White House lawyers recently asked a federal court to grant them access to documents in the case between Fairholme Funds and the United States over Fannie Mae and Freddie Mac.
I think the unusual request suggests that the White House may be moving closer to a negotiated settlement in the multiple Fannie Mae lawsuits which will benefit shareholders in this company, the largest of whom is the U.S. taxpayer.
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Fairholme owns a large stake in Fannie Mae and Freddie Mac and its case, brought with several other large investors, alleges that the government took profits from Fannie and Freddie unjustly and diverted them to the Treasury, violating the Fifth Amendment. That states that you can’t take private property for public use “without just compensation.”
The defendants in the Fannie and Freddie lawsuits are the United States Treasury Department and the Federal Housing Finance Agency. These agencies have asserted that they need not produce over 10,000 documents in this lawsuit due to presidential (executive) privilege. Moreover, massive portions of the documents that have been produced have been redacted and not made available to the public for the same reason.
The fact that three White House counsels now want to take a look at these documents suggests that the White House was probably not aware of what the Treasury and FHFA were doing in the name of executive privilege and without the White House ever seeing the documents in question.
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In my view there are two other reasons why the White House now wants to see the documents that were claimed to be privileged:
1) The recent stock-market plunge stems, in part, from fears that the global economy may be weaker than thought. Some definitive action needs to be taken in this country to assure investors that this supposed weakening is not happening here.
2) Several civil-rights organizations, including the NAACP, according to my sources, have approached the White House requesting some help for low-income households that have been shut out of the housing market by the administration’s directives for tighter lending standards.
Stated simply: The White House needs Fannie and Freddie to go back to work to do what they were meant to do in the first place – i.e., assist the nation’s housing markets to stimulate economic growth. Settling these cases would accomplish just that.
Commentary by Richard X. Bove, an equity research analyst at Rafferty Capital Markets and the author of “Guardians of Prosperity: Why America Needs Big Banks” (2013).