PLACERVILLE, CALIFORNIA

Opinion

Another government ripoff

By From page A4 | August 28, 2013

Last we heard from the government-sponsored enterprises Fannie Mae and Freddie Mac the mortgage giants were in government rehab sucking up $187 billion of taxpayer funds. On their way into receivership in 2008 they had pulled in $33 billion in private capital.

The proper term, agreed to by the government, was conservatorship, rather than the receivership option of liquidation. By 2012 the two companies were earning profits again. As of the end of July Fannie had announced a second quarter profit of $8 billion and Freddie $7 billion.

The government was supposed to get a fixed annual dividend of 10 percent. After that private holders of common and preferred stock in these two companies were supposed to receive dividends. These private holders include community banks, insurance companies, university endowments, foundations, mutual funds and private investors.

Instead what the U.S. Treasury did was to unilaterally change the rules, which seems to be par for the course for this president. When he’s not playing golf or flying and busing around the country speechifying, he is making up his own laws and not administering the laws he doesn’t like.

Here is the switcheroo on Fannie and Freddie. The Treasury last summer made a third amendment between it and the Federal Housing Finance Administration, which had been overseeing Fannie and Freddie. This has been called the “Sweep Amendment.”  This amendment sucked every dollar of the companies’ net worth into the Treasury. At the end of June that totaled $66 billion.

As noted by attorney Theodore Olson, who is suing the government, “None of this money went to pay down the government’s investment. Whatever amount of money the government takes out of Fannie and Freddie, the amount owed the government is never reduced, meaning there can never be any recovery for private investors.”

If President Obama can’t get money out of the Republican House, then he’ll take it out of the stockholders of Fannie and Freddie.

Writing in the July 24 Wall Street Journal, Olson added, “The president’s budget estimates, over the next 10 years, that the government will recover $51 billion more than it invested in the companies — and that’s on top of the tens of billions in dividends the government took out of the companies from 2008-12.”

Steven M. Davidoff and David Zaring, writing for the New York Times column DealBook, summarized the maneuver thus: “Seeking a way to keep the common and preferred stock worth nothing, the government changed the way the two paid their dividends in a fashion that meant all dividends went directly to Treasury — that any remaining common and preferred-stock holders would receive nothing.”

A July 7 press release from Olson’s Washington, D.C., law firm — Gibson, Dunn & Crutcher —  put the government’s thievery in even starker financial terms: “Taxpayers are projected to be paid in full, plus 10 percent interest, by the end of this year or early in 2014, and will retain the right to nearly 80 percent of the companies’ common shares. Yet, under the Sweep Amendment, Treasury ignores this reality and detrimentally overrides the rights of all private shareholders.”

It shows the administration’s disdain for so-called Wall Street fat cats, like Bruce Berkowitz, who Forbes magazine identified as a major investor, accumulating $2.4 billion in preferred stock through his Fairholme Capital funds.

This is a pattern with this administration. When General Motors and Chrysler were bailed out the unions got a piece of each company and the retired teachers and other retirees who held interest-bearing bonds in the auto companies were wiped out. Normally in bankruptcy bond holders are paid first and common stock holders get pennies on the dollar if they are lucky. President Obama instead gave the bond holders nothing and the unions were given stock.

The Sweep Amendment is just the latest example of rule by men and not a rule of laws. It’s a government ripoff.

Two quotes seem to fit this administration:

“A government big enough to give you everything you want is a government big enough to take from you everything you have.” — President Gerald Ford, Address to a Joint Session of Congress, Aug. 12, 1974

“The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny.”  ― James Madison, Federalist Papers

Mountain Democrat

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