Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that it received never-before-released documents from the Federal Deposit Insurance Corporation (FDIC). The documents pertain to the Citigroup and Bank of America bailouts, as well as documents detailing the FDIC’s Temporary Liquidity Guarantee Program, which guaranteed unsecured debt of private financial institutions and provided them “full coverage of non-interest bearing [sic] deposit transaction accounts, regardless of dollar amount.”

The documents were obtained pursuant to Freedom of Information Act (FOIA) lawsuit filed on behalf of former Federal Reserve and FDIC employee Vern McKinley. Included are unredacted minutes from FDIC Board meetings during which FDIC officials and staff discussed the rationale for the bailouts which centered on the “systemic risk” of allowing the two financial institutions to fail. (Vern McKinley v. Federal Deposit Insurance Corporation, (Action No. 10-420)).Among the highlights from the documents obtained by Judicial Watch:

• FDIC Board Meeting Minutes from approval of Citigroup bailout (November 23, 2008):According to the minutes from the meeting, government officials described in vague terms the consequences of allowing Citigroup to fail, including “the effects on money market liquidity could be expected on a global basis,” “term funding markets remain under considerable stress” and the fact that it would “significantly undermine business and household confidence.” One FDIC Board member who was in attendance, John Reich, cautioned Federal bank regulators and the Treasury Department to “avoid ‘selective creativity’ in determining what constitutes systemic risk and what does not and what is possible for the government to do and what is not.”
• FDIC Board Meeting Minutes from approval of Bank of America bailout (January 15, 2009):According to the meeting minutes, Sheila Bair, Chairman of the Board of the FDIC, admitted the agency “was relying on data analysis by the Federal Reserve” and for that reason the FDIC “very much needs to proceed with a systemic risk determination with respect to [Bank of America].” Chairman Bair characterized the decision to bail out Bank of America as demonstrating that the FDIC, an independent agency, was a “team player along with the Federal Reserve and the Treasury to prove the systemic risk case.” These meeting minutes are consistent with a separate report by the Special Inspector General for the Troubled Asset Relief Program released on January 13, 2011. According to the report, Chairman Bair admitted: “We were told by the New York Fed that problems would occur in the global markets if Citi were to fail. We didn’t have our own information to verify this statement, so I didn’t want to dispute that with them.”

Regarding consequences of allowing Bank of America to fail, the arguments noted in the meeting minutes were similar to those articulated during the Citigroup meeting and included the general observation that “both financial stability and overall economic conditions would be adversely affected, and that staff believes the consequences could extend to the broader economy.”Judicial Watch also obtained meeting minutes and a FDIC memo regarding the agency’s Temporary Liquidity Guarantee Program, which represented a radical expansion of the FDIC’s power, allowing the agency to go well beyond the narrow scope of its lending authority. To justify this expansion of power, both documents reference a “recent study” by the FDIC on the effect of a run on uninsured deposits and its impact on economic activity. However, to date, this report has not been released to the American people, despite the fact that it is within the parameters of Mr. McKinley’s FOIA request. This program continues to insure about $265 billion dollars in debt.Judicial Watch filed its FIOA lawsuit on behalf of Mr. McKinley on March 15, 2010, as part of its comprehensive investigation to determine under what lawful rationales the federal government initiated these financial bailouts. Judicial Watch seeks records related to the FDIC’s decision to guarantee $306 billion of loans and securities held by Citigroup Inc., and $118 billion held by Bank of America. On April 15, 2010, the FDIC provided 101 pages of heavily redacted documents without providing sufficient justification for withholding the information and then filed a motion to dismiss the lawsuit.On December 23, 2010, while noting the fact that the FDIC “has not fulfilled its obligations under FOIA,” a federal judge rejected the FDIC’s motion to dismiss and ordered the agency to either conduct another search for documents or demonstrate why these documents should be withheld.“These documents point to three very disturbing truths about these bailouts: The government’s justification for the bailouts was weak. The decision was rushed. And it appears that the FDIC, while conducting no analysis of its own, merely bowed to pressure from Treasury to accept the bailout scheme. No wonder it took two years and a lawsuit for Judicial Watch to force the Obama administration to release these documents,” said Judicial Watch President Tom Fitton. “These documents confirm the concerns of the majority of Americans who believe the financial bailouts were unjustified and corrupt expansions of government power.”

Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that it has filed an appeal with the U.S. Court of Appeals for the District of Columbia Circuit in its lawsuit against the Obama Federal Housing Finance Agency (FHFA) seeking records related to political contributions made by the mortgage giants Fannie Mae and Freddie Mac (Judicial Watch v. Federal Housing Finance Agency (Case No. 10-5349)).According to the FHFA, the agency might possess documents responsive to Judicial Watch’s FOIA request; however, the agency claims it is not obligated to release such documents to the public. Judicial Watch maintains that since Fannie Mae and Freddie Mac are now wholly operated by the federal government they are subject to FOIA law:

“…the boards of both Fannie Mae and Freddie Mac accepted conservatorship by the FHFA with the full knowledge that the FHFA would obtain all rights, titles, powers, and privileges of the enterprises, including legal title to their books and records. Since that time, the FHFA, a federal agency subject to FOIA, has had full legal custody and control over all of the records of Fannie Mae and Freddie Mac.“Because the FHFA obtained these records and has exercised full legal control over them since it placed Fannie Mae and Freddie Mac into conservatorship, the requested records became subject to FOIA just like any other agency records.”

Judicial Watch filed its original FOIA request on May 29, 2009. The FHFA acknowledged receipt of Judicial Watch’s FOIA request July 1, 2009. The agency claimed that while Fannie Mae and Freddie Mac might possess the requested documents, the FHFA was not obligated to release them under FOIA because the agency does not “control” them.As noted in an Obama administration court filing: “…Any records created by or held in the custody of the Enterprises [Fannie Mae and Freddie Mac] reflecting their political campaign contributions or policies, stipulations and requirements concerning campaign contributions necessarily are private corporate documents. They are not ‘agency records’ subject to disclosure under FOIA.”However, according to Judicial Watch’s appeal, Congress was clear in its intent and the agency had full control of the records at the time of Judicial Watch’s request: “In every meaningful way, the FHFA is lawfully in control of these records. There is nothing contingent, hypothetical, indefinite, or limiting about this plain statutory language vesting the FHFA with both legal custody and lawful control over the records.”The District Court, while agreeing in large part with Judicial Watch’s legal argument, ruled that the FHFA did not ultimately control the records and therefore denied the American people access to the records.
Overall, members of Congress have received more than $4.8 million in political contributions from Fannie Mae and Freddie Mac over the last ten years. According to OpenSecrets.org, from 1998 through 2008, the top ten recipients of Fannie Mae and Freddie Mac’s political largess, are as follows: Senator Dodd (D-CT), then-Senator Obama (D-IL), Senator Kerry (D-MA), Senator Bennett (R-UT), Rep. Bachus (R-AL), Rep. Blunt (R-MO), Rep. Kanjorski (D-PA), Senator Bond (R-MO), Senator Shelby (R-AL), Senator Reed (D-RI). Senator Dodd, the top recipient of Fannie Mae and Freddie Mac campaign contributions, was Chairman of the Senate Banking Committee responsible for regulating the mortgage industry. Notably, President Obama was a top recipient of campaign monies despite being in the Senate for only three years.“The Obama administration has taken over the mortgage market through Fannie and Freddie. And not one document from these two monstrosities is subject to disclosure under our open records law? We hope the appellate court puts a stop to the Obama administration’s unprecedented secrecy,” said Judicial Watch President Tom Fitton. “Fannie and Freddie used political contributions to protect themselves from being held accountable as the housing market was set up for collapse. Now, as a result, taxpayers are on the hook to Fannie and Freddie for at least $400 billion — and $5 trillion in mortgage liabilities. The American people deserve to know the full truth about the partnership between Fannie and Freddie and their allies on Capitol Hill.”

