Monday, February 24, 2014

"Money, that’s what I want...whole lotta money"

Franklin D Is Spinning in His Grave!



As a “Big Foot” believer (guess I should fess up about UFO’s and Nessie, too), I don’t dismiss eerie stories, easily. 

So, it was with an open mind that I listened Friday night to an account about a lost trekker. 

As this story goes, it was a dark and stormy frigid night, lightning, thunder, rain, even the threat of snow. The traveler--lost in the dark and foul weather--stumbles by President’s Franklin Roosevelt’s grave in Hyde Park, New York, and notices press releases and copies of media reports of Fannie Mae’s 2013 earnings strewn everywhere. 


It was then, the frightened wanderer reported sounds of crystal goblets clanking and raspy voices singing, “Happy Days are Here, Again.”

The hapless visitor swore he heard tributes being exchanged between voices which sounded like Roosevelt’s and ghostly visitors Harry Hopkins, and Harold Ickes (the original), three men who had their hands all over the New Deal elements which, among other things, created the original Fannie Mae in 1938. 

(Billions in financial success can produce that jocularity in humans and the dead or their spirits.) 

The storyteller also claimed at least two of the eerie voices laughingly and in unison sang out, “Bleep you, Corker-Warner!” (Apparently, even historical cemeteries have rules of decorum, as well as access to the latest mortgage finance news.) 

This hellish take sounds real to me and if it isn’t true, I want it to be.

Fannie 2013 Earnings, Huge 

Yes, Fannie Mae announced final 2013 earnings of $84 Billion (What do you think of those apples, Mike Stegman?) and now will pay an additional $7.2 Billion to the Treasury in fourth quarter 2013 revenue. 

Freddie will post its 2013 numbers any day now and will shuttle more GSE cash to Uncle Sam, putting the two entities firmly and forever on the plus side of repaying the taxpayers more than the $187 Billion invested in the two in 2008. 

The many times excellent WSJ reporter, Nick Timiraos, delivers again, with the story, below, detailing Fannie's financial achievements.


Not bad F&F work, taking only three years to pay back what most people thought was lost forever to the taxpayers. (Yes, the first two years involved borrowing $40 Billion to pay back Treasury which had first borrowed the $40 Billion and.....oh, more on that farce in a future blog.)

Yes, I know the principal technically can never be repaid—until some Secretary of Treasury explores his authority and changes that circumstance—but most Americans looking at the facts only will understand that F&F received $187.5 Billion and will have paid back over $200 Billion and rising. 

Fannie’s execs suggest 2014 earnings will not be as robust because of market reasons, but what also is likely is Fannie (and Freddie) will continue to produce positive numbers into the near future.


What’s It Really Mean?

More noise causing congressional doubt,  more attention to the “how did we get here,” with an eye toward all of those who want to launch dramatic and untested solutions to what may be a much smaller problem than most think. 

It won’t end the GSE controversy and the misstatements. But it could cause some greater number to suggest, “Maybe, we should just fix them up, not blow them up.” 

But, not enough will feel that way, in the near term, to make a difference. 

This is a positive story for the Obama Administration, which loves the F&F revenue but apparently little else about them. 

The earnings will permit the White House to ride both sides of the tracks, i.e. talk of mortgage reform and getting rid of F&F but raking in billions from the two golden geese it doesn’t want sacrificed any time soon.  

Fannie’s and Freddie’s success also allows Mel Watt, their safety and soundness boss, to ease into his new responsibilities and have the luxury of exploring ways in which he—utilizing F&F--can soften some of the tougher new borrower credit challenges and even explore ways to help underwater mortgagors. Neither of which—in the new Obama spirit du jour—requires congressional blessing.


Confusion in the Senate?      

As Sen. Bob Corker (R-Tenn.) was busy threatening his Tennessee constituents against voting for union representation at the Chattanooga Volkswagen plant, his Corker-Warner (D-Va.) legislative proposal abolishing Fannie and Freddie hit some Senate bumps in the road.  

Banking Committee Chairman Tim Johnson (D-SD.) may have encountered problems trying to produce a bipartisan package which can satisfy his ranking senior GOP colleague Mike Crapo (R-Idaho).

A promised Johnson-Crapo legislation unveiling, supposedly relying on parts of Corker-Warner, now may emerge only as common principles, and not detailed statutory proposals.  

That’s not good and doesn’t make me happy; it reflects the problems that any person or group faces in trying to satisfy so many conflicting housing and mortgage finance interests. 

As I’ve blogged before, I’d hope the Senate committee leadership comes up with something and puts it out there for debate and amendments, forcing Senators and their industry supporters to vote up or down a package. 

(Wouldn’t it be something if Corker’s anti-union antics caught the attention of the Senate’s D leadership, which decided it wasn’t going to help Corker do anything? I am not chortling, really, I am not!)



To anyone using a “Yahoo Fannie Mae” message boards, someone has been masquerading as Tim Howard and offering advice and commentary, pretending to be the former Fannie CFO. 

