Politics

Dick Bove: “The Wall Street Journal has functioned as the government’s un-official spokesperson” On GSE Reform

From Dick Bove on the latest Fannie Mae news

The legal representatives of one of the key plaintiffs in the Fannie Mae and Freddie Mac (FMCC/$1.85/Buy) lawsuits held a conference call in New York to discuss the newly disclosed information provided by the government.

The chief counsel explained that 53 documents had been released by the government and that the documents disclosed that the Treasury Department and possibly the White House had broken the law. The law in question was the Housing and Economic Recovery Act of 2008.

Specifically, Congress had demanded that an independent agency be established to rebuild the financial health of these two companies. The new material disclosed that it was the clear intention of the government to make it impossible for these companies to return to health and that the independent agency had no independence at all.
? The disclosed documents also revealed, according to counsel, that the government had provided false information to the courts and a high level Treasury official had signed an affidavit claiming facts were true that he knew were not true.

So what happens now? Well, a new brief will be filed with the appropriate courts pointing out the issues disclosed here. It is expected that at least one of these courts will render a decision concerning the information. This decision could be anything to forcing the disclosure of 12,000 documents which the plaintiffs have requested to finding that the government had acted illegally to throwing out the plaintiff’s case.

It is expected that a court ruling will come out in late June or early July. It is likely to be released at roughly the same time as Fannie and Freddie report their second quarter earnings. As I have written for some time if interest rates are low throughout this quarter Freddie Mac could easily be bankrupt and Fannie Mae in seriously weakened condition. It now looks, however, like interest rates will be higher and these companies will avoid their dire fates.

The confluence of these two events could force a denouement in this case. A settlement might be possible. One can only wait and hope.
It has been my belief for years that the Wall Street Journal has functioned as the government’s un-official spokesperson. Thus, to understand the government’s response to these developments one only needs to read that paper. It claims that no new information has been made available (I will let the reader and the courts decide if this is a blatant lie or not).

But the core argument that the government is making through the newspaper is that a) the companies are in financial trouble and need the government and b) this is key, the interest of the taxpayer required the government to act as it did.

Fannie Mae

So the courts will be faced with determining if this is a country truly ruled by law or whether the government can ignore the laws to meet perceived taxpayer needs. ???

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