Hank Paulson and Ben Bernanke strong arming the Board of Directors to relinquish control of the gses to the federal government (after they and OFHEO had just recently reassured the market, "The gses are well capitalized!") had even surprised Moodys and Fitch:
"Indeed, the Companies’
preferred stock was generally viewed as a conservative and reliable investment—even as of
August 8, 2008, after enactment of the Recovery Act and shortly before the imposition of the
conservatorship, Fannie Mae’s Junior Preferred Stock was rated AA- by S&P, A1 by
Moody’s, and A+ by Fitch."
"Actual credit losses from 2007 to 2011 were approximately $140 billion
less than anticipated. A significant portion of the losses recorded in that period related to the
write-down of deferred tax assets, which the Companies would reverse when they returned to
profitability."
"Lockhart similarly explained four months later, on July 8, that the Companies
were “adequately capitalized, which is our highest criteria.” Two days after that, on July 10,
he again confirmed, in a public statement, that Fannie Mae and Freddie Mac were “adequately
capitalized, holding capital well in excess of the OFHEO-directed requirement, which exceeds
the statutory minimums. They have large liquidity portfolios, access to the debt market and
over $1.5 trillion in unpledged assets.” This same day, then-Treasury Secretary Henry
Paulson testified to the House Financial Services Committee that the Companies’ “regulator
has made clear that they are adequately capitalized.” The then-Chairman of the Federal
Reserve, Ben Bernanke, echoed this, also testifying before that committee, on July 16, 2008,
that the Companies were adequately capitalized and in no danger of failing. Further, upon
information and belief, an August 2008 analysis for the Agency of Freddie Mac’s financial
condition, by BlackRock, concluded that Freddie Mac’s “long-term solvency does not appear
endangered—we do not expect Freddie Mac to breach critical capital levels even in stress
case.”"
THE SETUP
"33. In letters to each Company dated August 22, 2008, the Agency found
(consistent with the Director’s public statements) that each Company met all relevant capital
requirements, including additional capital requirements imposed by the Agency above the
statutory minimums and requirements arising from the Agency’s risk-based capital stress test.
34. Nevertheless, on information and belief, Treasury and the Agency around the
beginning of September 2008 sought the consent of the Companies’ boards of directors to
place the Companies into conservatorship. The Agency obtained such consent on the ground,
in part, that conservatorship would serve the interests of the Companies’ shareholders. In
exchange for the Agency’s promise, the Companies agreed not to challenge being put under
conservatorship.
35. On September 6, 2008, the Agency did place each of the Companies into
conservatorship."
