February 24, 2014

FORTUNE — Ralph Nader and New York Times columnist Gretchen Morgenson are usually reliable advocates for the little guy in the face of the enormous power the investor class wields over the American political process. But when it comes to the Treasury Department’s 2012 decision to return all of Fannie and Freddie’s earnings to taxpayers rather than issuing a 10% dividend as originally stipulated, these two are lining up behind wealthy investors.

Investors in Fannie and Freddie stocks argue — and Nader and Morgenson agree — that Treasury made the change to prevent private investors from profiting from Fannie and Freddie’s recovery. Here’s Morgenson:

Do the Treasury’s actions amount to a backdoor nationalization of the companies? A full-fledged takeover would have required Treasury to put all the companies’ obligations — $4.9 trillion at the time — on the government’s balance sheet. A nonstarter.

Furthermore, nationalization would have required the government to provide compensation to shareholders for what it took. Now the government gets the benefits of the companies’ profits while avoiding any compensation payments.

This is a common argument you’ll hear from Fannie and Freddie investors: The federal government didn’t nationalize Fannie and Freddie, and if it had wanted to, it would have required taking trillions of dollars on the federal balance sheet. This was a “nonstarter,” as Morgenson describes, because of the statutory limit the U.S. places on its debt level, otherwise known as a debt ceiling. The legislation, which allowed for the Fannie and Freddie bailout, also raised the debt ceiling by $800 million, not nearly enough to formally assume the north-of-$5-trillion in obligations Fannie and Freddie had on their books.

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So, instead, Treasury worked out a scheme where Fannie and Freddie would pay a 10% dividend to investors, and taxpayers would assume just shy of an 80% ownership stake in the companies. According to a lawsuit filed on behalf of Fannie and Freddie shareholders by the hedge fund Perry Capital, Treasury then decided to alter the terms of the bailout when it became aware that both firms would soon be turning a profit because it wanted those funds to help make the budget deficit appear smaller.

Even though Feds didn’t formally assume Fannie and Freddie’s debt, taxpayers were still assuming significant risk by bailing out these institutions. Here’s how the Congressional Research Service described the risks back in 2008:

The takeover of Fannie and Freddie, and specifically the commitment to meet all the firms’ obligations to debt holders, exposes the government to a potentially large financial risk. Debt issued or guaranteed by the GSEs totals more than $5 trillion. The ultimate value of the firms’ assets is uncertain, and the Treasury — by stating that it will maintain a positive net worth in each GSE — has in effect agreed to cover all losses to the GSEs’ combined $1.5 trillion portfolios.

In other words, taxpayers were assuming far greater risk than Fannie and Freddie shareholders collectively ever had to. And the debate isn’t just about money. If Fannie and Freddie are allowed to recapitalize both in terms of money and political clout, figuring out what to do with these firms will become that much more complicated. As Fannie and Freddie’s retained earnings grow, so too will resistance to winding them down and replacing them with a much smarter and safer alternative.

What Treasury did in amending the terms of the bailout was unprecedented. But at the end of the day, taxpayers took on huge risk with the Fannie and Freddie bailout and should be compensated for it. After all, the only thing that prevented a full nationalization was America’s archaic debt ceiling rules.

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The story of the financial crisis has often been one of justice deferred on account of fine print. Whether it is the lack of criminal convictions for white-collar misconduct, the absence of any meaningful help for underwater homeowners, or the missing concessions from large banks for the billions in bailout money offered to them, taxpayers have gotten the raw end of just about every deal they’ve signed.

Now that the Treasury Department is trying to execute real justice and make sure that Fannie and Freddie shareholders don’t profit from a bailout they didn’t deserve, it’s strange that advocates like Ralph Nader are trying to stand in the way.

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