Yesterday, the firm of Ross Aronstam & Moritz filed a motion with the U.S. District Court for the District of Delaware for leave to file an amicus curiae brief in the Jacobs and Hindes case, which I authored. That motion, along with the accompanying brief, can be found here: http://www.gselinks.com/Court_Filings/Jacobs_Hindes/15-00708-0026.pdf.

This brief follows the amicus I submitted (with the Coalition for Mortgage Security) in the appeal of the Perry Capital case in the D.C. Circuit last July. Both offer facts and evidence to rebut the assertion that Fannie Mae and Freddie Mac were in such dire straits prior to the mortgage crisis that Treasury had to rescue them at “enormous risk” to taxpayers, and then give them $187 billion in senior preferred stock to save them from “mandatory receivership and liquidation.”

The notion that Fannie and Freddie failed catastrophically and had to be rescued by Treasury always has been spun from straw, but near-universal acceptance of this tale has made eliminating the companies a sine qua non of any serious proposal for mortgage reform. Since the companies had failed so spectacularly, what possible argument could there be for keeping them around in any form?

Mirroring what we see all too frequently in the political arena these days, opponents and critics of Fannie and Freddie (and supporters of large banks) have been able to get enough of their advocates to repeat a fictitious account of the financial crisis so often and so emphatically, in venues sympathetic to their interests, that large numbers of otherwise sensible and objective people have come wholeheartedly to believe a narrative that has no basis in fact and is easily and convincingly refutable. This narrative has become entrenched in media reporting, and likely would have continued to go without major public challenge had it not been for the lawsuits filed against the government for the August 2012 Net Worth Sweep. These suits created a high profile forum for exposing what actually did happen with Fannie and Freddie.

As I write in the Delaware amicus, the flaw in Treasury’s plan to use temporary or artificial non-cash expenses to drive up Fannie and Freddie’s book losses and force them to take an unneeded $187 billion in senior preferred stock—which, because Treasury made that stock non-repayable, resulted in perpetual required payments to Treasury of $18.7 billion per year—was the very fact that these expenses were temporary or artificial. At some point they would cease, and many would come back into income. Treasury had no plan for dealing with that when it happened. The Net Worth Sweep gave Treasury the outcome it sought—the resulting earnings were paid to it, and not retained by the companies as capital—but Treasury did not have a credible defense for the actions it had taken. And after the lawsuits were filed, it had to respond to adversarial plaintiffs, not like-minded journalists.

When the questions came, Treasury’s answers did not pass the laugh test. Start with its decision to take over the companies in 2008. Treasury called that a rescue.

Except, if it was a rescue, why would Treasury Secretary Paulson have boasted to President Bush, “The first sound they’ll [Fannie and Freddie] hear is their heads hitting the floor?” Why had there been a paper about nationalizing Fannie and Freddie circulating at Treasury six months before that happened? Why would both the Fed and the Treasury have declined to use their existing authorities to make secured, riskless loans to the companies, had they ever been needed? Why would Paulson have held a secret meeting with hedge fund managers in July 2008 to tell them Treasury was considering putting Fannie and Freddie in conservatorship and wiping out their shareholders? Why would Treasury have inserted a clause in the GSE reform bill that made Fannie and Freddie directors immune from shareholder lawsuits if they gave in to pressure and let the government take the companies over for no statutory reason? Why would Paulson withhold from the companies’ CEOs and directors the terms of the “rescue” he was insisting they agree to? And what possible reason could there have been for making Fannie and Freddie take non-repayable senior preferred stock to offset even temporary shortfalls in their capital?

You can’t explain any of these developments if this was a real rescue; you can explain all of them if it was a policy-driven seizure of two shareholder-owned companies’ assets. And to take seriously Treasury’s stated reason for the Net Worth Sweep, you’d have to believe that no one there could parse a financial statement.

I put out close to 60 quarterly earnings reports as CFO at Fannie Mae, and after each one I saw how investors and security analysts went through the report’s details to try to understand what drove the company’s performance that quarter.

I can imagine a similar set of investors and analysts going through the initial quarterly releases of Fannie and Freddie following their conservatorships. Their first reaction on seeing the headline loss number would be, “Where did that come from?” They would check the business fundamentals—the changes in net interest income, guaranty fees and miscellaneous fees on the income side, and credit-related losses and administrative costs on the expense side—and conclude, “Those actually look fairly good.” Then they would discover the sources of loss: huge jumps in loan loss reserves, the absence of any tax shelter because of the existence of a reserve against deferred tax assets, write-downs of non-agency mortgage-backed securities to levels reflecting current market illiquidity, and the other book losses.

Whatever they may have thought about those losses, they would know four things about them: they were non-cash charges, most were one-time events, most were based on estimates of future losses, and many might reverse themselves.

Some version of this analytical routine would have played out after each quarterly earnings release from the second half of 2008 through the end of 2011. Each time, analysts would have seen non-cash losses continuing to drag down the operating results. Soon they would be asking themselves, “How long can this go on?” At some point the companies would not be able to keep taking losses in the current period assuming those losses might be realized in the future. Analysts would know that when Fannie and Freddie stopped taking non-cash losses, and began to draw on their mammoth loss reserves to absorb current quarter credit costs, they would be profitable again. And if some of their previously estimated book expenses did not materialize, they would be exceedingly profitable.

A summer intern at a regional brokerage firm would have understood this, but Treasury wants us to believe that nobody there did. It wants us to believe that in August of 2012 it entered into the Net Worth Sweep for the good of the companies, and that the subsequent torrent of $170 billion that flooded into Treasury coffers—overwhelmingly driven by the absence or reversal of Fannie and Freddie book losses recorded earlier—took it completely by surprise.

Sorry, Treasury. Because of the lawsuits, you’re now in a different game. Your actions, and your defense of those actions, no longer are being adjudicated only on the editorial pages of the Wall Street Journal; they also are being adjudicated in courts of law. There facts matter, and there you almost certainly will lose.