From Pariah to Presidential Advisors
The Obama GSE Hypocrisy Rolls On
When in doubt look to Fannie Mae (for help).
The reliable word, when Barack Obama first was elected, was that his (badly uninformed) "people" told him to stay away from Fannie Mae issues and officials, because the company was a festering mess.
He did, later actually turning against the Fannie business model and calling for its disassembly.
But, some of thought that political paranoia ended when in 2009, he nominated a former Fannie colleague and friend, Donald Remy, to be the General Counsel of the US Army. (Remy had senior legal positions at Fannie, the Justice Department and was an assistant attorney to the Army GC, previously.)
One McCain Memory (Thank You!)
But, the old Obama doubts returned when a Senate Armed Services Committee GOP staffer, working for Sen. John McCain (R-Ariz.)*, suddenly claimed that the Committee hadn't realized Remy had served as a Fannie lawyer and Obama—wilting from pressure--promptly folded his hand and pulled the plug on Donald (who went on to be named the NCAA’s chief legal officer).
*During the 2006 presidential campaign, when candidate John McCain began making disparaging GSE comments, I told the NYT that McCain’s campaign staff was filled with ex-Fannie consultants, causing the McCain camp some long faces and embarrassment, especially when it became known his campaign director still was on Freddie’s payroll. So, I knew why the Senator disliked Fannie.
From a June 13, 2009, n ABC Network news transcript: “An administration source pointed out that Remy fully disclosed his tenure at Fannie Mae in other documents provided to the committee, including his Senate Armed Services Committee Questionnaire, his National Security Questionnaire and his Public Financial Disclosure Report.”
But when desperate and unable to call Ghostbusters, you call....
The President didn’t do the “Fannie blanch” at Tom Donilon’s six influential years of "Fannie service," when—in 2010--he tabbed Donilon to be his National Security Advisory. Nor did Barack let Tom Nides Fannie’s service-- before Nides had returned to Wall Street-- stop him when he named Nides in 2011 to support Hillary Clinton when she was Secretary of State.
And now President Obama has chosen, former O’Melveny and Myers lawyer and Fannie Mae consultant (who also served as VP Joe Biden's Chief of Staff) to be the country’s "Ebola Czar."
Good luck, Ron, just pull off your normal excellent job. The nation needs your best.
One Klain Memory
When working with Fannie, consultant Ron Klain produced an exemplary piece of work, a proposed strategic (as opposed to just tactical) Fannie attack aimed at the FM Watch antagonists, its member companies, their principals and lobbyists.
Based on Klain’s rich research and arguments, had Fannie adopted his plan, it might have saved a lot of people from losing their jobs and the company getting heavily besmirched by the GOP and Fannie’s business and political opponents and it would have been so much fun to implement.
But, Klain’s idea was rejected by those above my pay grade, a fact I didn’t support and never will understand.
I wonder when and if the WH will back off its “Fannie bad!” script, they once aimed at individuals and publicly still used against the institution.
Maybe this week?
Fannie & Freddie Get New Obama Tasks?
Mel Watt and HUD Secretary Julian Castro will speak this week to the Mortgage Bankers Association’s annual meeting in Las Vegas (recently the trade group said it had association earnings $9 million over last year’s).
Most of what Watt and Castro will say has leaked (hey, its Washington isn’t it).
Reportedly, Watt will ask Fannie and Freddie to again finance/securitize 97% LTV loans. The Admin and the industry hope this return to limited 3% down financing--with slightly lower credit criteria--will jumpstart American housing finance, building and purchases.
The other rumored development is that Watt will announce F&F providing funds for two multifamily and rental low income programs. Past GSE regulator s balked at funding them, because: (1) the Administration never prioritized the recipients’ needs; (2) didn’t believe the GSEs had the money for the efforts; or (3) Treasury desperately wanted all the F&F earnings for the general fund 9see first reason).
So now a desperate Administration once again is turning to the two Gorilla mortgage finance entities to help with housing problems the “private” banks and other lenders won’t/can’t do on their own. Gee, sound familiar?
Hasn’t America seen this picture before, say in 1992 and later when the Bush and then Clinton administrations leaned on F&F to do more for low income and minority families?
Given this regulatory reinvigoration, what will the Obama Admin do when the next US Senator or GOP Member asks for F&F to be shut down or phased out??
Ludicrous and “Ludicrouser”
(Personally, I call “Bullshit” on judge Margaret Sweeney’s decision to deny Tim Howard access to “discovered documents,” while she claims he still can work for plaintiffs Fairholme Capital. I am pessimistic about a plaintiff’s victory because I think—but can’t prove—the Judge was reflecting her inclination on the core hearing question.)
Here is a link.
Sweeney’s objections to Tim Howard are a shaky concluding Howard, only, is a risk to leak information.
She said he owned/owns Fannie stock; he wrote the US government was wrong in charging him and others with crimes, allegations that later a federal judge threw out of court; and he settled some OFHEO restitution demands with no personal assets lost.
Despite claiming she wasn’t questioning Howard's honesty re stock dealings, she does exactly that and ignores that Fairholme's lawyers filed a formal notice--which Tim had signed when Fairholme approached him—assuring the court that he would not buy, sell, or trade in any securities for the duration of the trial/hearing and until such time as Judge Sweeney rendered her final decision.
Howard’s Book Said What?
In rejecting Howard’s proposed role, she argues he said the federal government—i.e., Fannie's regulator, then known as the Office of Financial Enterprise Oversight (OFHEO)--had wrongly accused him (and two other Fannie execs) of "securities fraud," a 2004 charge, compounded, when the Bush SEC supported it.
These events, and the intervening eight years until a federal judge threw the matter out were covered in Tim's book, published last year.
