Fannie Mae: What was the President Told About the Net Worth Sweep?
One of the more intriguing questions in the battle over documents in litigation stemming from the Net Worth Sweep of the earnings of Fannie Mae and Freddie Mac is what President Obama knew about the machinations by officials in his Administration. As the Sweep was about to be implemented, was he told that Fannie and Freddie were about to enter a “golden era of profitability” or that they were in a “death spiral” – or both?
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During an Investors Unite teleconference last week, Cooper & Kirk Partner David Thompson, who represents Fairholme Funds, called attention to page 49 of U.S. Court of Federal Claims Judge Margaret Sweeney’s 80-page opinion granting Fairholme’s motion to compel the government to let the plaintiff’s lawyers review 56 documents. The particular documents referenced on page 49 almost certainly went to the President and go to the heart of the issues in the case, such as the financial state of Fannie and Freddie, plans for the conservatorship and whether the Treasury Department had too much influence over the Federal Housing Finance Agency.
While it could be some weeks before we know more about the details of these documents, we do know that some involve confidential communications with the President’s top policy advisors, including Director of the National Economic Council Gene Sperling, his deputy Brian Deese, and Treasury Secretary Tim Geithner. And we know the communications were right around the time the New Worth Sweep was being contemplated. This prompts the question of whether the President was told Fannie and Freddie were about to enter a period of great profitability, as already released documents have shown was known to top officials at Treasury. Or was he told the Fannie Mae and Freddie Mac were in a “death spiral” and the Net Worth Sweep was a prudent step to spare taxpayers from additional bailouts, which is the narrative advanced by the government in court?
The fact that the Fannie Mae and Freddie Mac Sweep was likely discussed directly with the president might explain why the government has been so determined to keep this information secret. If the Sweep is ultimately determined to have been an unconstitutional taking of property, counter to the mandates of the Housing and Economic Recovery Act, and concocted with a bogus rationale, it would be a blemish on everyone involved.
However, as Judge Sweeney made very clear last spring in unsealing a trove of documents, executive privilege is not a blank check to shield public officials from embarrassment. It is to safeguard national security and to prevent economic harm under narrowly tailored circumstances. Her opinion on the motion to compel on the 56 documents at issue in this ruling shows her unwavering commitment to that principle.
University of Virginia Law Professor Saikrishna Prakash, who has written about what he sees as the erroneous application of executive privilege in this case, agreed Sweeney’s opinion is an “utterly meticulous and sweeping rebuke” of the government’s effort to keep documents hidden. He noted that she repeatedly observes that the government failed to show that various forms of privilege applied to the documents in question but then goes a step a further and assumes hypothetically that the government did. Even under this construct, however, she insists the plaintiffs would be entitled to the information in these documents. The information is essential to asserting their constitutional rights and it cannot be found anywhere else.
“This is not only a stunning rebuke as to these 56 document but it also sets the stage for how the government ought to approach the other documents over which it claims executive privilege,” Prakash said during the call. “More precisely, it suggests the government really ought to take a second or third look at those documents and decide whether it wants to get another motion to compel from David [Thompson].”
Given that the 56 documents represent a random sample of nearly 12,000 documents the government wants to block from scrutiny and Judge Sweeney’s sweeping ruling, the government’s wall of secrecy seems more vulnerable than ever. Eventually, the truth will come out.