this point, I’d like to turn the call over to our two guests. Each of them will speak for a few minutes on how they see the

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