It’s not “our Tim,” but a poser. Anyone encountering the fraud using that ID don’t follow his/her investment advice.

Speaking of Tim Howard, this past week, the Fed made pubic reams of its meeting records from the 2008 financial meltdown and now everyone is using their 20-20 hindsight to suggest which sitting Fed Governor was a seer, a mensch, a dummy, etc. etc. (See Morgenson at the blog's end.) 

I won’t go there, but I will reveal something about the US Treasury which astounded Tim Howard and many Fannie Mae folks, several years ago when they carried out a Frank Raines strategic request in 2000. 

Raines decided that Fannie needed to do a much better job of explaining to Administration regulatory officials exactly how we conducted our business, since so many casual encounters with US regulatory officials proved them pretty uninformed, if not shallow, in what the company did and how it did it. (Keep thinking of the Fed 2008 minutes.) 

So, a squad of Fannie’s top people conducted “Fannie Mae 101” for the senior folks at the Treasury, but came back stunned at the combination of inaccuracies and  plain “dumb heads” they encountered in policy power positions at both locations. 

Many of those traits still were on display in the 2008 Fed minutes and the confusion, hearsay, and plain inaccuracies that those solons threw back and forth at one another.

A Maloni Video From the Past,

(Thanks to Tim Sokol for unearthing this 2010 bit of history.)

What Others Are Saying


--Ruth Martell in Marketwatch discusses Fannie’s 2013 earnings.

--The NYT’s Gretchen Morgenson’s suggests Fed was unprepared for 2008 crisis.

--Ralph Nader uses Reuter’s to answer Bethany McLean’s column.


--Speaking of Ralph Nader, writing in Forbes Magazine, Jon Entine examines the plight of F&F common and preferred shareholders.

Nick Timiraos scores, again, this time on the fortunes of major common investor Bill Ackman

I could have written this, but didn’t. Maybe I have an acolyte out there, a mini-Maloni!

Maloni, 2-24-2014


Anonymous said...

Nice Blog Bill,

Regarding your reference to the various ideas and bills to reform the GSEs, I was wondering how many brain cells are exercised exploring what to with the assets and 14,000 shareholders. Both the Corker/Warner and Hensarling proposals talk about placing the GSEs into mandatory receivership, but I don't understand how that is possible when they have been earning billions for years. And talk about turning the blind eye, there are some 19+ lawsuits out there plus more on the way, I am told. This major hint of confusion was revealed at the Financial Service Roundtable as the "show stopper" in my opinion.

Anonymous said...

I want to know how the state of Virginia tolerates Senator Warners idea to eliminate Freddie Mac in his own backyard thus destroying jobs and local economy? The voters need to send him a "wind down" message!

Anonymous said...

Timothy Mayopolous needs to step up to the "Right Thing To Do Microphone" and state that while he is very very happy for taxpayers, he is also concerned about leaving his employees in limbo and that the continued conservatorship nature of Treasury taking all future earnings is contrary to the basic principles of free market capitalism! What's wrong with this country when it inhibits people from stating the obvious?!

Bill Maloni said...

Three Anons, which I'll try to answer separately.

Anon 1.

Hot air and rhetoric are very cheap in DC; ladled out by the tanks full with little dot-connecting or rationalizing. Don't expect and Senator or Congressman to recognize lawsuits or anything else which inhibit their grandiose legislative hyperbole...despite reality.

Most will tell you--and will act, accordingly--"That's the Court's issue, not ours."

Anon 2.

Warner may have been duped by Corker and not have thought through the issue I and others have been raising, which is how to run for r-election when your name is on a bill to throw out of work 10,000-12,000 state, with all of the financial and social downside that connotes, from loss of state income revenue to heavier state and federal benefits for jobless employees and their families. Throw in economic dislocation in northern Virginia and his support is a real shocker.

Warner will hear about it when he has a GOP opponent and maybe in the run-up to November's election. But, the guy is a multi-millionaire, doesn't need the job, and may be insensitive to the implications of his actions.

Anon 3

I won't attack Mayopolous. He's reportedly a decent and smart guy, but--face it--he is a government employee. If he steps too far out of line, he'll get canned.

Remember, he's not a corporate executive, making decisions that are market sensitive and lean and nimble. Very far from it.

I once had hope for some guerilla efforts, from inside Fannie Mae, but it was reliably reported to me that its board looked too askance at "ringing the Liberty Bell" (my phrase) or acting too entrepreneurial and crushed the idea, as in "We can't do that!"

Anonymous said...

Thanks Bill. Insightful as usual. Do you expect Messrs Johnson/Crapo's "common principles" to appease an administration publicly calling for a bill that "protects taxpayers from footing the bill for a housing crisis"? Or will those calls require a more solid effort? It's easy to see how the SOTU comments may have been empty threats aimed at appeasement but the worry is, I think you'd agree, that it's now or never on housing fin reform. Folks may act differently with that kind of dangling sword. Please advise.

Bill Maloni said...


