Nitty Gritty Issues for the Congress
Part 1 of this two part blog was a general message about the Corker-Warner proposal to kill and replace Fannie Mae and Freddie Mac. I challenged the Senators and their allies to stop using bogus arguments to derogate and insult Fannie and Freddie, as a way to rally their troops and build support for their expected legislation.
In Part 2, I offer some specific suggestions to MoC’s (and the media which duly reports their daily utterings) hearing the siren call (seeing campaign contributions and political success) in lending their name to legislation.
---Walk before you run to sign up for Corker-Warner or anything else you don’t fully comprehend. Before you sign onto any proposal as a sponsor or co-sponsor, totally understand that plan’s consequences. A public official hoping to get re-elected in 2014 or 2016 better truly understand “the Devil you don’t know for the Devil you do.”
As someone who’s closely watched the Congress perform for 45 years (not the same as achieving anything), my experience is that every major legislative “solution” has dozens of unintended consequences which you have to justify because you are supporting the scheme.
Can you see what will happen to this bill (or any complex or multifaceted legislation) after the disparate Senate interests get done applying their wisdom, which will occur before the less than thoughtful House gets in its licks, if the latter deigns to do so at all. (I suggest you look at the new Senate immigration or agriculture bills as guides.)
---Your F&F replacement mortgage finance system must be more efficient, better, cheaper, more understandable, offer more readily available mortgage products to consumers (your constituents), as well as be a better deal for the taxpayers (also your constituents) than the F&F system now in place—or else why destroy the current working pair? Remember, the F&F subsystem has systemically produced in the past and only a few legislative tweaks can make it better.
--Understand that one percentage point equals “100 basis points” (BP). So when you are told that some new mortgage execution only/may/could/will add 50 basis points (my example not the Senators’) to the cost of a mortgage, remember that’s ½% added to the interest rate over the life of the loan.
I realize that few MoC’s have a strategic horizon, or one which extends to their next election, but cost estimates generally only go one way in Washington—up!!
After the five or more years it takes to bring about and implement these major structural changes (and that doesn’t count the lengthy, contentious .torturous debate and mind numbing. eye glazing hearings which most “busy” Senators and Members will duck), the new plans likely will generate higher cost mortgages than lower.
--Do yourself a favor and learn or have one of your staffers learn the role and significance of the “TBA market” and how/if these “to be announced” mortgage backed securities can work in any new plan you develop and how that will impact mortgage prices. This is the very efficient process where mortgage loan packages are priced before they even exist, and impact the mortgage rates your constituents/consumers pay.
Also, realize that a few dollars more per month in mortgage payments knock some people out of the affordability game. So monthly cost is important to the people who send you to Washington.
How Much Help Are F&F Providing in Your District or State?
Ask F&F officials how many of your constituents rely on them for their mortgage loan. They will have that information by zip code, so you’ll be able to see what now is happening in your own congressional district because of F&F mortgage support. You will be surprised at how much primary lenders and F&F—their only viable secondary market partner--have invested in your favored communities, town, cities, and counties.
The large banks—who get a fresh new federal subsidy to cover any PLS losses are the primary beneficiaries of the C-W plan.
Banker business acumen and creative investment executions are leagues ahead of the regulators who oversee them—think tortoise and hare, but with the rabbit always winning--and most federal regulators never catch up, except to respond after something bad has happened.
The last time the big banks controlled the mortgage finance spigot—which only was a few years ago--the world reaped a trillion dollars in subprime grief. And nothing in the C-W proposed bill changes any of the regulatory landscape which missed all of that subprime creation and sales.
---You owe it to yourself and your voters to learn all about Fannie and Freddie; don’t automatically think everything you’re read and heard is true (even my stuff); take time and ask the questions; don’t hide behind your colleagues who say, “Trust me, hang with me on this; we are going to kill them.”
It’s your ass that will be voted out of office if you screw up and poison the mortgage well, making inefficient, costly and not transparent, important family financial matters which now are largely open and available. (Remember buying that house is the largest financial transaction most of your voters ever will undertake.)
---As I’ve written in my blog before, when told that “We need to get rid of F&F,” ask why?
--“Won’t we have similar or greater problems with what you want as replacements, if Uncle Sam still is behind them?”
---“Aren’t F&F working now and very efficiently?”
---“Isn’t it conceivable that once Fannie and Freddie ”repay” and reorganize—and with the same strong regulation--they, could work better with large amounts of capital available to them, not lost in some federal accounting time warp, cloaked by Hank Paulson’s desire to penalize the Democrats, reward the Right, and do away with Fannie Mae and Freddie Mac?”
I think that some of those seeking to end Fannie and Freddie, using the misguided but remaining public anger for the two, hope nobody pushes them to answer the questions, “Why should the Congress do away with them” and “Why is your mousetrap better.”
If the only answer offered is some vague rant about “history” or “getting the federal government out of the housing finance market then you are being lied to, major league!
I understand the political need to demonize F&F as bad guys, but that’s been done before with sad results.
If our straw men creating Batman and Robin require a Fannie/Freddie to abuse, do their distortions make them the equivalent of US officials who forcibly collected thousands of US citizens of Japanese descent at the outbreak of WWII and put them in California internment camps (and did nothing similar to east coast families of German heritage) fearing collaboration with the “enemy?”
Japanese Americans—with little evidence to justify it--were those unfortunate politically cast bogeymen.
It was a desperate Midwestern US Senator, claiming that he had a list with the names of “206 Communist sympathizers who worked in the US State Department,” who tried to whip up the nation to fight global Communism by demeaning men and women who were hired at State, following their education at elite eastern colleges or universities. State Department employees, many of whom were Ivy League educated, were those pilloried bogeymen.
Is the current hectoring the same when the same US Senator, manipulating conservative Americans’ anger/jealousy over Hollywood life styles, declared many in the motion picture industry were “Communist sympathizers” and more than 300 actors, writers and directors were fired and “black listed,” making future work almost non-existent—except when they change their names and or gutted it out for years with the “Red” label. Hollywood professionals, a good number of whom were Jewish, were that ugly chapter’s bogeymen.
How about when a certain GOP presidential candidate spoke of his politically transparent annoyance, using the phrase “Welfare Queen?”
“She has eighty names, thirty addresses,” Ronald Reagan warned during his 1976 run for President about the nameless, Cadillac-driving woman who’s conning the social safety net. He added: “She’s got Medicaid, getting food stamps, and she is collecting welfare under each of her names.” In total, Reagan said, “Her tax-free cash income is over $150,000.”
Except that nobody ever could find this elusive member of royalty—she was a creation, a totally made up personality--but that didn’t stop Reagan supporters and those on the Right from applying the term pejoratively to welfare recipients, black women, and other poor people and perpetuating distortions which still persist more than 35 years after the fact.
Let me be clear, I am not suggesting that either Senators Corker or Warner are racists or culture-baiters, but I am drawing an historical analogy to their political tactics, which have as its beacon abolishing Fannie and Freddie for reasons they have not articulated nor justified. Yet they have opted to excoriate and vilify them before doing the latter.
Big lies are toxic no matter who floats them and why.