Monday, January 20, 2014

The W Post Comes Up Short, Again

“Wonder of Wonders”

That was the subject line I attached on an email last week sent to friends, former colleagues, and others for whom Fannie and Freddie still are important matters. 

I was heralding that the Washington Post was going to review Tim Howard’s book, “The Mortgage Wars,” in its Sunday (1-19) business section. 

That’s the same Washington Post which, over the years, had published about two dozen editorials blasting, putting down, and bitching about Fannie’s business, leadership, operations, politics, or activities. 

To my very pleasant surprise, the Post—or more specifically Steven Pearlstein, a former Post economics/financial reporter, who now pens (laptop’s/pc’s?)  twice monthly columns for the Steve Bezos’ owned Post--did a fabulous job with his review. (See link below.) 

Pearlstein nailed the critical role played by the nation’s major banks and investment banks 2008’s international financial disaster in 2008 and the fact that Fannie and Freddie did not cause that crisis (echoing dozens of other reports). 

He didn’t exonerate F&F, but wrote their purchases of private label securities (PLS)--originated and issued by the behemoth financial institutions, with unrealistic credit rating—went bad twice as much as their own mortgage backed bonds. (Between 2005 and 2007, the big banks and Wall Street firms issued more than $2 Trillion worth of poorly underwritten PLS and sold them worldwide.) 

I thought his Howard compliments were genuine. For a smart and experienced guy, Peralstein admitted how informative he found the Tim’s narrative.  

Pearlstein offered two other opinions which are spot on. 

He suggested the Bob Corker (R-Tenn.)-Mark Warner (D-Va.) bill calls for a huge amount of new private mortgage insurance capital (some estimates are a fresh $100 Billion), which may never emerge (and what happens then?). 

And he notes the big banks—which are the major beneficiaries of C-W--have a lousy track record of mortgage market reliability, moving in and out of the home loan market as greater profits emerge elsewhere, which means it's shaky to rely on them as the steadying mortgage presence. (Excuse me for noting that’s a problem F&F never had.)

But, while Pearlstein earns major kudos from me, the Post just gets continued flak for egregiousness. 

The Washington Post, a major national newspaper, has not and still doesn’t think it’s necessary--before the Pearlstein book review, after the book review, introducing the book review, or in a book review sidebar story--to delineate the catalyst for Tim’s book, the three federal court decisions, issued more than 17 months ago—by Federal District Judge Richard Leon--quashing all charges against Howard, Frank Raines, and Leanne Spencer, who were Fannie Mae’s CFO, Fannie’s CEO, and Fannie Comptroller. respectively.

As his legal decisions proved, Judge Leon showed the Fannie execs were hounded from office in 2004 by a slanderous Bush Administration political assault.

Let me repeat, the oddity which vexes me. The Washington Post, still, has yet to publish one word about the revealing and liberating 2012 pronouncements, authored by then somewhat obscure but now suddenly NSA-infamous, Judge Leon, who has served a dozen years on the US Federal District Court for the District of Columbia.

It was a heroic Judge Leon, who ruled in the fall of 2012, that no jury anywhere could convict the Fannie Three of securities fraud, based on 67 million pages of evidence presented to his court, and then dismissed all charges with a “summary judgment” opinion—eight fraught-filled years for the defendants after the allegations were hurled!

Other papers and wire services wrote about the Leon decisions, but not the Post.

Given all of the phony anti-Fannie rhetoric against the company and its officers—much of it carried in the Post’s new pages, columns, and editorials--one might think local Judge Leon’s definitive rejection of the charges would find their way into a major national newspaper, serving the communities where these well-known individuals lived and worked? 

Was there nothing to report form Leon's ruling?


 Plaintiffs fail to point to any evidence from which a reasonable jury could infer that [former CFO Timothy] Howard believed any of these transactions were improper or sought to conceal them from the public.  Indeed, plaintiffs' own expert recognized that earnings management does not necessarily show an improper purpose. 

 ... In sum, plaintiffs offer no evidence from which a reasonable juror could conclude that any of Howard's statements concerning Fannie  accounting practices or internal controls were made with an intent to deceive, or were otherwise made without any reasonable basis. 


Plaintiffs' theories on Howard's scienter are insufficient to withstand his summary judgment motion, particularly in light of the overwhelming evidence of Howard's good faith. 


