Straight Talk from Ralph Nader, Richard Epstein and Investors Unite Executive Director Tim Pagliara

Straight Talk from Ralph Nader, Richard Epstein and Investors Unite Executive Director Tim Pagliara

The conservatorship of Fannie Mae and Freddie Mac is a “deception of the first order,” said populist reformer Ralph Nader, kicking off the Investors Unite member and media call this week to discuss ongoing shareholder lawsuits against the U.S. government.

We’ve posted excerpts of our conference call featuring Mr. Nader, IU Executive Director Timothy J. Pagliara and NYU Law professor Richard Epstein below and on our YouTube channel. It was a wide-ranging and informative discussion.

We also encourage you to check out our Twitter feed for a great round-up of retweets and such. Also, if you’re a regular blog-reader but not an Investors Unite member, we encourage you to join. We’re pleased to be able to offer analysis calls like this and other opportunities for members.

Call Highlights

Nader: Despite Abuses of Power, Government Does Not Want to Give Up Its Cash Cow

“The third event that was important was the use and abuse of the Fannie and Freddie shareholders. For example, when the government bailed out Citigroup and AIG, they did not vaporize the shareholders. They bailed them out and they gave the remaining shareholders an opportunity to recover. Nobody’s asking for Fannie and Freddie shareholders to be subsidized, just to allow them to exist in whatever future transformation, whether it’s a public utility model or what.

“Just ask them to exist so they have a chance to recover some of their losses or to benefit from the value, but the government using and abusing the shareholders, by that I mean they needed the shareholders in Fannie and Freddie to get under the 80% barrier, which you all know if they got above the 80%, they would have to assume the huge liabilities of Fannie and Freddie which would increase the federal deficit. The federal deficit issue looms behind a lot of this. Now, the government really is viewing Fannie and Freddie as a cash cow to keep the deficit lower than it ordinarily would be.”

Epstein: As Conservators, FHFA Administrators Have A Specific Responsibility – And They Are Failing

“So what the third amendment does is it starts to change everything, but instead of having an amendment which is negotiated by a board of trustees or a director whose sole duty of loyalty is, at it is under corporate law, to the Fannie and Freddie shareholders, what happens is Ed DeMarco and afterwards Mel Watt both announce that they’re representing the shareholders.

“But they’re not representing the shareholders. They’re conservators. Their job is to maintain these particular assets … but DeMarco is himself a former Treasury Department employee and what he does in effect with this thing is to sign away the entire company.

“What happens is this third amendment comes out late afternoon on a Friday, there’s no evidence whatsoever of any financial work that has been done, any due diligence, any study by anybody telling this thing and it becomes inconceivable that whatever the position is of Fannie and Freddie, whether it’s profitable or not profitable, it cannot be in the interest of the shareholders to say’“We’re giving you everything that we own in exchange for nothing in return.’”

Epstein: Where Will The Slippery Slope of Illegal Takings End … Or Begin?

“Well, I mean if in fact it really was meant to be the case that you had all the rights of the shareholders, then the statute would be clearly unconstitutional because what you’ve done is you’ve taken all the value of the shares and the only question would be what the valuation was. It cannot be that when you strip assets from a private corporation, that you are immune from all sorts of liabilities with respect to the takings clause. If you can do that, the government could announce any corporation in fact has to surrender its assets by passing a statute which makes it the conservator of General Motors or Apple or any other company on the face of the globe.”

Epstein: An Invitation to Lawlessness

“So if you can’t do this title cognizable interest game with respect to real estate, you cannot do it with respect to corporations, and when the government puts forward this argument, it is just an open invitation for a complete kind of lawless behavior which his really hard to understand.”

Pagliara: A Multi-Billion Dollar Riddle

“Now the profits are being taken without any acknowledgement that the Treasury is paid back. Keep this riddle in your head: Who borrows $189.5 billion dollars at 10% interest and pays it back in an average of three and a half years? Answer: Somebody that didn’t need it in the first place.”