GREAT POST! I feel like a kid in a candy store! Here's a gem:
"Like Treasury, FHFA was in possession of information showing that the
Companies would soon generate substantial profits, thus making it inevitable that they would
release their deferred tax asset valuation allowances. On July 13, 2012, Bradford Martin,
Principal Advisor in FHFA’s Office of Conservatorship Operations, broadly circulated within
FHFA minutes from a July 9, 2012 Fannie executive management meeting. The recipients of the
email included Acting Director DeMarco and Mr. Ugoletti. The minutes stated that Fannie
Treasurer David Benson “referred to the next 8 years as likely to be ‘the golden years of GSE
earnings.’ ” Projections substantially similar to those shared with Treasury on August 9 were
attached to the email containing the following slide:"
Uncle Sugar, did you take our profits to fund NONAPPROPIATED GOVERNMENT SPENDING!
"it would have to release the valuation allowance it had established for
them. FHFA knew this; indeed, FHFA accountants were monitoring the Companies’ deferred tax
assets situation, and FHFA knew that the Companies’ audit committees were assessing the status
of the valuation allowances on a quarterly basis. Indeed, in an August 14, 2012 email, an FHFA
official indicated that both Companies had discussed the issue of “re-recording certain deferred
tax assets that had been written off” during their most recent Board meetings “based on the view
that they were going to be profitable going forward.” In addition, Ms. McFarland testified that in
July 2012 she would have mentioned the potential release of the valuation allowance at a Fannie
executive committee meeting attended by at least one FHFA official, and she also testified that
FHFA was on notice of the statement she made to Under Secretary Miller on August 9, 2012
regarding the potential release of the valuation allowance."
THAT'S A BAD UNCLE SUGAR! BAD UNCLE SUGAR!
"The agenda for a meeting indicates that by May 2012 Treasury and Grant Thornton were
discussing “[r]eturning the deferred tax asset to the GSE balance sheets” and that Treasury
planned to discuss this issue with FHFA and the Companies in early June. And a Grant Thornton
document sent to Treasury on June 29, 2012 recognizes that two “key issues” for determining the
value of Treasury’s investment in 2012 were “whether and when the GSEs will return their
deferred tax assets to their balance sheets” and “whether and when the GSEs will become
taxpaying entities.”"
"88. In sum, by August 2012 the Agencies knew that Fannie and Freddie were poised
to add tens of billions of dollars of deferred tax assets to their balance sheets and to reverse
billions of dollars of loan loss reserves. Thanks to these inevitable accounting decisions, coupled
with Fannie’s and Freddie’s strong earnings from their day-to-day operations, the Companies
anticipated that they would be able to pay their 10% dividends to Treasury without drawing on
Treasury’s funding commitment in the future, and dividend payments on the Government Stock
did not threaten to erode Treasury’s unused funding commitment.
89. In addition to the release of loan loss reserves and deferred tax assets valuation
allowances, Fannie and Freddie also had sizeable assets in the form of claims and suits brought
by FHFA as conservator relating to securities law violations and fraud in the sale of private-label
securities to Fannie and Freddie between 2005 and 2007. In 2013 and 2014, the Companies
recovered over $18 billion from financial institutions via settlements of such claims and suits.
The Companies, FHFA, and Treasury knew in August 2012 that the Companies would reap
substantial profits from such settlements."