(Leon issued three separate decisions, first on Howard, then Raines, and finally Spencer, but all were based on the same principles.) 

Our good friend, David Fiderer, also wrote about the Leon decision and quoted the Judge extensively. (DF’s work appears in the link below.) 

Late last week, when I heard the book review was coming, I asked a friend, “How do you think the Post will finesse the legal decisions exonerating Raines, Howard, and Spencer?” 

The simple answer, we found out, is the Post ignored them.

I am not complaining one bit about Pearlstein’s review, which I believe was solid, illuminating, very informative, and even gutsy (are you reading and listening Congress?).  

But part of Howard’s and his colleagues’ story was the extreme lengths Fannie’s business and political opponents went to destroy careers and lives, using a shockingly inept but politically potent and scathing regulatory report which then got blessed by the Bush SEC. (Again, all of that is in Tim’s book.) 

The Post, for some obscure reason, may never cover Leon’s Fannie opinions--and shame on it for that  choice--but some of the political shenanigans which Howard documented in “The Mortgage Wars,” are ripe for public sharing and explanations, since those old Office of Financial Housing Enterprise Oversight (OFHEO) records surrounding it’s 2004 report and a HUD IG examination of the agency, are approaching 10 years old and have nothing to do with Director Mel Watt’s Federal Housing Finance Agency (FHFA),  OFHEO’s successor—except as guide for “how today’s agency never should work with its regulated institutions and the media.” ument 

Those old documents, mere history now since the statute of limitations has run out on possible wrong doing, could shed some light on current personnel who worked the Fannie dirty tricks back then and even a few who’ve gone but still hang out in DC. 

It’s something for the new FHFA Director to consider, as well as something which might appeal to and interest a lot of his former congressional colleagues as they go to work charting possible new approaches to providing understandable mortgage credit fairly to all communities in the nation and all of those who can qualify for the same. 

“A lie can travel halfway around the world while the truth is putting on its shoes.” (Attributed to Mark Twain.) 

Maloni, 1-20-2014


Anonymous said...

Bill, did you happen to see Warners new article in the Richmond Times? We're overdue for housing finance reform. Sadly I composed a response but cannot post it because I do not have a Facebook Account, not interested in one either. Would like your opinion on my comments anyway. Here is my comment:

"Right, and I learned at a very young age that telling only half the truth, is just a lie. You failed to mention that private label, non-conforming sub-prime garbage loans, were put to the GSEs for the taxpayer to absorb, thus the 188 billion loss. Who created this problem? TBTF banks that have been recently paying the FHA fines for their fraudulent ponzi schemes. Yes Fannie and Freddie were caught up in it, but the private label cash grab for the mortgage business is what created the 2008 crisis, fact. Fannie and Freddie DID NOT CAUSE the housing failure.

So now let's urgently hand the mortgage business over to big banks that caused this mess in the first place. This new proposal is unproven, risky and could have severe negative economic impact. No thank you, because this one definitely does not pass the smell test.

FDR created the GSEs to provide liquidity and the 2008 crisis recovered because the GSEs stepped in when everyone else ran. You bet the recovery was taxpayer supported, but it was a success because as you mentioned the GSEs have paid back all of the money they were given. You can't say that the many other taxpayer supported bailouts yielded the same results, because they didn't.

And what about LIQUIDITY? That's one fuzzy item these new GSE elimination proposals don't have an answer for because there isn't one. Banks stop lending in bad times. Who will be their to provide liquidity in crisis, the taxpayer? Good luck getting that money back."

Bill Maloni said...

Two friends sent me comments this morning on a "F&F article," but no predicate.

I assume this was that.

They noted that "30-1" sized the market or F&F's share at "$5Billion," when it actually is $5 Trillion."

But, hey, when you're "30-1", bombast and errors are good.

If you would like--since I do have that access--I'll try and post for you. Let me know.

Email me.

Anonymous said...

Now that's funny. Only 5 billion? I will email you.

Anonymous said...

Sorry Bill, I didn't see your email in your profile. Can you tell me what it is?

Bill Maloni said...

(It's at the top of the blog.)

Bill Maloni said...

I think I spotted the confusion.

There are TWO major pieces in the Richmond Times, today, on Fannie and Freddie.

Warner's and one from Jim Miller, former OMB Director.

Here's Miller's.