Monday, October 14, 2013

Stewart Warns GOP Not to Pass Gas and.......




“Don’t Fart and Blame it on the Dog!” 


In the above video, Jon Stewart—with humor and facts--says it as well as anybody commenting on all the federal shutdown BS, which now has been wrapped in a political death march to increase the government’s debt limit. 

The “Teahadists” may think they live in a protective political cocoon, because of their gerrymandered congressional districts, but the Republican Party is exposed and likely will suffer (and has if recent surveys are accurate). 

Yes, voters do forget and their memories sometimes are short when things get back to normal and improve, but some things are not easily forgotten with round the clock 24-7 news, amplified by social media.

Because of so many idiotic GOP statements and offensive allegations, anyone running as a Republican better be prepared to defend this partisan hyperbole for a long time (meaning through next year’s election cycle). 

I still am sticking to what I said will be the near term resolution. It will be some short term debt limit extension and a deal to work on some spending issues. 

But, this can will be kicked down the road again because the Tea Party won’t settle for anything but complete surrender by a bipartisan numerical majority who are not as Teahadist naïve, disbelieving, and destructive. 

Warren Buffett

“To tie [the debt ceiling] to something about whether you break the promises of the United States government to people all over the world as well as its own citizens, just makes no sense. So it ought to banned as a weapon, it should be like nuclear bombs, basically too horrible to use.”

— Warren Buffett, in an interview with FORTUNE, posted Oct. 4


U.S. Treasury

"A default would be unprecedented and has the potential to be catastrophic: Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

— U.S. Treasury report studying impact of debt ceiling brinkmanship in 2011, published Oct. 3

Ted Yoho

“I think, personally, it would bring stability to the world markets.”

— Rep. Ted Yoho (R-Fla.) on what happens if the debt limit isn’t raised, The Washington Post, Oct. 7

Senator Ted Cruz (R-Tex) 

Most people think that “Teddy Bin Laden,” as one conservative columnist referred to the junior senator from Texas this weekend, is a major political winner in the current fight over first Obamacare and currently the debt ceiling. Some observers say the positive attention from his right wing supporters is fueling Cruz’s presidential aspirations. 

I think Cruz may get a presidential nod in 2016, but only from a third party which splits off from the traditional GOP and fields its own candidates across the board. 

That would be the best political development to happen in and to the United States in a long time.

The Teahadists have captured the traditional GOP—or at least rendered it operationally impotent--and the TP “fringies” feel policy constrained by the party’s shrinking, but still important, “country club” element, also known as the wiser, saner heads.

Spew that venom Ted, capture the Right, drive it from the GOP over relentless backward looking demands, and pave the way for moderate control in both houses of Congress and the White House. 

F&F Court Cases, Redux

Last week, I sent to a number of regular blog readers a separate missive discussing the latest on the 10 lawsuits brought against Treasury over its 2008 Fannie and Freddie takeover.

Those legal challenges will move at whatever pace the courts set and I don’t look for Congress, statutorily to try and pre-empt any of the plaintiffs’ challenges, because that would bring additional lawsuits on whatever bill they would employ. 

Given the dollars involved, any decision likely will be appealed, ultimately to the SCOTUS, and we’ll see what our nine solons have to say about Fannie and Freddie “takings” and related issues. 

I don’t believe David Boies and Ted Olsen, two of the most successful and well known American lawyers, normally don’t lend their prestige to cases they might lose.
I suspect  the plaintiffs’ attorneys in these cases have some reason to believe that Bush Treasury Secretary Hank Paulson screwed up around the issue of whether Fannie and Freddie were privately held companies or simple wards of the government that politicos easily could disdain and violate. 

The problem is—just as in my 21 years at Fannie--there is substance and facts for people to argue both sides of this question.

Including this lovely bon mot from a court decision last year, Because conservatorship is by nature temporary, the government has not acceded to permanent control over the entity and Fannie Mae remains a private corporation.”

Corker-Warner, cum Johnson-Crapo 

There is a funny/ironic story circulating about the efforts of Senate Banking Committee chair Tim Johnson (D-SD) and his ranking Republic Mike Crapo (R-Idaho) to produce their bill.

It’s reliably reported the two senior guys are basing their draft on the C-W bill. But recent requisite staff meetings to develop the proposal have been choppy and poorly attended because Corker and Warner staffers are observing the federal shutdown and there literally is a law which prohibits them from engaging in these behind the scenes talks.

