Political activist and former presidential candidate Ralph Nader is questioning the “legal authority” of the Obama administration’s secret decision to prevent Fannie Mae and Freddie Mac shareholders from obtaining any future earnings in the government sponsored enterprises (GSE).
Nader slammed the administration’s actions in a letter he sent to Treasury Secretary Jack Lew, which was obtained by The Daily Caller.
The administration’s decision to shut out shareholders means that the mortgage-lending giants Fannie Mae and Freddie Mac, which received a $189.5 billion taxpayer-funded bailout in 2008 that has already mostly been paid back to the U.S. Treasury, could henceforth see its profits going to the government instead of to the company’s private investors — many of whom had no idea that this policy was in place at the time they invested. This means that the two mortgage giants that largely caused the financial collapse are now essentially nationalized.
Nader referred to a December 20, 2010 memo that emerged from a lawsuit filed by Fannie and Freddie shareholders including the group Perry Capital against the federal government. The memo, written by Treasury Department under secretary for domestic finance Jeffrey A. Goldstein to Treasury Secretary Timothy Geithner, revealed that Fannie and Freddie shareholders will not be able to access any future earnings.
The memo states “the administration’s commitment to ensure existing common equity holders will not have access to any positive earnings from the G.S.E.’s in the future.”
Nader wants to know if the administration is following the law.
“What legal authority does the Administration have, as this section of the memo intimates, to completely wipe out shareholders — even after taxpayers have been repaid (as is likely to happen soon)?” Nader wrote in the letter.
Regarding the leaked memo, The Treasury Department told The New York Times that “The relevant language in the memo was about the importance of repaying taxpayers for the enormous investment that they made in the GSE’s if the GSE’s ever generated positive returns, which, at the time, was uncertain ever to occur.”
But Nader is not satisfied by the administration’s explanation.
“Contrary to this statement, neither the memo — nor Treasury’s actions by unilaterally amending the PSPAs — leaves one with the impression that this point in the memo is meant to highlight the importance of repaying the taxpayers. It seems to be setting a precedent for using and abusing the GSEs’ shareholders,” Nader wrote.
“Taxpayers should recoup their investment in the GSEs; but the Administration does not have to wipe out shareholders in order for this to happen,” Nader wrote.
“This need not be an issue of choosing taxpayers over shareholders. The federal government has similarly recouped taxpayer money used to bailout other corporations (A.I.G., Citigroup, etc.) involved in the financial collapse, but has allowed the shareholders of those companies to share in their recovery. The same should be the case with the GSEs,” Nader wrote.
“I look forward to the courtesy of a timely clarifying response,” Nader wrote.