There are signs the Trump Administration is gearing up to finally end the conservatorship and return Fannie Mae and Freddie Mac to private ownership. We don’t know the details but when this subject starts to get the attention of policymakers, commentators, and journalists let’s hope they are mindful of stark fact: When the GSEs were placed into conservatorship in 2008, they were not about to become insolvent. The “death spiral” bureaucrats warned about was a myth to justify the Net Worth Sweep in 2012. Having a profitable company under government control would create a convenient revenue stream. That’s more a shakedown of shareholders than a rescue operation for the common good.
Q1 hedge fund letters, conference, scoops etc
Note to Editors:
With the Administration expecting to shortly unveil its plan to return Fannie Mae and Freddie Mac to private ownership, your reporters will undoubtedly be penning fresh articles in connection therewith. I caution you, however, to be on the lookout for certain “background” information which they might incorporate into their stories which is, at best, highly questionable.
I am referring to the oft-repeated inclusion of statements to the effect that Fannie Mae and Freddie Mac were “insolvent” and/or required a “taxpayer bailout” when they were seized and placed into conservatorship by the government in September of 2008. True, that was the justification provided to the press at the time. But subsequent, court-ordered, unsealed documents (which the government kept hidden for years) have raised very serious questions about the truthfulness of that explanation. Nonetheless, this false narrative has been routinely reported as fact by numerous journalists and commentators over the past decade – indeed, as recently as just last week.
As a former scribe, I understand that providing the reader with background is a key element of every news story. But it’s also important that whatever ‘background’ the reporter submits to his or her editors for review be actually factual and not just someone’s opinion (or merely a repetition of past reportorial errors). Otherwise, readers will go away believing the statement to be true when, as is the case here, the so-called ‘fact’ has been credibly challenged. Were I still wielding my editor’s pencil (showing my age here), I’d suggest prefacing the aforementioned statements with “government officials asserted at the time . . .” I would also include a sentence along the lines of “those assertions are being challenged by shareholders in various lawsuits.”
I strongly urge that you spend a bit of time familiarizing yourself with one of those lawsuits, Washington Federal v. the United States. (An abbreviated and highlighted version can be found here). The factual history described in the Complaint is compelling, disturbing – and sworn under oath. While you will obviously have to draw your own conclusions, I believe it makes quite clear that the seizure of the GSEs wasn’t a bailout, it was a “stick-up”. As I pointed out in a 2017 article (“The Case of the Concrete Life Preserver”), just three days prior to being seized, they were able to tap the capital markets for $6 billion in unsecured debt in an over-subscribed offering. It was underwritten by the top-tier Wall Street investment banks. Clearly the markets (and the major Wall Street banks) didn’t think that either firm was “insolvent” or (as one well-known national publication just recently stated as a matter of fact) “teetering on bankruptcy”. (Reality check: who borrows $180 billion from Uncle Sam and can pay it all back – with interest – just four years later? Answer: someone who never needed the money in the first place!)
I realize your ranks have been decimated by cutbacks. Nonetheless, as your colleagues at the Washington Post remind us daily, “the truth dies in darkness”. That the false narrative heretofore described has become so accepted and so prevalent makes me wonder whether the massive industry layoffs of editors (and the virtual elimination of fact checkers!) has gone too far. Worse, it raises the question as to whether at least some members of my former profession may have fallen victim to the malady known as ‘access journalism’. While I think I’m right on the former, I hope I’m wrong on the latter; I come from a generation of earlier reporters whose editors turned us loose on our beats every day with firm instructions: “question authority!”. (Even more relevant in today’s journalism environment.)
Feel free to reach out if you need further information or wish to discuss further.
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