Go ahead, laugh. I did, too, when I heard it. 

Don’t You Dare 

Fifteen DC based housing and mortgage finance trade groups roused themselves to jointly send a letter to the Fannie/Freddie regulator, the Federal Housing Finance Agency (FHFA), asking it not to lower the Fannie/Freddie mortgage ceilings while the mortgage marketplace is still sensitive and adapting to regulatory changes from other statutes.

This does not make all of these business interests F&F fans, although some are. It just shows that it is easy to sign a letter but tough to actually work the Senate and House over substantive legislation.

However, if a Corker-Warner or Johnson-Crapo bill comes out of the Senate and some/many trades don’t like it, they are tough groups to ignore when you are running for reelection as everyone in the House is and a gaggle of Senators are in 2014. 

In the House, you still have the Hensarling mortgage reform bill, which has no federal role in it unlike what exists on the Senate side, but still lacks support from a majority in House.
I still don’t see the Congress approving any major mortgage reform legislation until 2015 at the earliest, because next year is a congressional election year. 

Other Fannie/Freddie Stuff

I should have noted that the mega commercial banks trade association, laughingly—in my view—called the Consumer Mortgage Coalition, also sent a letter to FHFA opposing lowering the F&F mortgage ceilings. The bigs spend most of their time trying to throttle F&F and when a regulator seeks to shut down a small piece of the market and allow everyone but Fannie and Freddie to go after it, the banks complain because that means more competition and—more importantly—no Fannie and Freddie mortgage security guarantees on the bonds into which those loans must be turned for easy trading. Hello, again, the private label security (PLS) experience which those same banks screwed up so famously in the build up to the 2008 financial meltdown. 

The American Securitization Forum, which once numbered most of the bank and investment bank usual suspects—but recently split over association executive control and compensation issues—also sent FHFA a letter seeking a “marginal reduction” in the F&F loans limits. Not sure who belongs to the ASF but it’s depository members, if there are any, can’t be happy with that communication and position. 

Lastly, the American Bankers Association (ABA), the grandfather of the banking trades, says it’s just been slow with its letter to FHFA asking it to hold up any changes. 

Given that about 100 MoC’s also have asked FHFA not to cut the ceilings, it will be interesting to see how Acting Director DeMarco responds.

Common Platform; Déjà vu, Again!!

Quietly, almost stealthily, FHFA has mandated that Fannie and Freddie give way to a common securitization platform which the agency claims is necessary/desirable for the nation’s future mortgage finance system.

Huh and why? 

The dirty little secret, which is not so secret, is that for 30 or more years, Fannie has had the superior mortgage backed security which is recognized and market preferred (and one of the reasons Wells recently dumped Freddie?).

Fannie pays their MBS investors sooner and there are more Fannie mortgage securities outstanding which means greater liquidity and better price. 

Freddie’s security implementation is similar to Fannie’s but not identical and does not trade as well. 

However, IMO, the slight difference between the two either didn’t dictate such an elaborate and wasteful bureaucratic exercise calling for a third model. 

But, apparently, that’s not the FHFA way. It now has chartered a Delaware limited-use corporation, with its own board, its own building in suburban Maryland, and a head hunter looking for its CEO, and all of the bells and whistles that FHFA believes is necessary to put together this “common securitization platform.” 

Why can't their regulator just pick one of the two existing platforms or even figure out a way to meld them? 

Why go through all of this silliness with a new government created company, a board, senior officials, blah, blah, blah?

It is so reminiscent of when FHFA’s predecessor the Office of Financial Housing Enterprise Oversight (OFHEO) was created in 1992 and mandated to develop a risk based capital oversight model, since both F&F had invested in and were operating their own state of the art RBC systems. 

Rather than chose one or the other, an amalgam, or just employ an oversight supervisory look at what capital each was establishing, OFHEO insisted on building its own RBC system—which the statute permitted and gave the agency two years to do—but took 10 years, finally, to produce. 

Naturally, F&F paid for all of that and will pay for all of this new time waste. 

See linked below FHFA’s latest press release describing its success. (Always beware of government agency press releases which include self-laudatory adjectives.)


