Epstein on the "Fannie and Freddie Dividend"

Grand Theft Treasury

Last week’s headline financial story was full of good news for the body politic. The United States Treasury reported a handsome second-quarter profit of $118 billion, which could cut down the deficit and postpone any politically charged negotiations over raising the debt ceiling. Half of that surplus comes from a combination of revenue increases from a slowly improving economy and expenditure cuts introduced in early 2013. The second half consists of a $59 billion “dividend” from Treasury’s “investment” to bail out The Federal National Mortgage Association (Fannie Mae) and The Federal Home Loan Mortgage Corporation (Freddie Mac).

To call that money a “dividend” relies on a profound public misunderstanding of the complex transactions that generated this ill-begotten Treasury bonanza. These transactions are being challenged in four separate lawsuits, which were recently filed, that attack the propriety of virtually every government action during the turbulent past five years. (Full Disclosure: within the past several months, I been hired by several hedge funds to advise them privately on the legal issues surrounding these events.)

The oft-neglected back-story of the “Fannie and Freddie Dividend” casts these transactions in a much darker light. Quite simply, the behavior of the U.S. government over the past five years has been marred by grave legal violations of bedrock principles underlying corporate, administrative, and constitutional law.

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