Did The Washington Post got The Story Wrong On Fannie Mae

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Did The Washington Post got The Story Wrong On Fannie Mae

Fannie Mae

Photo by NCinDC

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.

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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.

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Fannie Mae

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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 Net Worth Sweep.

The Post has made its enmity for Fannie and Freddie clear with editorials over the last few years. That is its right but if the Post wants to hold itself up as a paragon of civil and informed discourse then it needs to uphold higher standards than the purveyors of fake news it condemns. The First Amendment allows for different perspectives but publications such as the Post have the imperative to offer perspectives that are more fully and factually informed.

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  1. This relates to the Washington Post hypocrisy in an unrelated matter, unreported story of Watergate and how Deep Throat used Woodward & Bernstein for political ends and the unreported story the Post declined to tell. It speaks volumes about the lack of candor in one of the country’s major newspapers.

    By George Friedman

    Mark Felt died last week at the age of 95 (in 2008). For those who don’t recognize that name, Felt was the “Deep Throat” of Watergate fame. It was Felt who provided Bob Woodward and Carl Bernstein of The Washington Post with a flow of leaks about what had happened, how it happened and where to look for further corroboration on the break-in, the cover-up, and the financing of wrongdoing in the Nixon administration. Woodward and Bernstein’s exposé of Watergate has been seen as a high point of journalism, and their unwillingness to reveal Felt’s identity until he revealed it himself three years ago has been seen as symbolic of the moral rectitude demanded of journalists.
    In reality, the revelation of who Felt was raised serious questions about the accomplishments of Woodward and Bernstein, the actual price we all pay for journalistic ethics, and how for many years we did not know a critical dimension of the Watergate crisis. At a time when newspapers are in financial crisis and journalism is facing serious existential issues, Watergate always has been held up as a symbol of what journalism means for a democracy, revealing truths that others were unwilling to uncover and grapple with. There is truth to this vision of journalism, but there is also a deep ambiguity, all built around Felt’s role. This is therefore not an excursion into ancient history, but a consideration of two things. The first is how journalists become tools of various factions in political disputes. The second is the relationship between security and intelligence organizations and governments in a Democratic society.
    Watergate was about the break-in at the Democratic National Committee headquarters in Washington. The break-in was carried out by a group of former CIA operatives controlled by individuals leading back to the White House. It was never proven that then-U.S. President Richard Nixon knew of the break-in, but we find it difficult to imagine that he didn’t. In any case, the issue went beyond the break-in. It went to the cover-up of the break-in and, more importantly, to the uses of money that financed the break-in and other activities. Numerous aides, including the attorney general of the United States, went to prison. Woodward and Bernstein, and their newspaper, The Washington Post, aggressively pursued the story from the summer of 1972 until Nixon’s resignation. The episode has been seen as one of journalism’s finest moments. It may have been, but that cannot be concluded until we consider Deep Throat more carefully.
    Mark Felt was deputy associate director of the FBI (No. 3 in bureau hierarchy) in May 1972, when longtime FBI Director J. Edgar Hoover died. Upon Hoover’s death, Felt was second to Clyde Tolson, the longtime deputy and close friend to Hoover who by then was in failing health himself. Days after Hoover’s death, Tolson left the bureau.
    Felt expected to be named Hoover’s successor, but Nixon passed him over, appointing L. Patrick Gray instead. In selecting Gray, Nixon was reaching outside the FBI for the first time in the 48 years since Hoover had taken over. But while Gray was formally acting director, the Senate never confirmed him, and as an outsider, he never really took effective control of the FBI. In a practical sense, Felt was in operational control of the FBI from the break-in at the Watergate in August 1972 until June 1973.
    Nixon’s motives in appointing Gray certainly involved increasing his control of the FBI, but several presidents before him had wanted this, too, including John F. Kennedy and Lyndon Johnson. Both of these presidents wanted Hoover gone for the same reason they were afraid to remove him: He knew too much. In Washington, as in every capital, knowing the weaknesses of powerful people is itself power — and Hoover made it a point to know the weaknesses of everyone. He also made it a point to be useful to the powerful, increasing his overall value and his knowledge of the vulnerabilities of the powerful.
