Monday, July 21, 2008

Thoughtful Policymaking or “Tonkin Gulf?”

Good on them!

Neither Fannie Mae nor Freddie Mac wants the Treasury’s financial help. Both CEOs have stated that as well as their belief—which I share—that they don’t need any emergency capital to ride out the current losses, beyond what they have and what they can raise in the markets.

Freddie’s recent action to become SEC compliant also speaks well of that GSE’s viability.

Now maybe some of this hot air and pontificating on “federal bailouts” will cease.

Amid all of the bizarre rhetoric about “GSE nationalization” and “the government assuming $5 billion of new debt, heard often on the Fox News outlets and in the Wall Street Journal (couldn’t Mr. Murdoch get editorially excited again over the “Red Terror,” Al Queda, or the equivalent?), there is a need to remind the world that the companies haven’t asked for any assistance--beyond some common sense from Congress as it finishes writing GSE legislation--and have capital and the means to raise more.

I want to give Hank Paulson the benefit of the doubt, trying to do what he thinks is right and proper while fending off some White House crazies who still think a dead Fannie and Freddie is preferable to two functioning GSEs.

In my “benefit of the doubt” mode, Paulson saw the rumor driven campaign to push down the GSE stock prices--facilitated by a ton of Wall Street “shorts” and their anti-GSE collaborators, who played old Bill Poole like a fiddle--and decided that Treasury needed to put in place some type of contingency plan, should the stampede on the companies not abate. So a weekend ago he discussed the need to add to the GSE regulatory bill additional Treasury authority to lend money to the GSEs or buy their stock, since both require legislative approval.

I’ll stick with that more constructive view of Paulson, but there is a “Gulf of Tonkin” analysis, too, as pointed out by a well know financial services personage in town (who shall remain anonymous), whom I will call “Mr. Z.”

(For you Gen X-ers and younger, see Congress' reaction to "reports" of North Vietnamese gunboats firing on US ships in the Gulf of Tonkin.)

Z’s perspective is that the Treasury Secretary and the Fed have all the tools they need to act in a “real emergency,” but the canny Paulson was trying to manipulate the circumstances to get a GSE-fevered Congress (isn’t Congress always “fevered” about something?) to expand his and Ben Bernanke’s authority over the GSEs, with an amendment to--and at the expense of--the new regulatory agency the underlying legislation creates?

Until shown more proof, I don’t wholly buy Mr. Z’s view, but Z is a very smart and wizened man.

It doesn’t look like Congress—which seems skeptical for lots of reasons—is unquestionably going to go along with Secretary Paulson’s request without some limitations or additional conditions on its use.

Once again, the Treasury and Fed likely have the residual power they need, so why give them more “on the come?”

The thought has occurred to me that almost anything Paulson’s Treasury might implement by regulation could be trumped by a new “Obama Administration,” if the latter was so inclined and if the GSEs survived Paulson’s “medicine.”

The same principle might apply to any “scare legislation” hastily passed by Congress—because of Administration importuning--which a new “Obama team” didn’t think made financial sense in January 2009.

I mention this because I still think Paulson is waging war inside the Administration with those who see one last chance to scuttle the GSEs and will try anything to succeed. I hope Paulson can outmuscle those thugs.

I realize that OFHEO still will be around until its successor takes shape, but the agency will need to tread carefully, absent a major new GSE real estate conflagration.

Media and GSE Knowledge

The GSE hysteria of the past few weeks (and the Wall Street Journal editorial page for the past five years!) has produced tons of flawed Fannie/Freddie stories, many of them with incorrect information about the companies and how they operate.

However, from my perspective one positive of all of the recent attention is eventually the media will get the story right and the public and the Congress will get better informed, at least on how the companies are structured what they were set up to do and how successful they’ve been with that federal mission.

I did something this weekend I seldom do and that was compliment a few writers for the quality of their work and less how they presented a new GSE development to their readers but more about the contest of the two companies..

In Saturday’s Wash Post Business section, Jeffrey H. Birnbaum and Lori Montgomery authored a news story on Freddie Mac becoming SEC compliant and their coming stock sale.

Again, pretty straight story, but what made this one different—and unique in my reading—were two early descriptive paragraphs Birnbaum and Montgomery included which spelled out the fact that both Fannie and Freddie by charter pursue public and private goals and their unique relationship to the federal government.

I thought this small addition was positive treatment because so much misinformation about the companies flows from the public’s failure (not to mention many in Congress) to understand the GSEs unique structure. It’s my experience that those in the media don’t often make those facts clear to readers.


Something must be right with the world; this morning’s WSJ’s daily GSE rant is sputtering and frothing with anger. Good for those who discomfited the Journal’s editorial writers.

Also in the Journal’s crosshairs was Randy Neugebauer (R-Tex), a House Financial Services Committee member who, along with committee colleague Rebecca Bean (D-Ill), co-authored a floor amendment which took out language which would have given the new GSE regulator the ability to use “system risk” as a condition for wreaking regulatory havoc on the two companies.

I’ve been giving Bean and Neugebauer credit for winning 366 bipartisan votes for their amendment, but the WSJ says that number actually was 383. That’s a correction I’ll willingly accept from Murdoch’s marauders.

Maloni 7-21-2008

1 comment:

Bill Maloni said...

Mr. Z is indeed "wise," but hardly "wizened," which means old and wrinkly. Although he sometimes acts.....!