FacebookTwitterGoogle+RedditEmail

Investors and Savers Need a Chance to Recover

by

On April 9th, shareholders of Fannie Mae and Freddie Mac from across the country converged upon Washington, D.C. to make their voices heard in the halls of Congress. And Tim Pagliara, an investment advisor who also owns shares of stock in Fannie and Freddie, launched the Investors Unite coalition. As the housing finance reform debate heats up on Capitol Hill it is vital that the voices of shareholders – which have, until now, been ignored – are heard so that a bad precedent not be set for disenfranchised investors.

Fannie Mae and Freddie Mac are government sponsored enterprises (GSEs), which buy mortgages on the secondary market, pool them, and resell them as mortgage backed securities. Their business helps support and finance the secondary mortgage market. In principle, this is supposed to help keep mortgage rates down and make products like the 30-year mortgage available to borrowers.

Since the 2008 bailout of Fannie Mae and Freddie Mac, and the beginning of their conservatorship, the stockholders of these two companies, of which I am one, have been stripped of their basic rights as shareholders.

Prior to the financial crisis, shareholders of these companies had legal rights to challenge management decisions through the courts and through proxy battles, or by offering shareholder resolutions. Many prudent investors purchased Fannie Mae and Freddie Mac common stock because these stocks were considered safe investments. In the spring and summer of 2008, knowledgeable, high-ranking government officials like the Federal Reserve Chairman Ben Bernanke, Treasury Secretary Hank Paulson, and the GSEs’ regulator James B. Lockhart, publically and explicitly claimed Fannie Mae and Freddie Mac were rock-solid companies to reassure their owners.

On September 7, 2008, when the U.S. Treasury and the Federal Housing Finance Agency (FHFA) established a conservatorship for Fannie Mae and Freddie Mac, common shareholders lost their voting rights, dividends on preferred and common stock were suspended, and annual shareholder meetings were canceled. Share values plunged to pennies, and countless small and institutional investors who viewed their investments in Fannie and Freddie as secure were financially devastated. Obviously they were deceived by top government officials.

At the time, the administration, the FHFA, the Treasury, and Congress all left shareholders with the impression that the conservatorship was a necessary, but temporary, measure to address the GSEs’ immediate liquidity concerns. The legal mandate of the conservatorship was – and is – to “conserve and preserve the assets” of the companies taken into conservatorship and “restore them to safe and sound condition.” But, at this point, neither goal is being advanced by the FHFA or the Treasury.

In 2012, as Fannie Mae and Freddie Mac were returning to profitability despite financial and operating restrictions on their activities, the U.S. Treasury unilaterally changed the terms of its investment in the GSEs to its own benefit. The Treasury replaced the already well-above-market 10 percent dividends that the GSEs were paying to a “sweep” taking all of the profits of the companies. The GSEs are now sending nearly all of their earnings to Treasury, cannot rebuild their capital, and their shareholders remain in a limbo where they are neither eliminated nor given an opportunity to recover.

The federal government helped stabilize AIG and Citigroup, both of which had investors who were allowed to benefit from the recovery of these companies. It should be no different when it comes to the GSEs’ shareholders, who, in addition, are very useful to the U.S. Treasury in keeping the GSEs’ liabilities off the government’s deficit.

Fannie Mae and Freddie Mac shareholders are not asking for a subsidy. Taxpayers should be paid back in full for their support of the GSEs during the financial crisis. And in fact, taxpayers have already recouped their investment. In March of this year, the two GSEs had finally paid more back to the federal government in dividends – $192 billion – than the $187.5 billion bailout they received.

But the abuse of Fannie and Freddie shareholders isn’t yet over. A number of proposals for housing finance reform have recently been advanced in Congress. Most notable is Senators Johnson’s and Crapo’s bill.

Taxpayers, consumers and shareholders should have serious reservations about this proposal for housing finance reform. It does not sufficiently protect taxpayers from being saddled with another bailout. It does not advance adequate support for affordable and low-income housing for underserved communities. It sets an objectionable precedent for shareholder rights and treatment in this country. Specific concerns about this bill can be found in a letter I wrote to Senators on the U.S. Senate Committee on Banking, Housing, and Urban Affairs.  To see the letter, visit shareholderrespect.org.

Unfortunately, the legislative proposals in the Senate and the House do not adequately anticipate the greed and power embedded on Wall Street in its incentive structure. And without laying out a strict regulatory structure, they seem to wrongfully assume that private capital will regulate itself. Do we really want to give even more power to the ‘Too Big to Fail’ banks that were principally responsible for this crisis to begin with?

The GSEs were certainly not blameless for transgressions similar to those larger ones committed by the Wall Street crowd prior to the financial crisis in 2008. But to eliminate the GSEs and unravel this intricate market further, Congress could be opening the door wide for runaway corporate exploitation. We aren’t arguing that the GSEs should be maintained as is; but instead urge they be regulated strongly to prevent their previous missteps and abuses.

