CBO Garbage In, Garbage Out
The Congressional Budget Office (CBO) provided material for a bunch of scary headlines earlier last week when it opined—and then kind of clawed back—it’s belief, 10 years down the road, Obamacare might cost more jobs than it generates because some people, able to acquire low cost health care, could abandon their employment.
The GOP jumped all over it and heavily breathed that it has been right (no pun intended) about Obamacare.
I try to avoid all Obamacare comments, six weeks of Fox News on 24-7 (yes, even when my mother in law sleeps she has it on) will do that to you.
But more specifically, I think it is way too soon to evaluate the effectiveness of the plan, which has so many moving parts and will take time to show its success.
Right now, commentary from either side is just so much hot air and partisan fodder.
But, I also doubt CBO for other reasons and those are more Fannie Mae centric.
The CBO’s data often sucks and it’s all about their methodology, which is not consistent with other agency forecasting.
CBO never was a Fannie fan and seemed consistently to produce contorted reports which always concluded there was no value in its operations (ditto Freddie) or that the “implicit subsidy” was going to shareholders and not home buyers (even the Fed disagreed on that), and CBO then provided analysis to support their opposition, which often was wrong—as it has been recently.
That’s not changed, even today. The CBO still contorts its annual discussion of Fannie Mae/Freddie Mac.
Go back for the last two or three years and review how CBO employs its “Fair Value” accounting methodology, to suggest that F&F’s federal “subsidy” actually costs the federal government money and then, when the two generate earnings in the coming year, the CBO does an about face, offers an equivalent, “Oh, forget about it” and goes onto report the earnings over cost as a revenue surplus to the federal government, in effect canceling what it said several months’ earlier.
As it has in past years after F&F pulls in earning CBO uses the more accurate cash in and out formula, which the Office of Management and Budget employs, its F&F errors “misterpear,” as my grandkids say.
However, if the past two years are a guide, CBO next year will drag out “Fair Value,” again say F&F cost the government money and then wait for 2014 corporate earnings to cause them to eat their words, again. Talk about not being smart enough to come in out of the institutional rain.
So, I am not going to do nip ups at the Congressional Budget Office Shrine. It’s cracked and much worn.
IMF Bags Prescient Mortgage Quote
Background: Ed DeMarco and his Federal Housing Finance Agency (FHFA) posse seemed to believe they had two missions, the first being statutory, i.e. financial conservatorship of Fannie and Freddie, and a second agenda, self-identified and ideological, diminishing the entities, substantially, so any future congressional action would encounter the resistance of butter to a hot knife.
Part of Ed’s scheme—and all reports have him still inhabiting a FHFA office—involved spending millions of taxpayers’ dollars (F&F profits, which if not FHFA claimed would to the Treasury’s General Fund) on a theoretical “common securitization platform” (CSP), presumably to replace F&F own very successful platforms which their teams update regularly.
Critics, including his blog, questioned why FHFA needed to go to such elaborate and expensive machinations (think Putin and Sochi!), when FHFA could have directed 20 of its finest employees—without relocating their offices—work with each shop and extract best thinking at both places.
More questions were raised with what would happen to the “CSP,” once the FHFA believed it had a working model better than either Fannie’s or Freddie’s? Who really would own it, who would operate it, and who would pay whom for the rights?
This still fledgling FHFA hubristic exercise bizarrely had the agency to rent plush offices in Bethesda, Maryland, build a board room for the yet to exist “board” and seek a FHFA-blessed corporate exec, who still hasn’t been identifed let alone named.
One of my favorite industry publications, Inside Mortgage Finance, scored an interview with a former—still unidentified—federal regulator, who offered this wonderful opinion, which should cause new FHFA Director Mel Watt to wonder, “Just, why is my agency still wasting money on DeMarco’s whimsies.”
Inside Mortgage Finance, QUOTE OF THE WEEK: “I think everyone from the new team at FHFA to members of Congress are starting to wake up to the fact that shutting down the GSEs and replacing them with a new technology platform and federal agency has huge project failure risk.” – A former banking regulator speaking to IMF News this week.
