Opinion

Trump Fights Fannie/Freddie Battle From Outside The White House

By Eric Felten for RealClearPolitics

One battle born of the 2008 financial crisis – the federal takeover of Fannie Mae and Freddie Mac – is still being fought by the mortgage giants’ private shareholders.

Former President Donald Trump waded into the fray this month, making the case that if the law establishing the agency governing Fannie and Freddie had been constitutionally crafted, he would have been able to privatize them.

He claims his policies for the mortgage entities should be honored now because they had been thwarted improperly during his tenure in the White House.

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Trump is trying to do what he failed to do while president: get compensation for shareholders who lost the value of their investments in Fannie and Freddie. He has written a letter – RealClearPolitics acquired a copy – to Republican Sen. Rand Paul setting out what his goals for Fannie and Freddie were and how those goals were blocked by a statute the Supreme Court has since ruled unconstitutional.

Reached by RealClearPolitics, Paul’s office responded that the senator was traveling and unavailable for comment about the letter.

Shareholders in Fannie and Freddie had hoped that the high court would also rule in favor of re-privatizing the two mortgage entities, which currently pay all their profits to the federal government. But when the court made its ruling last June, the justices for the most part let the federal control of the mortgage giants stand. But not entirely.

The plaintiffs had also asked the court to strike down a rule saying that the president must have a valid reason for replacing the director of the Federal Housing Finance Agency – that the director of the FHFA could only be fired by the president “for cause.” In that part of the litigation, the shareholders were successful.

The independence of the FHFA director was ruled unconstitutional. The Supreme Court gave lower courts the job of deciding whether the unconstitutional “for cause” provision had blocked the president from pursuing policies he would otherwise have instituted.

The evidence is not clear-cut. Trump argues that he was “denied the ability to oversee the work of FHFA in violation of the Constitution.” In the letter to Rand Paul, Trump added, “My administration was denied the time it needed to fix the problem.”

Perhaps, but Melvin L. Watt (at left, above, in 2013), the FHFA director inherited by Trump and the man Trump blames for thwarting him, left office under the cloud of sexual misconduct at the end of his scheduled five-year term in January 2019, halfway through Trump’s term in the Oval Office.

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Watt’s Trump-appointed successor, Mark A. Calabria, took office in April 2019, with 21 months remaining in the president’s term. (Calabria would still be there, too, except for the Supreme Court decision clarifying the FHFA director’s chain of command: In the wake of the court’s decision, President Biden replaced Calabria).

The Supreme Court found that private stockholders might be able to claim compensation if their position had been injured by an unconstitutional statute. It is “possible for an unconstitutional provision to inflict compensable harm,” the justices said. They specifically pointed to an “unconstitutional restriction on the President’s power to remove a Director of the [Federal Housing Finance Agency].”

An unconstitutional provision can be the grounds for “retrospective relief,” the court ruled, because “an unconstitutional provision is never really part of the body of governing law.” The court entertained a few hypotheticals. “Suppose, for example, that the President had attempted to remove a Director but was prevented from doing so by a lower court decision holding that he did not have ‘cause’ for removal.”

In such a case, the unconstitutional statutory restriction on the president’s power “would clearly cause harm” to the shareholders.

“President Trump would have fired Director Watt but for his for-cause removal protection,” plaintiffs argue in a brief currently being considered by the Fifth Circuit. “Plaintiffs are thus entitled to a remedy under the Supreme Court’s decision,” according to the shareholders. “The appropriate remedy is to order Defendants to do what would have been done absent the constitutional violation.”

But what counts as evidence of what the president would have done? The Supreme Court suggests supposing that the “President had made a public statement expressing displeasure with actions taken by a Director and had asserted that he would remove the Direc­tor if the statute did not stand in the way.”

Trump has done that – albeit after the fact – by writing the  letter to Paul stating how he would have acted if he had not been constrained by an unconstitutional statute.

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In the Nov. 11 missive, Trump specifically addresses questions raised this summer in Collins v. Yellen – that “[f]rom the start, I would have fired former Democrat Congressman … Mel Watt from his position as Director.”

He says he would have removed Fannie and Freddie from government control and would have sold the government’s common stock in the two companies, privatizing them and restoring the value of shareholders’ investment. He does not address how he would have achieved these difficult and delicate political challenges.

The former president accuses the FHFA of stealing “the retirement savings of hardworking Americans who had invested in Fannie Mae and Freddie Mac.” That theft, according to Trump, isn’t just an injury to citizens’ bank accounts it establishes a destructive precedent: “The idea that the government can steal money from its citizens is socialism and is a travesty,” he writes to Paul.

The “federal parties” in Collins v. Yellen countered that even though the president was blocked from exercising his power to fire the director of the FHFA, that agency’s partner in collecting Fannie and Freddie’s profits is the Treasury – “an executive department led by a Secretary subject to removal at will by the President.”

If the president did not exert his authority over the Treasury, why should one assume he would have done so over the FHFA?

The Supreme Court called on lower courts to resolve that dispute and the Fifth Circuit may rule at any time, when it may be discovered whether Donald Trump is able to exercise political power from beyond the political grave.

Syndicated with permission from RealClearWire.

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