Washington, DC — January 6, 2011Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that it filed a motion on December 17, 2010, with the U.S. District Court for the District of Columbia, asking the court to force the Federal Housing Finance Agency (FHFA) to abide by the Freedom of Information Act (FOIA) and release documents related to the federal government’s September 2008 decision to place Fannie Mae and Freddie Mac into “conservatorship.” Judicial Watch filed its motion pursuant to a July 12, 2010, FOIA lawsuit filed on behalf of former FDIC and Federal Reserve employee Vern McKinley as part of Judicial Watch’s comprehensive investigation of the federal government’s unprecedented response to the so-called financial crisis (Vern McKinley v. Federal Housing Finance Agency, Civil Action No. 10-cv-01165 (HHK)).According to Judicial Watch’s motion, the federal government had available two primary options to address Fannie and Freddie’s “capital problems” in 2008: receivership and conservatorship. Conservatorship is a process designed to restore a weak financial institution to sound financial health while preserving and conserving assets. Receivership, the approach initially favored by then-Treasury Secretary Henry “Hank” Paulson, entails a liquidation of the institution through the sale of assets and payment of claimants. The FHFA chose conservatorship. Once the decision was made to place Fannie Mae and Freddie Mac into conservatorship, Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System, described “the catastrophe that would occur if we did not take these actions” in a meeting with the boards of Fannie Mae and Freddie Mac. Yet, this catastrophe scenario and the justification for choosing conservatorship over receivership have not been detailed publicly, Judicial Watch argued in its court motion.According to Judicial Watch’s motion, FHFA continues to improperly invoke the “attorney work product doctrine” and the “deliberative process privilege” to keep secret two specific documents that could shed light on the matter.

[FHFA] improperly claims that [the documents] may be withheld in their entirety pursuant to the attorney work product doctrine.[FHFA] currently is withholding two responsive records that are not alleged to outline types of legal challenges and potential responses to such challenges. Instead, [FHFA] is withholding in their entirety two records “that were created for meetings with senior executives at FHFA to discuss various policy options that the agency could take with regard to the Enterprises (Fannie Mae and Freddie Mac) and were provided to these senior policymakers in order to assist their decision-making” [Emphasis added].…Because [FHFA] has failed to show that the disclosure of the material would expose [FHFA’s] decision-making process in such a way as to discourage candid discussion and thereby undermine [the agency’s] ability to perform its functions, FHFA improperly claims that the…records may be withheld in their entirety pursuant to the deliberative process privilege. 

Judicial Watch suggests the Court should, at minimum, conduct an in camera review of the documents in question so that it can determine whether or not the documents should be released to the public.With its FOIA lawsuit, Judicial Watch continues to seek the following information on behalf of Mr. McKinley:

[A]ny and all communications and records concerning or relating to the assessment of an adverse impact on systemic risk in addressing Fannie Mae and Freddie Mac, and in particular how the FHFA and the Department of the Treasury determined that conservatorship was the preferred option to avoid any systemic risk of placing Fannie Mae and Freddie Mac into receivership.

Mr. McKinley filed his FOIA request on May 23, 2010. FHFA was required to respond to the FOIA request by June 28, 2010, but failed to produce any documents, to demonstrate why documents should be withheld, or to indicate when a response was forthcoming. Judicial Watch, therefore, filed its lawsuit on July 12, 2010, on behalf of Mr. McKinley.American taxpayers have spent at least $145 billion dollars on Fannie and Freddie so far, with analysts estimating the ultimate cost could be hundreds of billions of dollars more. The Obama administration has said that there is no upper limit to the level of taxpayer support of Fannie and Freddie.“Thanks to the Fannie/Freddie bailout, the Obama administration has taken government control of the mortgage market. And taxpayers are exposed to over $5 trillion in potential liabilities through the government mortgage giants. So it is beyond the pale that the Obama administration continues to choose secrecy over transparency regarding these bailouts, even as the associated costs continue to mount at an astonishing rate,” said Judicial Watch President Tom Fitton. “Simply put, the Obama administration’s lack of transparency on the bailouts is a crisis for government accountability and the rule of law.”In separate litigation being pursued by Judicial Watch, the Obama administration maintains that no documents from Fannie and Freddie are subject to public disclosure under the Freedom of Information Act.