Judicial Watch Asks Court to Review Government Documents on Decision to Seize Control of Fannie Mae and Freddie Mac
Obama Administration Refuses to Release Key Documents on Bailout
Washington, DC — January 6, 2011
Judicial 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 (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.
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