OK, I hope IMF's interviewee is correct. I sense he/she is. And life’s too short to pass up these opportunities, so........I *&%(^%$ TOLD YOU SO!
Senate Banking Players to Watch,
Bob Corker Has His Eyes on Them
Senate Banking Committee Chairman Tim Johnson (D-SD) and his ranking R colleague Mike Crapo (R-Idaho), reportedly, soon will make public the draft mortgage reform bill on which they have been working.
It already was described by some as “Corker (R-Tenn.)-Warner (D-Va.) lite,” but that didn’t stop Senator Corker, reportedly, from criticizing his Chairman for being too afraid of “Committee Progressives” to schedule the C-W bill for a markup.
I am going to take a wild guess at identifying those who Corker puts in that enlightened cabal; Sherrod Brown (D-Ohio), Elizabeth Warren (D-Mass.), Jack Reed (D-R.I.), and depending on the issue and his priorities, Chuck Schumer (D-NY.), and there could be others.
Corker is known for his bravado comments and instant assessments. But in seeking to abolish F&F, he has little to lose in Tennessee where no major F&F facilities exists.
Compare that to Mark Warner, who—if he has a tough GOP general election rival—may have to walk back or swallow his assertions that his Corker-Warner will “kill Fannie and Freddie,” since that also would mean his legislative effort could kill jobs for 10,000 Virginia residents employed by Fannie and Freddie.
That’s bad for F&F and all that unemployment equally is bad for Northern Virginia food stores, auto dealers, clothiers, sporting goods, fast food shops, and other community retailers, not to mention state tax coffers which would lose revenue and have to pay jobless benefits.
Shutting down two local job-generators—even one in DC which hires Commonwealth residents-- usually isn’t a “bragging thing,” when campaigning for office. (Warner’s safer signing petitions to deport Canadian Justin Bieber.)
On "Pontius" Warner's Hands?
Of course, Corker doesn’t have Warner’s constituents worry, so he can shout political defiance all he wants. (Did Warner understand that when Corker first got him to sign onto the F&F proposal?)
Maybe, Tim Johnson just is smarter than Corker (and Warner) and feels it’s the Chairman’s prerogative to schedule legislation, especially if his name as well the Committee’s senior R’s name are the bill.
However, my tantalizing takeaway from Corker’s chagrin and lament is that, possibly, there may be four Banking Committee Senators, cloaked in Corker’s “Progressives” epithet, who can swing votes and make differences on Fannie and Freddie matters and other Banking Committee matters as well.
You always hope the Chairman and his GOP counterpart are with you. But on Senate Banking it helps to have partners among the “work horses” in addition to the “show horses’ who reside there.
Maybe Bob Corker fears the needed dray horses—who Johnson wisely respects--might not want to sign up for the question generating, pig in a poke legislation Corker and “30-1” Warner, the Senate’s wealthiest man, are hustling.
From One of My Favorite People!
One of the smartest mortgage finance professionals I know offered the following observation, discussing “political bookkeeping,” and the likely fact Fannie and Freddie—in their final 2013 earnings--will reveal healthy profits sometime in the next few weeks.
“At the end of this quarter F&F will have more than paid back the Treasury. After that, they will be building up a notional (though not formally recognized) kitty against losses. Say they pay $50 billion more than they drew. Morally, F&F could then have losses of $50 billion before the taxpayer is out a penny — just as if it had $50 billion in capital. Course, none of this will be formerly recognized.”
As I remind everyone who asks, Fannie Mae and Freddie Mac are held to a different standard than any other federally chartered financial institution and-- with the two devoid of political allies--policy makers treat them as “red headed step children” employing whatever tactics against the two with which they think they can get away.
The 18 lawsuits (an additional one added last week) ,filed against the Treasury and FHFA over possible expropriation of shareholders assets, are all about that principle.
What Others Are Saying
Ralph Nader takes on the F&F shareholders cause.
Community activist John Taylor, writing in The Hill
Daily Kos says Rep. Issa (R-Cal) has ”stay behind meeting” with IRS IG. (Sounds like old Fannie regulatory screwing to me.)
Rand Paul says Texas could “turn Blue.”