April 3, 2009

From the Desk of Judicial Watch President Tom Fitton:

New Documents Uncovered by Judicial Watch Show Congress Ignored Corruption at Fannie Mae and Freddie Mac for Years

Barney Frank and his liberal allies in Congress have more explaining to do.

According to new documents we uncovered this week, members of Congress for years were aware that Fannie Mae and Freddie Mac were playing fast and loose with accounting issues, risk assessment issues and executive compensation issues even while liberals in Congress (led by Frank) continued to block attempts to regulate the two Government Sponsored Enterprises (GSEs).

We obtained these documents from the Federal Housing Finance Agency (FHFA) in response to a Freedom of Information Act (FOIA) request we submitted back on December 4, 2008. This is part of our comprehensive investigation of the government’s role in the financial crisis, but our particular concern in this case was the policy of Fannie Mae and Freddie Mac to increase lending to individuals with poor credit risk, as well as correspondence and records about contacts between FHFA and Fannie and Freddie.

The following are a few of the most important documents we found. (You can read all of the documents we received in full by clicking here):

• FHFA letter, dated March 26, 2007, from the director of the Office of Federal Housing Enterprise Oversight (OFHEO), James B. Lockhart, to U.S. Senators Elizabeth Dole, Chuck Hagel, Mel Martinez and John Sununu: "This is a very serious issue. Freddie Mac’s inadequate systems and controls make it a significant supervisory concern. Furthermore, its lack of timely public disclosures deny market participants the essential financial information made available by all other publicly traded companies so that investors may make informed judgments." The letter also mentions, "…Fannie Mae still has not filed financial statements for 2005 and 2006 and thus, they are not timely filers either."
• FHFA letter, dated December 3, 2004, to Congressman Barney Frank: "On November 15, 2004 Fannie Mae filed a Form 12b-25 with the Securities and Exchange Commission (SEC). Fannie Mae indicated that its external auditors could not complete their reviews of its financial statements and noted the possibility of up to a $9 billion loss dating back to 2001. As a result, OHFEO has determined it will not provide a monthly capital classification at this time."
• Letter dated June 16, 2006, from OHFEO Director Lockhart to Senator Chuck Hagel: "…In January 1999, Chairman and CEO Franklin Raines approved a recommendation made by the Chief Financial Officer (CFO) (Tom Howard) and the Controller (Leanne Spencer) to defer recognition of $200 million in amortization expense. This deferral, along with other accounting decisions made at that time relating to provisions for loan losses and the recognition of low-income housing tax credits, allowed management to meet the EPS threshold for maximum bonuses."

So what do these documents tell us? Well now we know for certain that Congress was made aware of the massive problems at Fannie Mae and Freddie Mac going back at least six years. When you read through these documents, you can see how desperate officials at FHFA were sounding the alarm regarding fraud, abuse and corruption at Fannie and Freddie.

Yet even when faced with the litany of complaints by FHFA against these two GSEs, liberals in Congress, led by Congressman Barney Frank, repeatedly blocked attempts to rein them in. Here’s just one example:

During a hearing on September 10, 2003 before the House Committee on Financial Services considering a Bush administration proposal to further regulate Fannie and Freddie, Rep. Frank stated: "I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis. We have recently had an accounting problem with Freddie Mac that has led to people being dismissed, as appears to be appropriate. I do not think at this point there is a problem with a threat to the Treasury."

Any way you slice it, liberals in Congress were reckless when it came to the massive taxpayer liabilities related to Fannie Mae and Fannie Mac and they should be held accountable for it.

Eric Holder Playing Politics at Justice Department

With legislation pending before Congress that would give a representative elected by voters in the District of Columbia a full vote in the House of Representatives, Attorney General Eric Holder asked Justice Department lawyers in the Office of Legal Counsel (OLC) if the legislation would withstand the constitutional test. Holder, a D.C. resident who supports the measure, didn’t like the answer he got from the Obama-appointees at the OLC. So he improperly asked another office — the Solicitor General’s office.

Here’s the story according to The Washington Post:

Justice Department lawyers concluded in an unpublished opinion earlier this year that the historic D.C. voting rights bill pending in Congress is unconstitutional, according to sources briefed on the issue. But Attorney General Eric H. Holder Jr., who supports the measure, ordered up a second opinion from other lawyers in his department and determined that the legislation would pass muster.

A finding that the voting rights bill runs afoul of the Constitution could complicate an upcoming House vote and make the measure more vulnerable to a legal challenge that probably would reach the Supreme Court if it is enacted.

Now, the job of the Solicitor General’s office is to represent the administration before the Supreme Court. The office is not asked to render opinions in cases that are not before the court. So, in essence, Holder violated protocol for one reason and one reason only, to get the answer he wanted. As the Post pointed out, "Holder, who has lived in the District for more than two decades, co-signed a 2007 letter with other prominent lawyers supporting D.C. voting rights legislation." President Obama supports the legislation as well.