If all that Senators Johnson and Crapo produce is a set of principles, then the legislative game is over for 2014 and possibly longer. (That action will reflect and inability to agree among a fairly thoughtful group of Senators.)

But,as we've blogged about for months the "taxpayers holding the bag" scare rhetoric, employed by both parties, doesn't match the market reality.

The strong regulation--put in place since 2008--virtually guarantees that F&F can ever be involved in the kinds of losses associated with those pre-2008 entities when they bought the poisonous and near valueless PLS.

One never says never, but I don't believe a repeat of 2008 can happen, with F&F as the bad guys.

So, observers need to understand that.

In the meantime, the two are sending plenty of revenue to the Treasury, more or less building up
reserves if some other mortgage market players screw up.

When that dawns on Congress, which has far higher priorities than "What do we do with F&F?," the tendency will be to kick this can further down the road.

Even if the R's take over the Senate and try to produce a Hensarling type bill, the industries will oppose them and Obama likely would veto it.

The coming drama may involve what a Congress might do, if the Courts decide for the plaintiffs in the multiple lawsuits facing Treasury and FHFA.

Anonymous said...

BillI, I think the market is sending the government a message that the shareholder is the real owner of the GSEs. The market will be the revolution and will determine the true value, in my opinion.

Bill Maloni said...

Maybe--But the market here, for most of the preferred and some of the common, are hedge funds and other institutional investors, for whom there is little public/political support and lots of public/political disdain.

(Although I don't think the SCOTUS will view their case with the same disdain that many in the Congress and media do.)

If what you are saying is some combination of the "public" in their investor role, the "public" in their mortgage market commercial participants role, and the "public" in their "borrower would be mortgagor" role will stand up in unison and demand that F&F are revitalized and maintained, you'll have a hell of a political resurrection and fabulous movie script going for you.

And, I hope you've nailed it.

Just tell me when this mob arrives, so I can fan and feed them!

Anonymous said...

Bill...did you catch that Judge Sweeney has ruled in Berkowitz's favor on discovery? I realize there is a (real) long haul in front of all the lawsuits, but I have to think this is at least a minor blow to the TSY. In your opinion, was there much of a chance that the courts would have rejected the arguement of further discovery? In addition, any idea what they may find in relation to the 'evidence' of future profitabilies of these two, etc? Thanks for the input...

Bill Maloni said...

To the extent that I can get "all over" an issue, I have been all over this since last yesterday afternoon, when the decision was announced.

I will write more in the next blog, but near term--as you might expect--the preferred and common shareholders (especially those who post on Fannie and Freddie boards) are ecstatic and believe they all will become millionaires in a few weeks, as they point fingers and laugh at those who may have sold, early, on the run up.

And, indeed, some may.

Near term this is a setback for the government should provide the Fairholme lawyers with lots of access to stuff the government, IMO, wishes plaintiffs lawyer didn't have.

To the extent it is permissible, the Fairholme lawyers might share it with lawyers for other interested parties. Some could leak out, but I doubt if we suddenly are going to see lots being disgorged as part of a PR campaign to embarrass the federal government, which just might PO the Judge.

I also think that this and related forthcoming events takes much of the steam out of legislative proceedings.

Not that the latter can't happen but they won't have the meaning they might once had had.

Some people--but I am not yet one of them--think the time for a major mortgage market legislative restructuring is history.

Anonymous said...

Thanks for the input. I realize the govt. doesn't have any concrete action(s) at the moment, but I find it a bit curious that they haven't come out and said anything in regard to the way the commons/pfds are trading. I think back to when GM was headed towards BK and can recall multiple attempts to get people to stop trading in the common...with such language as 'this is worthless'. We haven't had a similar experience with these. I'm certain the TSY is aware of the trading levels in not only the commons, but the prefs. Do you think we'll get some rhetoric out of these folks addressing the trading, etc?

Anonymous said...

Anonymous said...

What I don't understand is why the government would risk the time and expense going to court with something that is so obviously unconstitutional. I mean wasn't it Tim Palagria that made the point that the gov might be required to pay the sweep money back? As a taxpayer I consider the continuance of this goat rope to be classic government waste. Holding the GSEs hostage until they write the law to further harm shareholders is absurd!

Bill Maloni said...

Sorry for not getting each after they appeared.

Anon 1

Apparently, the only thing the Obama Admin likes about F&F is the money they bring into the Treasury. Anything any Admin official says about how either F&F stock performs will ignored.

I assume the Admin will file with the Judge to make sure that plaintiffs can't divulge to media, etc. anything obtained in "discovery."

After that it's wait out the process or settle.

The first entails, likely, years with Obama being long gone and there's no real incentive to do the second.

Anon 2

That story will be my next blog and I heard about it a week before it appeared, thanks to one of he folks quoted in it.

Anon 3

See answer to Anon 1.

Why would the Obama Admin want anything else "embarrassing" about its performance to come out now, when by waiting, this President will be long gone?

And, if the record is filled with corner cutting and dubious reasons to treat F&F punitively--as some suspect--those exposures won't help build the future "Obama Library."