Four years ago the Federal government decided to send all profits from Fannie Mae and Freddie Mac to the federal treasury. Not surprisingly, the GSE shareholders sued. As the case moves through the system, doubts are being raised about the takeover, according to The New York Times' Gretchen Morgenson.
As the lawsuit proceeds through Federal Claims Court, documents unsealed in the case on Monday undermine an important defense made by the United States government. Lawyers for the Justice Department maintained early on in the litigation that Fannie and Freddie were in a death spiral and financially weak. Funneling all their profits to the Treasury was a way to protect taxpayers from future losses at the government-sponsored enterprises, the Justice Department said.
But the unsealed documents show Fannie and Freddie may have been in a better financial position than the government indicated at the time.
Those depositions center on what the government knew about Fannie’s and Freddie’s financial position in 2012; this is an important question because the government had justified the taking of profits as a way to protect taxpayers who had extended bailout money to the companies.
In addition to telling Treasury officials in early August 2012 that Fannie would be able to sustain profits, Ms. McFarland said that Fannie could soon reap about $50 billion in income because of the reversal of an accounting entry, known as a deferred tax asset, required under accounting rules when the company began earning profits again.