GSE Reform: More Congressional Oversight of Administration’s Secrecy is Needed

GSE Reform: More Congressional Oversight of Administration’s Secrecy is Needed

February 2, 2016 by Investors Unite

There is more evidence this week that the Obama Administration doesn’t want anyone knowing what it is really thinking. All the more reason for Congress to keep probing.

A House Financial Services Committee report released Monday shows the Administration was telling Congress one thing but doing another during budget/debt limit showdowns with Congress in 2011 and 2013.

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According to Richard Pollock, writing for the Daily Caller, the report says Federal Reserve Bank of New York officials secretly developed plans for keeping at least some government functions going should a temporary government shutdown result from an impasse between the White House and Congress over the debt limit and spending in 2011 and 2013. Treasury Secretary Jack Lew publicly claimed many times that contingency plans were “unworkable” when in fact the Administration had a means to prioritize expenditures and make a temporary shutdown, in fact, workable.

The report explains that there were mechanisms created to pay Social Security and veterans benefits, as well as principal and interest on the national debt, if the government was temporarily unable to borrow more money.

House Financial Services Committee Chairman Jeb Hensarling, R-TX, said in a statement, “These internal documents show the Obama Administration took the nation’s creditworthiness and economy hostage in a cynical attempt to create a crisis so the President could get what he wanted during negotiations over the debt ceiling,”

Congress wanted to confirm its suspicions over the last two years, but the Treasury Department “obstructed” congressional efforts to learn more. Pollock quotes the 322-page report as saying, “Treasury apparently directed the New York Fed not to answer valid congressional oversight inquiries because Treasury knew the answers would expose the dishonesty of the administration’s public statements.”

These findings matter for two important reasons. One is Constitutional: Congress has the power to determine how much the country can borrow. Not the President. The report would suggest the Administration devised a way around that – asserting the full faith and credit of the United States was on the line while secretly making sure that was not the case. The other reason concerns basic ethics and transparency: This new report demonstrates yet again that the Administration prefers to keep its machinations secret – not to protect the public but rather to protect itself and individual public officials.

These are the identical concerns at issue in the use of Executive Privilege in the litigation by shareholders of Fannie Mae and Freddie Mac.  Clearly, the Third Amendment Sweep of the GSE’s profits, conceived and executed in the midst of the August congressional recess in 2012, created a revenue stream for the Treasury and strengthened its hand in budget showdowns with Congress.  In a May 17, 2013 letter to congressional leaders Treasury Secretary Lew cited revenues from Fannie Mae and Freddie Mac as a way to essentially buy more time to allow the government to meets its obligations until Congress formally raised the debt limit.

But in that matter, just as in the matter covered by this new report, there were questions about the legal propriety of the actions by Treasury officials. The 2008 Housing and Economic Recovery Act explicitly stated that the GSE’s assets were to be “preserved and conserved” during the conservatorship, so Lew’s letter citing the GSEs’ revenues as a way to fund operations of government is audacious.  As litigation arose over the treatment of the revenues of Fannie and Freddie, the Administration asserted Executive Privilege on thousands of pages of documents and correspondences and has since fought vigorously to keep them secret. In this matter, as with the debt limit backup plans discussed in the new report, the response by Treasury was to obstruct access.

We could find out more about the report today when the House Financial Services Committee convenes apublic hearing. As Congress continues to perform is vital oversight role with due diligence, it would be worthwhile for lawmakers to turn as well to the Third Amendment Sweep and the assertion of Executive Privilege in ongoing litigation.

Investors Unite has long called for an oversight investigation as a possible first step in ending the conservatorship. More recently, we have urged Congress to use its new authority under the recent adoption of some elements of the so-called Jumpstart GSE Reform bill to recapitalize and reform the GSEs.  At the very least, this new report underscores that learning the truth about the Sweep is intrinsic to defining the limits of the Executive Branch power under the Constitution. This is a principle that transcends who occupies the White House or what party controls Congress.

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