I love all of the recent talk about the big financial behemoths being dismantled into some of their component parts.  Unfortunately, it’s all just talk, but that’s the single best way to end the “Too Big to Fail” distinction. And, no policy maker anywhere should fall for the bogus line, “But if you make us smaller, we won’t be about to compete with our foreign competition.” 

Watch any financial services exec who makes that statement and see his or her nose immediately get longer! 

What Others Say


Maloni, 10-14-2013





Anonymous said...

Do you think there is a chance the government will settle these lawsuits?

Anonymous said...

Do you think there is a chance the government will settle these lawsuits?

Wayne Olson said...

I think the point of the new platform is not that Fannie is better but that FHFA wants to have an "open access' and "unbundled" platform that parties other than FnF could use. That is, Redwood or some other entity could use the platform to do their securitizations. This wouldn't be easily accomplished, but that is the goal I think. You can look at FHFA's strategic plan to confirm this.

Bill Maloni said...

Answers to both questions:

My point was/is that FHFA--which has shown no reluctance to muscle the companies (remember forced place insurance)--could have chosen one of the two or taken a short period and dictated what it thought was the best of both, without all of the folderol and bureaucracy.

It also smacks of "bigfooting" two private companies--remember the lawsuits--which the regulator is supposed to "conserve" so they can return to private operation. I think this line has been crossed a dozen times by the F&F regulator since 2008.

Lastly, both underwriting platforms are open for a fee to any issuer and as "cludgy" as the Freddie securities trades, has seemed to work well.

The two in competition and in concert haven't hindered almost 35 years of massive securities creation and trading.

This process just screams commercial interference and foul up. (BTW, in 2009, did Treasury as GM to give its 2012 Chevy designs to Ford or Toyota?)

To Anon--No, the federal government will not settle because there is too much money involved, unless a judge tells DoJ/Treasury that the government is a sure thing loser and then the government might trade a reduction in a payout for continuation of the appeals process and mounting fees and payout.

I still think it is tough to beat Uncle, but obviously Boies and Olsen don't agree, along with 8 other lead counsels.

Matt Hill said...

This is as clear cut as a takings case can get. So much that it trumps who the defendant is and how much money is stolen. I don't think it will settle either, but for a different reason. The reason is that there is no incentive for the plaintiff to take anything less than what is fully owed to them.

Bill Maloni said...

Matt--I admire your conviction but remember, there is no such thing as a "sure thing."

And until the matter gets reviewed by judge and jury, don't buy a new Tesla with expected settlement money.

Matt Hill said...

Thanks Bill,

Yes, even though I'm confident in what's right here with regards to the rule of law, I realize nothing is for sure in a country that continually undermines its economical standing with constant political brinkmanship. Therefore, I'm still rolling in a hooptie for some time to come.

Bill Maloni said...

Doesn't mean you can't put your expected millions into something else; as long as your ride gets you where you need to be.

It's more about the man than the "short" he drives.

Anonymous said...

I believe that the government can only win the takings claims if they release the companies from conservatorship voluntarily. If they wait for a decision that overturns the 3rd amendment sweep agreement, that doesn't help them when making the argument that they are likely to make that the emergency nature and undefinable volatility of economic conditions justified a lack of universal consideration because of a need to defend against tail-risks that had not dissipated to a degree that would call for a readjustment.

What I am saying is that in an emergency the government is allowed latitude to modify agreements in ways that would be otherwise unconstitutional as long as the agreements are voluntarily readjusted or re-evaluated.

The lack of a review process in the legislation is not enough of a reason to not provide material answers to reasonable questions if clear evidence exists that a reasonable person would have the justification for asking them.

Bill Maloni said...

Anon--Again, a reminder that I am not a lawyer, but...two things all of us need to keep in mind.

If the deal is big enough--and I am not being flip--this goes to SCOTUS which somehow, IMO, managed to mangle the law and decide the 2000 presidential election for George W. Bush.

At the end of the process, it's what five of those nine folks believe that becomes the law of the land.

I am not faulting your theory but
all courts can be squirrelly, no matter what you or I believe and will take their time in making decisions.

I've tried asking any number of people associated with the lawsuits what they think could be the impact on F&F of a decision favoring plaintiffs and nobody has said anything about vacating conservatorship? I also am assuming if Jack Lew made a case to the President and Justice, that could happen any time the Admin wanted, especially if the $186 Billion was repaid.