Sweeney's view suggests, if the federal government f****d you over and you say it, you can’t be part of legal discovery on some future related case. (Why, will Howard the consultant invent material not in government files?)
Way back, Tim did give up some claims to financial assets in his settlement with OFHEO (as did Frank), which OFHEO, by design, over 6 years ago and Judge Sweeney, again, last week grossly/significantly inflated their value.
Look carefully at what they "gave" and then answer: why would anyone not do the same to get the vengeful OFHEO absurdist hacks off their back?
To make their prize look more impressive, OFHEO six years ago valued the “captured” securities at their much higher initial award price, not their depressed near zero dollars market price (April 2008). The regulator also counted as part of the settlement a cash payment to Treasury from an insurance company.
Result, the $6.4 million that both OFHEO and Sweeney claimed Howard "paid" to settle the bogus OFHEO charges was made up of worthless underwater stock options, a contribution to a housing non-profit of stock he hadn't been given, and cash paid by an insurance company.
None of it was out of Howard’s (or Raines's) pocket, or represented any admission of guilt. Sweeney knew all that—since it was made clear in a motion submitted by Fairholme’s lawyers—yet she still chose to portray the settlement as if it consisted of real money.
In opposing Howard participating in “discovery,” defendants told (a gullible?) Judge Sweeney-–again, suggesting Howard would mistreat the data—that the government is sitting on information about two companies it has tightly controlled for the past six years, that are conservatively operated and spitting out annual billion dollar profits—which if revealed could have “external deleterious consequences” and a “destabilizing effect on the nation’s housing markets?
(I think I now know where Uncle Sam’s true “Area 51 and Roswell UFO crash” data is kept!)
Also, with regard to Mel Watt and Mike Stegman claiming Howard should be kept away from these financially momentous, powerful and weighty government records, really, what are you guys smoking, or what is it you truly fear?
I cannot comprehend what in the Fannie Mae/Freddie Mac record(s), if divulged, could cause serious and catastrophic damage to the mortgage finance system, but Judge Sweeney swallowed that propaganda whole.
Compounding her myth acceptance, Judge Sweeney raked Tim Howard with her legal claws, possibly reopening old wounds on a man whose reputation federal Judge Richard J. Leon helped cauterize two years ago when Leon ruled none of the claims against Howard (and Raines) had any merit?
Why the Government’s Fear and Anxiety?
I suspect that there are a skein of documents that show OFHEO/FHFA was a Treasury tool, an empty suit, a "conservatorship" puppet failing to vigorously chart F&F's financial recovery, which the Congress called for in the Housing and Economic Recovery Act (HERA).
And further, there might be documents which would show Treasury mismanaged its "third amendment sweep," when it underestimated how quickly Fannie and Freddie could rebound given the housing recovery starting in 2012 and it probably bent/broke the law in denying F&F any earnings from which they might be able to recapitalize.
Those facts will show up somewhere, ideally in Sweeney’s court or maybe as part of an appeals hearing on the original Lamberth decision.
But, none of that justifies Sweeney’s clumsy trashing of Howard's character. Unless her mind is set and she plans to back the government’s actions—“discovery be damned”—meaning she has to fantasize events and possibilities supporting where she’s headed on the larger case matter.
David Fiderer on Judge Sweeney’s Decision
In a communication to me, our insightful lawyer friend, David
Fiderer, who has been through major financial services cases, with discovery and similar matters, offers the following.
“Anyone who works for the plaintiffs’ lawyers—a small army of support staff that consultants, the secretaries the file clerks—is bound by the same confidentiality strictures.”
(Maloni asks, how many dozens or hundreds of these folks can pass Sweeney’s more pure than “Caesar’s wife” test, which she applied to Howard only?)
“The US government defendants basically are saying that since Tim Howard is so desperate to reestablish his reputation—ignoring that it already had been restored in a court of law--he is disposed to breaking the law and disclosing confidential information to the public Of course, if you accept the defendant’s other premise, the danger is nonsensical. The defendants claim the GSEs are joined at the hip to the government, so how could the market react one way or another if the preferred and common shares are, for all intents and purposes, nonexistent.”
“Do you think Judge Sweeney understood that Howard (and Raines) went through an eight-year federal court case, which featured 65 million pages of hearing material and testimony, and there is not one shred of evidence that Tim Howard ever divulged anything from those records until his case was history and he authored a book?”
“And for the umpteenth time, shame on anyone who dares to claim that the Fannie Mae “accounting scandal,” had one iota of substance.”
Maloni on Real Ebola Worries
(I wrote this before, Ron Klain, was named the nation’s Ebola Czar. My concern is one where his longtime friend, former Obama National Security Adviser Tom Donilon, can help Ron.)
Given the reality of “Ebola in the US,” which for now is more spectacle and headless chickens running around (three known cases and one death), does anyone but me think that ISIL or some other nut case group--maybe just some right wing domestic terrorists--might consider the DC, New York, Chicago, or LA water supply a good place to dump some Ebola inducing poisons???
What Others Are Saying
Fannie stock performance.
I love the Washington Post's schizophrenia. Always looking to exploit their editorial opposition to Fannie and Freddie, the Washington Post got hung up, once again, when Fannie’s stock last week was one of Wall Street’s best performers and it was listed by the Post on the business page as such. But wait “Posties” aren’t Fannie and Freddie government agencies, how can they appear on the stock pages?___________________________________________________
The Washington Post’s Dina Elboghdady talks about the coming F&F underwriting changes.
David Sims, writing in Seeking Alpha, likes Dr. Clifford Rossi’s “recapitalize F&F with their earnings” regulatory proposal.
Value Walk comment on Sweeney decision
Wells Not Making Many Home Loans, Why?
Abortion and the GOP
Senate Minority Leader McConnell Leads only by 4%