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Conservatorship: the mystery of the day

By Mark Obbie

So, by what authority can the U.S. Treasury take over the two publicly owned mortgage-finance giants, Freddie Mac and Fannie Mae? Good luck finding the answer in first-day coverage by the big three that you'd expect have more answers than others: the Journal, Times, and Post. In roughly that order, the papers' coverage is in many ways ambitious and comprehensive. But it's long on finance and politics, and short on law.The Journal's lead story, by James Hagerty, Ruth Simon, and Damian Paletta, calls the move the government's "most dramatic market intervention in years." The Times' lead, by Stephen Labaton and Edmund Andrews, calls it "an extraordinary federal intervention in private enterprise." Where does the magic wand come from? We learn in various stories -- such as this unsigned fact sheet in the Post -- that a conservatorship is sorta like bankruptcy, and the rescue plan is sorta like a prepackaged bankruptcy. No explanations go beyond that, unless you count the Times' link to a fact sheet from the Federal Housing Finance Agency, giving a dreadfully dry and citation-riddled explanation of conservatorship.Post business columnist Steven Pearlstein hints at the dealmaking realities -- the companies' legal options to fight were limited by their financial weakness, and so the government made them an offer they couldn't refuse -- but he also skips past the details as though they are an afterthought. We get precious few reminders of Treasury's trip to Congress earlier this summer for the authority to do what it's doing. The papers provide no explanations that I can find of whether that policymaking round created this solution, or if it's from existing law. Maybe those details are beside the point. But then why not make that point? A sentence or two explaining that the legal authority for this is or isn't murky, and that the legal procedures have been short-circuited by the financial realities (if that's the case); or that reporters couldn't find all this out on short notice; or whatever the case. Instead, taxpayers are handed a puzzling word, conservatorship, and evidently must imagine the details -- or simply see government as having the brute force to do what it wants.

Full post as published by Lawbeat on September 08, 2008 (boomark / email).