Newly Released Documents Shed Light on Obama’s “Net Worth Sweep” of Fannie Mae and Freddie Mac

President Obama’s infamous Net Worth Sweep of 2012 may have been the President’s response to Congress’s refusal to fund the Affordable Care Act, according to Brian McNicoll of American Thinker, and a recently released documents reveal how and why.

The New Worth Sweep diverted Fannie Mae and Freddie Mac profits into the Treasury based on a bogus “death spiral” assertion, claiming that the profits would be given back for future loans when they were in financial need.

The problem was, according to McNicoll, that the Feds knew Fannie and Freddie wouldn’t need support latter, so the money grab was just that.

American Thinker reports:

Officials said the profits had to be diverted back into the Treasury because Fannie and Freddie were in a “death spiral” and would have to return for loans, and this money would be used for those loans. In other words, Treasury would take all the profits from Fannie and Freddie and hold them for future loans when they again found themselves in trouble.

But — the administration knew Fannie and Freddie were healthy for the long term, were unlikely to need any more loans and, in fact, had enough money to pay dividends. The dividends were a problem for the administration because it made it hard to explain why it needed to abscond with Fannie and Freddie’s $241 billion in profits, execute an improper taking against the shareholders, and spend the money without congressional approval. Some even pushed to change accounting methods to make Fannie and Freddie look worse on paper and/or force them to “need” loans to survive.

Make it look like Fannie and Freddie will need a bailout further down the road, and taking their money now will be easy. But why do it?

Recently released Treasury documents  illustrated the benefits, including a need to “capture all future earnings at the GSEs [government sponsored enterprises] to help pay back taxpayers for their investment in those firms.”

Another documented suggested waiting until late Friday night, after markets have already closed on what McNicoll calls “a media dead zone” to announce the sweep, since Fannie and Freddie will have reported “very strong earnings” that very week.

American Thinker continues:

One of the documents released last week said the proposal to sweep the funds into Treasury would have “three primary benefits:”

It would “eliminate the circularity of Treasury funding the GSE’s dividends payments to Treasury.” It would “…capture all future earnings at the GSEs to help pay back taxpayers for their investment in those firms,” and it would “reduce future draws… so such draws would only be made when needed to fund quarterly net losses.”

The administration could have “eliminated the circularity” by following the law and paying the dividends. There is no legal basis for unilaterally deciding to “capture all future positive earnings at the GSEs” — in fact, the law specifies otherwise. And the government’s own economists acknowledged future quarterly losses were highly unlikely.

Another document suggested announcing the change on Friday after markets had closed. “Rationale: GSE’s will report very strong earnings on August 7, that will be in-excess of the 10% dividend to paid to Treasury.” In other words, wait till late on an August Friday night — a media dead zone almost the equivalent of Christmas – to say that, even though the GSEs reported “very strong earnings” earlier in the week, it needed these prudent protections.

[…] The government’s out in this always was to claim that “since we intend to wind down the GSEs over time, the GSEs do not need to retain income in excess of amounts required to pay the 10 percent dividend,” which by making the government the largest investor with preferred stock, meant the money went to the Treasury and not the initial investors, such as Fairholme.

While Freddie and Frannie are government sponsored enterprises, they’re privately led and they’re open for private investors on the stock market.

McNicoll asserts that the Obama administration shirked investors’ legal rights, and “the courts are slowly coming to this conclusion.”

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