Why Is the Obama Administration Trying to Keep 11,000 Documents Sealed?

It’s not quite the Panama papers, but one hell of a big pile of carefully guarded secrets may soon be made public.

For years now, the federal government has been quietly fighting to keep a lid on an 11,000-document cache of government communications relating to financial policy. The sheer breadth of the effort to keep this material secret may not have a precedent in modern presidential times.

“It’s the mother of all privilege logs,” explains one lawyer connected with the case.

The Obama administration invoked executive privilege, attorney-client and deliberative process over these documents and insisted that their release would negatively impact global financial markets. But in finally unsealing some of these materials last week, a federal judge named Margaret Sweeney said the government’s sole motivation was avoiding embarrassment.

“Instead of harm to the Nation resulting from disclosure, the only ‘harm’ presented is the potential for criticism,” Sweeney wrote. “The court will not condone the misuse of a protective order as a shield to insulate public officials from criticism in the way they execute their public duties.”*

So what’s so embarrassing? Mainly, it’s a sordid history of the government’s seizure of mortgage giants Fannie Mae and Freddie Mac, also known as the government-sponsored enterprises, or GSEs.

The papers being fought over concern both past and future controversies, all of them quite complicated. At the root of all of them, however, is a fight over the assets and financial power of the currently zombified GSEs. It’s a pitched battle over the future of the American housing market, and the sealed papers likely contain a covert history of the war to date.

Some background:

After 2008, everyone hated Fannie and Freddie, and for good reason. These quasi-private companies are essentially giant piles of money that were intended to advance a simple, utility-like mandate to keep credit flowing in the housing markets.

In the pre-crash years, however, the firms’ leaders acted less like the stewards of utilities and more like sleazy Wall Street hotshots. They made hyper-aggressive business decisions because their bonuses were tied to earnings growth. Some executives even engaged in Enronesque accounting manipulations in an effort to jack up their bonuses even further. These efforts led to record civil fines.

Contrary to popular belief, the one thing they weren’t guilty of was causing the 2008 crash. As the Financial Crisis Inquiry Commission later concluded, the GSEs were followers rather than leaders of the subprime craze. They invested far less recklessly than did the giant Wall Street firms primarily responsible for inflating the housing bubble.

In fact, it’s a little-known subplot of the financial crisis that bailout-era Fannie and Freddie was turned into a kind of garbage facility for other Wall Street institutions, buying up toxic mortgages that private banks were suddenly desperate to unload.

As early as March of 2008, then Treasury Secretary Hank Paulson was advocating using Fannie and Freddie to “buy more mortgage-backed securities from overburdened banks.”