Fannie Mae-No Politics (FNMA)

[navycmdr]

A Loss of Confidence at the Federal Housing Finance Agency

Sep 30 2018 ... https://medium.com/@timoth31/a-loss-of-confidence-at-the-federal-housing-finance-agency-7380cd038063

I believe Simone Grimes.

Grimes is an official at the Federal Housing Finance Agency (FHFA). The agency governs the mortgage funding giants, Fannie Mae and Freddie Mac, that provide over half the funding for the nation’s home loans. On Thursday, she detailed before a Congressional hearing her sexual harassment by the Federal Housing Finance Agency’s current head, Mel Watt. She also described subsequent leaks and retaliation by the current FHFA Inspector General, Laura Wertheimer, who is supposed to be a key line of defense for good agency governance and whistleblower protection. Congressman Jeb Hensarling observed: “There is something amiss at FHFA.”


He is more correct than he may know. Grimes isn’t the first person at FHFA to have had to face this kind of harassment and retaliation. Five years ago, as Senior Policy Advisor at FHFA’s Office of Inspector General (OIG), I was also subjected to the agency’s abuse of confidentiality, investigative powers, and subpoena authority. FHFA’s OIG wasn’t a haven for whistleblowers. It was a trap.

So even though I have never met Simone Grimes, her story is very familiar to me. And I know there are more like it.

Here is mine.

I spent many years on Wall Street assembling complex bond deals, working with firms that later became household names during the 2008 financial crisis: Citigroup, Bear Stearns, Lehman Brothers. After the crisis struck, I moved to Washington to do my part in restoring the nation’s collapsed banking system. Returning to public service was a privilege, a continuation in spirit of my time in the Navy as a young man. As the capital markets expert for FHFA’s then-Inspector General, Steve Linick, I helped the federal government combat fraud, waste and abuse at Fannie and Freddie.

When the LIBOR index manipulation scandal broke in mid-2012, I saw immediately the implications for the two mortgage giants. They owned hundreds of billions of dollars in LIBOR-related derivatives and bonds, sold to them by major banks (including several that were themselves later punished for LIBOR rigging) as protection against fluctuating interest rates. Lowballing LIBOR meant chiseling Fannie and Freddie out of rightful payments on those investments?—?and by extension, the Treasury Department that had extended them a financial lifeline.

That summer, Congress demanded answers about the potential cost to taxpayers. So I did what any good investment banker would do: I built a spreadsheet. And based on openly published Federal Reserve data and financial statements, I quantified $3 billion in losses to the two companies that were shouldered ultimately by the federal government. (By my subsequent calculations, almost $350 million more of similar LIBOR losses also disappeared in the TARP bailout.)

But Linick wanted the $3 billion loss buried well out of view of Congress or the public. This came as quite a surprise. Federal inspectors general normally take pride in their role as guardians of the public purse, and jump at such an opportunity to bask in media and Congressional acclaim. The eagerness is understandable, because theirs is a genuinely important duty. That eye-watering sum could fund almost three months of school lunches in a country where nearly one child in every five lives in the shadow of hunger. Alternatively, it could underwrite USS Indiana plus half of USS South Dakota to safeguard our freedom. But despite his obligations, Linick looked much more interested in shielding embezzlement than in protecting taxpayer funds.

Ultimately, the catalyst for my own trip across the Rubicon came as an order to withhold the figure from Congress, even after it had been triple-checked and vetted by investment professionals in New York. Lying awake at night, I concluded that to obey it was to forfeit the right to look those who mattered most to me in the face. My wife. My children. The Navy commanders and NCOs with whom I had served.

I was an American officer. I did my duty. I gave the analysis to the Wall Street Journal.

Instead of being feted with praise for protecting taxpayer funds, I found myself staring corruption in the face, two short weeks after my memorandum garnered the expected media and Congressional acclaim. The pretext was an “administrative investigation” into “non-public” information that I had looked up using a top-secret espionage tool: Google. You can, in fact, look this “non-public” information up yourself: the Federal Reserve publishes interest rate series on its wonderful FRED tool, while?—?like all publicly listed US companies?—?Fannie Mae and Freddie Mac are required to publish financial statements every quarter.