Shareholders have begun to fight back by bringing lawsuits challenging Treasury’s “Third Amendment” dividend sweep. This is a good step – but this isn’t enough; shareholder voices need to be heard in Congress.

The news conference on April 9th, followed by meetings on the Hill, was a sign that investors – big and small, individual and institutional – are getting fired up and fighting back. Shareholders from 20 different states made the trip to D.C. to kick off this campaign. Investors at the event were holding signs that read “Where is Our Due Process?” and “Don’t Wipe Us Out!” One of the speakers, Haran Kumar, an IT professional from Georgia and investor in Fannie Mae, said of his investment “I believed it was a sound decision based on statements and laws that politicians had enacted. None of us are saying don’t reform the housing sector. We are saying do it appropriately, respecting the laws that you have enacted.” Mr. Kumar continued, “One of the big issues is we are not being heard. We are taxpayers too.”

I urge other Fannie Mae and Freddie Mac shareholders, individual and institutional, who have yet to come forward to join us and make their voices heard in the coming weeks and months.

Visit shareholderrespect.org to learn more about what you can do to protect shareholder rights.

Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. Hopeless is also available in a Kindle edition.

Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! 

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

April 26, 2017
Richard Moser
Empire Abroad, Empire At Home
Stan Cox
For Climate Justice, It’s the 33 Percent Who’ll Have to Pick Up the Tab
Paul Craig Roberts
The Looting Machine Called Capitalism
Lawrence Davidson
The Dilemma for Intelligence Agencies
Christy Rodgers
Remaining Animal
Joseph Natoli
Facts, Opinions, Tweets, Words
Mel Gurtov
No Exit? The NY Times and North Korea
Alexandra Isfahani-Hammond
Women on the Move: Can Three Women and a Truck Quell the Tide of Sexual Violence and Domestic Abuse?
Michael J. Sainato
Trump’s Wikileaks Flip-Flop
Manuel E. Yepe
North Korea’s Antidote to the US
Kim C. Domenico
‘Courting Failure:’ the Key to Resistance is Ending Animacide
Barbara Nimri Aziz
The Legacy of Lynne Stewart, the People’s Lawyer
Andrew Stewart
The People vs. Bernie Sanders
Daniel Warner
“Vive La France, Vive La République” vs. “God Bless America”
April 25, 2017
Russell Mokhiber
It’s Impossible to Support Single-Payer and Defend Obamacare
Nozomi Hayase
Prosecution of Assange is Persecution of Free Speech
Robert Fisk
The Madder Trump Gets, the More Seriously the World Takes Him
Giles Longley-Cook
Trump the Gardener
Bill Quigley
Major Challenges of New Orleans Charter Schools Exposed at NAACP Hearing
Jack Random
Little Fingers and Big Egos
Stanley L. Cohen
Dissent on the Lower East Side: the Post-Political Condition
Stephen Cooper
Conscientious Justice-Loving Alabamians, Speak Up!
Michael J. Sainato
Did the NRA Play a Role in the Forcing the Resignation of Surgeon General?
David Swanson
The F-35 and the Incinerating Ski Slope
Binoy Kampmark
Mike Pence in Oz
Peter Paul Catterall
Green Nationalism? How the Far Right Could Learn to Love the Environment
George Wuerthner
Range Riders: Making Tom Sawyer Proud
Clancy Sigal
It’s the Pits: the Miner’s Blues
Robert K. Tan
Abe is Taking Japan Back to the Bad Old Fascism
April 24, 2017
Mike Whitney
Is Mad Dog Planning to Invade East Syria?    
John Steppling
Puritan Jackals
Robert Hunziker
America’s Tale of Two Cities, Redux
David Jaffe
The Republican Party and the ‘Lunatic Right’
John Davis
No Tomorrow or Fashion-Forward
Patrick Cockburn
Treating Mental Health Patients as Criminals
Jack Dresser
An Accelerating Palestine Rights Movement Faces Uncertain Direction
George Wuerthner
Diet for a Warming Planet
Lawrence Wittner
Why Is There So Little Popular Protest Against Today’s Threats of Nuclear War?
Colin Todhunter
From Earth Day to the Monsanto Tribunal, Capitalism on Trial
Paul Bentley
Teacher’s Out in Front
Franklin Lamb
A Post-Christian Middle East With or Without ISIS?
Kevin Martin
We Just Paid our Taxes — are They Making the U.S. and the World Safer?
Erik Mears
Education Reformers Lowered Teachers’ Salaries, While Promising to Raise Them
Binoy Kampmark
Fleeing the Ratpac: James Packer, Gambling and Hollywood
Weekend Edition
April 21, 2017
Friday - Sunday
Diana Johnstone
The Main Issue in the French Presidential Election: National Sovereignty
FacebookTwitterGoogle+RedditEmail