    Hoover’s death achieved what Kennedy and Johnson couldn’t do. Nixon had no intention of allowing the FBI to continue as a self-enclosed organization outside the control of the presidency and everyone else. Thus, the idea that Mark Felt, a man completely loyal to Hoover and his legacy, would be selected to succeed Hoover is in retrospect the most unlikely outcome imaginable.
    Felt saw Gray’s selection as an unwelcome politicization of the FBI (by placing it under direct presidential control), an assault on the traditions created by Hoover and an insult to his memory, and a massive personal disappointment. Felt was thus a disgruntled employee at the highest level. He was also a senior official in an organization that traditionally had protected its interests in predictable ways. (By then formally the No. 2 figure in FBI, Felt effectively controlled the agency given Gray’s inexperience and outsider status.) The FBI identified its enemies, then used its vast knowledge of its enemies’ wrongdoings in press leaks designed to be as devastating as possible. While carefully hiding the source of the information, it then watched the victim — who was usually guilty as sin — crumble. Felt, who himself was later convicted and pardoned for illegal wiretaps and break-ins, was not nearly as appalled by Nixon’s crimes as by Nixon’s decision to pass him over as head of the FBI. He merely set Hoover’s playbook in motion.
    Woodward and Bernstein were on the city desk of The Washington Post at the time. They were young (29 and 28), inexperienced and hungry. We do not know why Felt decided to use them as his conduit for leaks, but we would guess he sought these three characteristics — as well as a newspaper with sufficient gravitas to gain notice. Felt obviously knew the two had been assigned to a local burglary, and he decided to leak what he knew to lead them where he wanted them to go. He used his knowledge to guide, and therefore control, their investigation.
    And now we come to the major point. For Felt to have been able to guide and control the young reporters’ investigation, he needed to know a great deal of what the White House had done, going back quite far. He could not possibly have known all this simply through his personal investigations. His knowledge covered too many people, too many operations, and too much money in too many places simply to have been the product of one of his side hobbies. The only way Felt could have the knowledge he did was if the FBI had been systematically spying on the White House, on the Committee to Re-elect the President and on all of the other elements involved in Watergate. Felt was not simply feeding information to Woodward and Bernstein; he was using the intelligence product emanating from a section of the FBI to shape The Washington Post’s coverage.
    Instead of passing what he knew to professional prosecutors at the Justice Department — or if he did not trust them, to the House Judiciary Committee charged with investigating presidential wrongdoing — Felt chose to leak the information to The Washington Post. He bet, or knew, that Post editor Ben Bradlee would allow Woodward and Bernstein to play the role Felt had selected for them. Woodward, Bernstein and Bradlee all knew who Deep Throat was. They worked with the operational head of the FBI to destroy Nixon, and then protected Felt and the FBI until Felt came forward.
    In our view, Nixon was as guilty as sin of more things than were ever proven. Nevertheless, there is another side to this story. The FBI was carrying out espionage against the president of the United States, not for any later prosecution of Nixon for a specific crime (the spying had to have been going on well before the break-in), but to increase the FBI’s control over Nixon. Woodward, Bernstein and above all, Bradlee, knew what was going on. Woodward and Bernstein might have been young and naive, but Bradlee was an old Washington hand who knew exactly who Felt was, knew the FBI playbook and understood that Felt could not have played the role he did without a focused FBI operation against the president. Bradlee knew perfectly well that Woodward and Bernstein were not breaking the story, but were having it spoon-fed to them by a master. He knew that the president of the United States, guilty or not, was being destroyed by Hoover’s jilted heir.
    This was enormously important news. The Washington Post decided not to report it. The story of Deep Throat was well-known, but what lurked behind the identity of Deep Throat was not. This was not a lone whistle-blower being protected by a courageous news organization; rather, it was a news organization being used by the FBI against the president, and a news organization that knew perfectly well that it was being used against the president. Protecting Deep Throat concealed not only an individual, but also the story of the FBI’s role in destroying Nixon.