Corruption had red hair and thick glasses framing an angry face. Unknown to me at the time, it also had left a messy trail of accusations?—?document fraud, discrimination, retaliation?—?and $855,000 of previous taxpayer-funded settlements in its wake. It threatened to search my apartment in front of my family. Personified by Bryan Saddler, Linick’s handpicked chief counsel, corruption pushed a subpoena across a conference room table. The document demanded all my personal correspondence; Linick’s logical goal was to finger for retribution the honest people back on Wall Street who had quietly helped me find billions of stolen bailout dollars.

After nearly seven hours of interrogation, memorably featuring federal agents guarding my restroom breaks, I was finally forced to sign a resignation agreement bearing more falsifications than a robo-signed foreclosure filing. Tellingly, it omitted the legally required discussion of my protections as a federal whistleblower. In fact, I was warned against obtaining counsel. The agency did keep one promise, though. Several weeks later I received an email that, in accordance with the terms of my FHFA-drafted resignation, it had destroyed documents relevant to my investigation.

We tend to speak of corruption as an impersonal affliction, a malignant fact of life like hurricanes or cancer. In fact, I learned something very different from my time in the government. Corruption is a personal moral decision. It is character. You can see the character of Steve Linick at his confirmation hearing for the Inspector General post at the State Department, where he cynically pledged before the Senate to “ensure whistleblowers have a safe forum to voice grievances and are protected from retaliation.”

The corruption extends to the Office of Special Counsel (OSC), the federal agency ostensibly responsible for protecting whistleblowers. Part of the tragedy in Grimes’ case is that honest and diligent OSC handling of my complaint could have prevented much of the FHFA-OIG misconduct that she later recounted. But OSC instead chose to look the other way for years. The letter from Rhoan Jones, my case officer, makes the very arguments his own leadership successfully opposed in the Supreme Court’s MacLean case three years ago. There the court set clear precedents on the same legal issues, such as the abuse of agency regulations to stifle federal whistleblowers, that affected my own case. Jones’ defiance of his own bosses, themselves inexplicably meek and acquiescent, is puzzling until you consider that MacLean did not involve awe-inspiring amounts of money.

The Greek root for “catharsis” means “cleansing.” Far too many of us have endured years of illegal foreclosures, lewd and rapacious bosses, or whistleblower retaliation. It is dehumanizing to see federal officials get away with lying to Congress and destroying records; to have your home taken away using falsified documents buried in a “rocket docket”; to hear the Mel Watts of the world assert that they are above the rules; to learn that institutions that profess to protect you are really there to silence you. The mounting cries of frustration that dominate American public life now, in my case, in Simone Grimes’ case, and in so many others are a simple human demand for such a catharsis, a satisfying conclusion to all these demoralizing stories.

We need this cleansing in the government more than any other facet of society. Its power to compel us all implies a responsibility to set the right example. Louis Brandeis said, “If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.”

The first step is simple. For officers who fail to measure up to their people and missions, the military exacts accountability with a time-honored, humiliating phrase: “loss of confidence in his ability to command.” Taking the same view that public service is a privilege, not an entitlement, Congress should strengthen its oversight of federal agency leaders, expand the resources and pace of its own investigations, and if necessary pass measures to facilitate the termination of unworthy officials for “loss of confidence.” We can start with Steve Linick, Mel Watt, Rhoan Jones, and Laura Wertheimer.

In the Navy and as a financial official, I sought earnestly to serve my country. I started with confidence that our government truly valued honor, courage, and commitment, along with those who honored the sacrament of public service even in difficult circumstances. As with so many of us, though, that confidence has been shattered in recent years by the corruption I witnessed and its enormous costs, both financial and human.

It demeans America’s honest public servants and taxpayers to expect them to look mendacity and impunity in the face each day. We need to restore the public trust on which a truly great country is founded. Get corruption out of our sight. It’s time to clean house.