Could that action influence a Judge in these matters?

Anonymous said...

The key here is what their actual intentions are for the modification that has been made to the Senior Preferred Stock Purchase Agreement. If the third amendment to the agreement is nullified by a court decision it could result in a successful takings claim even if the government had no intention to follow through with the perpetual nature of the profit sweep agreement. It is also especially damaging that the modification to the agreement was initiated during an accelerating increase in profitability. Profitability existing or not existing has a direct correlation to the statutory authority granted under the legislation that outlines the conditions that the companies can be put into and removed from outside control. It is my opinion that if Jack Lew were to communicate an intention that clearly showed that the reasoning behind the amendments to the Senior Preferred Stock Purchase Agreement was for the government to be repaid more quickly,then the Takings claims would become far more difficult to provide evidence for.

Bill Maloni said...

Anon--Who is going to say (which I think is close to the truth), "Well your honor, one of our reasons was that we didn't want the bastards to start accruing excess capital over and above their required dividends,so we just decided to take all of their corporate income."

However, I also believe that this or a future (Clinton?) administration still could chose F&F policy reversals.

Anonymous said...

There is no way they should take the risk of waiting that long. Not much new information will be required, if any, for the judge to see the unlawfulness in the agreement. The most efficient way for the government to control the outcome here is to settle the non-monetary claims in a way which weakens the monetary claims. If they are going to do it they have to do it pretty soon.

Bill Maloni said...

But, doesn't that mean someone is going to have to say someone else was wrong in the actions they took.

Who becomes that fall guy, forever to live in financial services infamy?

Anonymous said...

To do it right you need to get everyone into a room, including the president, and negotiate a deal. Even though I said that the government could make an easy decision by choosing to fight the lawsuits that had monetary claims, I don't think they should avoid settling them if they can. The share prices on the common before Treasury Secretary Paulson initiated the takeover were only 4-5 dollars higher than they are now. The preferred share losses are more substantial. I think the total payout can be negotiated pretty easily to under 20 billion for both companies for all classes of shares. The government has a lot of leverage here to negotiate a break even deal for themselves which also pays off the pre-2008 shareholders. I think the president could communicate it in a way where it is seen as a transitional action that aims to modify emergency actions that are no longer necessary due to their overwhelming success.

Anonymous said...

These are the people you need there or available on a conference call.

1. CEO Fannie Mae
2. CEO Freddie Mac
3. The boards of directors of F&F
4. The head of the FHFA Edward DeMarco
5. Treasury Secretary Jack Lew
6. President Obama
7. All of the relevant attorneys

It is also important in these negotiations that the boards of directors of F&F are given the authority to negotiate on behalf of current shareholders. The way that can be done is for the FHFA to temporarily allow the directors to negotiate for the current shareholders without considering the limitations imposed by the conservatorships. To give their consent for whatever agreement is reached they need to be able to vote on it as a private company. It will prevent more lawsuits.

Bill Maloni said...

Anon--I like the way you think.

But I suspect--except for the window dressing--Jack Lew and a representative from FHFA could do this deal with appropriate plaintiffs' lawyers.

I don't think the two boards and their execs function much like real boards or past CEOs, because of the regulator's strong role, as well as Treasury's.

If you haven't already--or aren't employed there, now--give your plan to Olsen, Boies and the other senior attorneys and let them road test it.

J Olesen said...

If they have the authority to make the deal then the other people aren't needed. You are right. The judge recently stayed the 10 lawsuits and ordered the two sides to meet by October 30th. They have to report back by Nov 6th and then there is an in person hearing on the 15th of November. Freddie Mac is scheduled to report earnings on Nov 6th and Fannie on Nov 7th. Plus they are both getting close to giving back what they have gotten in bail-outs plus a bunch of interest at 10 percent compounded over approx 3 1/2 years until that profit sweep amendment changed the terms. In my opinion it makes sense to get this deal done before November 15th. Which of course would be amazing because I own shares and would make a bunch of dough! But even though I want to see it happens doesn't mean I am saying stuff I do not actually believe. Those lawyers are pretty smart I'm sure they are thinking somewhere in the same ballpark as I am.

Bill Maloni said...

You are being logical and hoping for DC the pols and the bureaucrats to be the same.

I hope the big barrister in the sky is reading your stuff and listening to you!!