This is a very disturbing sign. Because it shows very clearly that Holder is more than willing to politicize the Attorney General’s office and to use Justice Department assets to push his own personal political agenda, even at the expense of the U.S. Constitution. (There is a very simple reason why D.C. does not have a vote in Congress. D.C. is not a state. And according to the U.S. Constitution only U.S. states are allowed representation in Congress.)

It is interesting to note Holder was asked about how he might handle a situation such as this during his confirmation hearing. Here’s what he said: "We don’t change OLC [Office of Legal Council] opinions simply because a new administration takes over…The review that we would conduct would be a substantive one and reflect the best opinions of probably the best lawyers in the department as to where the law would be, what their opinions should be. It will not be a political process, it will be one based solely on our interpretation of the law."

So much for that.

Liberals have been up in arms about alleged abuses of the OLC during the Bush presidency. Will there be congressional hearings into this new scandal?

None of this comes as a surprise to Judicial Watch. We aggressively opposed the Holder nomination. Here’s what I wrote in a letter I sent to Congress on January 13^th, about Holder’s corrupt record: "Mr. Holder’s record demonstrates a willingness to bend the law in order to protect his political patrons. On his watch at the Clinton Justice Department, the [presidential] pardon process was upended and corrupted by a ‘pay to play’ mentality. This undermined, in the least, the appearance of the fair administration of justice by the Justice Department. Mr. Holder is the wrong person to head the Department of Justice."

And so here we are. Holder abuses his office by subverting Justice Department processes to help DC Democrats and proves to be the political hack we knew all along.

Judicial Watch’s Battle for Transparency in Security and Prosperity Partnership Continues in Court

Judicial Watch filed an appeal this week in its open records lawsuit against the Department of Commerce regarding the Security and Prosperity Partnership (SPP) and its off-shoot, the North American Competitiveness Council (NACC). But before we get to the brief, I haven’t covered this lawsuit recently, so here’s a quick primer.

The SPP was formally announced by then-heads of government Vicente Fox, George W. Bush, and Paul Martin on March 23, 2005, in Waco, Texas. The expressed purpose of the SPP, according to the trio, was to create a "safer, more prosperous North America." However, critics believed that the ultimate goal was the creation of a North American Union, blurring the lines of distinction between the three countries and sacrificing national sovereignty.

When the government officials at the highest levels began holding secret meetings with business interests and crafting polices behind closed doors that impact all Americans, suspicions heightened. And that’s when Judicial Watch got involved.

We filed numerous open records requests with the federal government, making the argument that all meetings related to the Security and Prosperity Partnership are subject to the Federal Advisory Committee Act (FACA) and should therefore be open to the public. Through the Freedom of Information Act, Judicial Watch unearthed some fascinating documents, which you can read here. However, some agencies continue to stonewall the release of records related to SPP, prompting Judicial Watch to file lawsuits, such as the one referenced above against the Commerce Department.

Now, back to the brief. The lower court in our lawsuit against the Commerce Department conceded that Judicial Watch could prove "informational injury" under FACA. However, the court ruled that this "injury" could not be traceable to the Department of Commerce and could not be addressed through the courts. (In other words, the court ruled that Judicial Watch lacked "standing" to bring the lawsuit.) We, of course, respectfully disagree. Here’s an excerpt from our brief:

This appeal concerns an attempt by a federal agency to establish advisory committees comprised of business representatives from the United States, Canada and Mexico, and yet evade the public disclosure requirements of FACA (Federal Advisory Committee Act). [We] allege that these committees, known as the North American Competitiveness Council ("NACC") and its component subgroups, fall within the definition of an "advisory committee" as that term is defined under FACA…

…Ultimately resolution of this case is important, not only in regard to the specific advisory committees at issue, but because the agency is seeking to create an exception under FACA which would substantially undermine the purposes of this statute.

Now the question might come up, why is this battle so important given that Fox, Martin and President Bush are no longer in power? SSP is still active, and it is important to find out as much as possible about where we stand on some of the policies that are being developed, especially in light of the drug-fueled civil war in Mexico.

Second, if the federal government is successful in our lawsuit, it could set a precedent that will allow other government advisory committees to operate improperly in secret. (Obama seems to be on the edge of the law on this issue already with his secretive Economic Recovery Advisory Board.)

And, finally, with the Obama administration’s penchant for a massive federal government, and his globalist mentality, does anyone seriously think the Obama administration is going to dial down the Security and Prosperity Partnership? The attack on our national sovereignty is going to get much worse, not better, under President Obama’s leadership. That is why we’re going to keep up the fight in court to shine a light on the Security and Prosperity Partnership and its offshoot, the North American Competitiveness Council.

Until next week…

Tom Fitton
President

Judicial Watch is a non-partisan, educational foundation organized under Section 501(c)(3) of the Internal Revenue code. Judicial Watch is dedicated to fighting government and judicial corruption and promoting a return to ethics and morality in our nation’s public life. To make a tax-deductible contribution in support of our efforts, click here.