Ok, I admit it, Mulder.
GSEs Not Financially Weak?
What if Fannie Mae and Freddie Mac are not the weak financial sisters that many, in official
Card, then. Might be doubly torked off, when that same Frank Raines--in the context of some political sally against his company--sends a snippy letter, complaining to Card about the GOP Lilliputian assaults?
Do you think it’s possible that Card or even Karl Rove, who saw all of the same events and was more sensitive to the politics, could have called some senior SEC official and suggested, “Nail those Fannie bastards and I don’t want to know how you did it?
Around that time, the Bush SEC dutifully proclaims that Fannie has not abided by FAS-133. HUD, then, weighs in against the GSEs, uttering something about missing housing goals; and OFHEO, after doing a 10 year Rip Van Winkle, stumbles awake and shrieks at the GSEs. The large bank dominated old FM Watch crowd, still filling their coffers with billions, acts as an Amen “Chorus.” The Wall Street Journal vomits anti-Fannie/Freddie editorials numbers 44, 45, 46, 47 and beyond. A weak kneed Congress doesn’t know what to do, except avoid defending anything that may even look politically injurious. Heads roll at both companies. New management apologizes to multitudes, seemingly one at a time, and agrees to various “12 step” prevention programs, including paying large fines, in return for Administration hints/promises to leave them alone. And, the rest becomes history, as we know it.
Pretty implausible, huh, even for a Bush Administration which violently bulldozed any law standing in the way of its political march through
Maybe so, but not for this conspiracy theorist/cynic, especially one who just read that Rove, or somebody in the White House, called Attorney general Gonzales and told him to dump a bunch of US Attorneys who weren’t towing the Admin’s line. The Bush White House did that with the same flawed Attorney General, who had been reeling from bipartisan criticism, because the AG had blessed torture, illegal confinements, and wiretapping, in written legal opinions, providing the basis for some extreme Admin conduct, post 9-11.
Pearlstein Column, AG and the Fed
For a few weeks now, in this miasma, I have been pondering the implications of a column written by the thoughtful Washington Post financial columnist, Steven Pearlstein, on May 25, 2005. In it, Pearlstein claims—“using the Queen’s English,” as opposed to Fed’s the complex verbosity, that Alan Greenspan—in a teleconference speech to bankers—ignored and even reversed the Fed’s benign GSE risk findings, in the central bank study, “Concentration and Risk in the OTC Markets for U.S. Dollar Interest Rate Options.”
Pearlstein’s review of the report found that Fannie Mae and Freddie Mac did not represent threats to the financial system. He said, the GSEs heavy use of derivative securities, which “hedge” mortgage portfolio interest rate risks, helped keep mortgage costs down and insured against future portfolio troubles.
The Post columnist went on to suggest that Greenspan deliberately ignored the work of his own staff, freelanced, laid out some of his own anti-GSE vitriol, which I believe encouraged the angry lynch mob mentality and rush to GSE judgment, that soured lots of people, policy makers, and politicians on the successful GSEs.
In previous efforts, I have tried to establish why the Fed would target the GSEs and their huge home mortgage generating/Congress pleasing business operations.
So much of what the GSEs encountered was based on the Fed argument of GSE risk, amplified by OFHEO (with it’s new “friend of W’s,” large and in charge), Fannie/Freddie business opponents--those big banks whose “private label” and subprime business grew, as the GSEs fought their political challenges--and various GOP politicos, all interpreting and ascribing selfish motives to those GSE (read Fannie) officials, who they claimed produced “accounting scandals.”
The media, reflecting most of the aforementioned cabal, lapped it up and did its own piling on.
It is important to remember that long before the Financial Accounting Standards Board promulgated FAS-133, which the SEC claimed Fannie violated, the regulation was strongly challenged—as unfeasible--by the GSEs, large banks, and other financial service companies. Since its implementation, hundreds of companies have had to admit to accounting or financial records problems and restate earnings, redoing past financial records. (Fannie, alone, has spent over a billion dollars doing so.)
Could any of the previous political speculations occur, here in DC, with the Fed and Bush Administration in charge? Would they create a snowball of safety and soundness doubt, wrapped in claims of malfeasance, and then roll it downhill and cheer the momentum?
Nah, not in this day and age, not with those GOP paragons of virtue, controlling the levers of government. Certainly not when Alan Greenspan was Fed Chairman and he saluted red ink producing tax cuts, advocated shrinking social security, and was myopically indifferent to fixing the subprime lending fiasco, fifteen or more months ago, when a fix could have saved thousands of families and the teeth gnashing going on now.
Yes, my tale probably is just another UFO or “Nessie” claim. That is, unless Steve Pearlstein was right. In which case, Mulder, lots of other people weren’t and, today, they still aren’t.