    Again, Nixon’s guilt is not in question. And the argument can be made that given John Mitchell’s control of the Justice Department, Felt thought that going through channels was impossible (although the FBI was more intimidating to Mitchell than the other way around). But the fact remains that Deep Throat was the heir apparent to Hoover — a man not averse to breaking the law in covert operations — and Deep Throat clearly was drawing on broader resources in the FBI, resources that had to have been in place before Hoover’s death and continued operating afterward.
    Burying a Story to Get a Story
    Until Felt came forward in 2005, not only were these things unknown, but The Washington Post was protecting them. Admittedly, the Post was in a difficult position. Without Felt’s help, it would not have gotten the story. But the terms Felt set required that a huge piece of the story not be told. The Washington Post created a morality play about an out-of-control government brought to heel by two young, enterprising journalists and a courageous newspaper. That simply wasn’t what happened. Instead, it was about the FBI using The Washington Post to leak information to destroy the president, and The Washington Post willingly serving as the conduit for that information while withholding an essential dimension of the story by concealing Deep Throat’s identity.
    Journalists have celebrated the Post’s role in bringing down the president for a generation. Even after the revelation of Deep Throat’s identity in 2005, there was no serious soul-searching on the omission from the historical record. Without understanding the role played by Felt and the FBI in bringing Nixon down, Watergate cannot be understood completely. Woodward, Bernstein and Bradlee were willingly used by Felt to destroy Nixon. The three acknowledged a secret source, but they did not reveal that the secret source was in operational control of the FBI. They did not reveal that the FBI was passing on the fruits of surveillance of the White House. They did not reveal the genesis of the fall of Nixon. They accepted the accolades while withholding an extraordinarily important fact, elevating their own role in the episode while distorting the actual dynamic of Nixon’s fall.
    Absent any widespread reconsideration of the Post’s actions during Watergate in the three years since Felt’s identity became known, the press in Washington continues to serve as a conduit for leaks of secret information. They publish this information while protecting the leakers, and therefore the leakers’ motives. Rather than being a venue for the neutral reporting of events, journalism thus becomes the arena in which political power plays are executed. What appears to be enterprising journalism is in fact a symbiotic relationship between journalists and government factions. It may be the best path journalists have for acquiring secrets, but it creates a very partial record of events — especially since the origin of a leak frequently is much more important to the public than the leak itself.
    The Felt experience is part of an ongoing story in which journalists’ guarantees of anonymity to sources allow leakers to control the news process. Protecting Deep Throat’s identity kept us from understanding the full dynamic of Watergate. We did not know that Deep Throat was running the FBI, we did not know the FBI was conducting surveillance on the White House, and we did not know that the Watergate scandal emerged not by dint of enterprising journalism, but because Felt had selected Woodward and Bernstein as his vehicle to bring Nixon down. And we did not know that the editor of The Washington Post allowed this to happen. We had a profoundly defective picture of the situation, as defective as the idea that Bob Woodward looks like Robert Redford.
    Finding the truth of events containing secrets is always difficult, as we know all too well. There is no simple solution to this quandary. In intelligence, we dream of the well-placed source who will reveal important things to us. But we also are aware that the information provided is only the beginning of the story. The rest of the story involves the source’s motivation, and frequently that motivation is more important than the information provided. Understanding a source’s motivation is essential both to good intelligence and to journalism. In this case, keeping secret the source kept an entire — and critical — dimension of Watergate hidden for a generation. Whatever crimes Nixon committed, the FBI had spied on the president and leaked what it knew to The Washington Post in order to destroy him. The editor of The Washington Post knew that, as did Woodward and Bernstein. We do not begrudge them their prizes and accolades, but it would have been useful to know who handed them the story. In many ways, that story is as interesting as the one about all the president’s men.

    Reprinting or republication of this report on websites is authorized by prominently displaying the following sentence, including the hyperlink to Stratfor, at the beginning or end of the report.
    “The Death of Deep Throat and the Crisis of Journalism is republished with permission of Stratfor.”
    The Death of Deep Throat and the Crisis of Journalism is republished with permission of Stratfor.”

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