Pre-Christmas Thin Gruel

More “Deuces” than Just Court Cases

 

I’m humbled.

Thank you for last week’s crescendo of blog hits, which registered nearly 1100 by Friday night. It’s very satisfying knowing there is so much interest around the world (the blog receives a surprising number of overseas hits) in the fate of these formerly two great companies, now operating at a slight disadvantage. 

There are several regular GSE forum in which to vent these days and all seem to attract attention and solid posts and responses. It’s heartening. 

In addition to mine, I count at least four other sites/blogs (tell me if I miss any others)--Fannie Shareholders, Investors Unite, Tim Howard717, and Investors Hub--where F&F issues are raised and debated with some extremely thoughtful, knowledgeable, nimble, albeit angry and funny minds weighing in on the historically unwarranted, unjustified F&F treatment.  

“Unfair” seems to be the growing theme of many commenters, along with the sense that the two could be very important future mortgage cogs for the nation, if not to their future owners. 

It’s not my imagination that more and more people are talking about operationally maintaining F&F. The legislative alternatives are so unattractive, along with the evolving brutal political process given the new ideological realities in the nation’s capital. 

But, lots of talk—with its inevitable public disagreement and education—is good. 

The goal is for the debate to illuminate public policy decisions. If someone is setting F&F up for significant diminution, then the public has to be informed and understand what it means to them. 

There are federal elections, again, in two years and a public that just has begun to enjoy some positive economic trends, won’t be happy if some fresh-faced, wild-eyed discordant Washington politicians begin screwing housing finance things up. 

For any type of significant F&F resurrection to occur, via executive action, much more support is needed, because those who demonized and torched the F&F brands did a very good job—and there are a few more coming to town (in both parties).

 

Nice Job F&F!! 

Look at the recent ProPublica report showing all of the federal financial “bailout” investments from the 2008 meltdown. Fannie and Freddie were the most successful in terms of prompt repayment ($187.5 Billion infused) and running a $31Billion plus (and growing) surplus sitting in Treasury coffers. 

http://projects.propublica.org/bailout/list/index 

The F&F worm may not yet be turned, but she sure is stirring.

 

F&F Coming Communication Positives

 

There likely is another F&F book or two in the works and the indefatigable David Fiderer has about a half dozen projects bubbling in his crazy cauldron. I know there are some people who aren’t able to sleep well at night, knowing Fiderer and his pointed PC are humming.

 

Investors Unite is planning a major congressional visit in January, which can help educate new and existing Senators and Congressman, including those who likely will be named to the House and Senate Banking Committee. 

Here is a list of 2015 GOP side of the House Financial Service Committee or as I still call it--by its name from 50 years ago--the House Banking Committee (HBC). 

The bottom eight GOP members are new to the Congress, beginning with David Schweikert (R- Ariz.). Assuming they all are finally named by the House GOP Caucus, this will be their order of seniority. (Irony, not just with the R’s, experience matters little with these decisions. At one time, French Hill was a Senate Banking Committee staffer for Sen. John Tower, and likely knows more about the committee issues than most of his senior colleagues. So, naturally, he gets put at the bottom.) 

1. Hensarling, Jeb TX

2. King, Peter T.     NY

3. Royce, Edward R.  CA

4. Lucas, Frank D.  OK

5. Garrett, Scott    NJ

6. Neugebauer, Randy  TX

7. McHenry, Patrick  NC

8. Pearce, Stevan  NM

9. Posey, Bill  FL

10.     Fitzpatrick, Michael  PA

11.     Westmoreland, Lynn  GA

12.     Luetkemeyer, Blaine  MO

13.     Huizenga, Bill     MI

14.     Duffy, Sean        WI

15.     Hurt, Robert       VA

16.     Stivers, Steve    OH

17.     Fincher, Stephen  TN

18.     Stutzman, Marlin  IN

19.     Mulvaney, Mick  SC

20.     Hultgren, Randy  IL

21.     Ross, Dennis      FL

22.     Pittenger, Robert  NC   

23.     Wagner, Ann  MO

24.     Barr, Andy  KY

25.     Rothfus, Keith  PA

26.     Messer, Luke  IN

27.     Schweikert, David  AZ

28.     Dold, Robert  IL

29.     Guinta Frank  NH

30.     Tipton, Scott      CO

31.     Williams, Roger TX

32.     Poliquin, Bruce  ME

33.     Love, Mia   UT

34.     Hill, French  AR

 

 Beware the Appropriations Threat 

   Last week I wrote that the court cases--in which the federal government is being sued by a variety of F&F preferred and common stock holders--are a GSE future wild card because, to date, it was difficult to follow any thread of common logic among the jurists who made substantive decisions (Judge Royce Lamberth) and those who made marginal decisions not central to the cases (Judge Margaret Sweeney, denying Fairholme the right to hire Tim Howard as a consultant on discover). 

   Anyone following these cases understands the significant possibilities. In Sweeney’s case, when she has approved “discovery,” there is the possibility of a plethora of damning documents coming forth showing WH/Treasury panic and uncertainty--if not illegal decisions—coupled with horrendously bad judgment, misreading markets, carrying out political vendettas, and disdain for Fannie and Freddie and their shareholders. 

  (For an update on the court cases, contact Michael Kim, at CRT Capital--MKim@crtllc.com--to see if he will share his latest legal proceedings report with you. He’s really sharp and on top of things.) 

   But let me flash another “wild card” from the GSE deck and what I expect to be forthcoming GOP strategy. 

 He Did What?

   With his immigration action, President Obama showed a willingness to march forward without the Congress on immigration changes using his executive authority.

   Congressional R’s have been howling for two weeks about that and last week passed a House resolution damning the President’s actions (big whooping surprise).

   But, with greater numbers in both chambers and control of the Senate next year, the GOP Congress will not just verbally blister the Obama Administration, they can seek to attack their same objectives (immigration reform and healthcare, environmental reform, you know the list)—in fact, any executive action their respective Caucuses dislike--through the appropriations process, which their party will control.

   Depending on what goads them, they could bully and threaten funding for entire departments or seek targeted piece meal cuts in individual agencies. The GOP could menace funding for any government program implementing Obama’s actions where the Administration thinks it has discretion he has in these matters—and the Hill R’s don’t. 

 Possible Fannie Mae and Freddie Mac Impact 

   The risk to F&F and its allies is there.

   If the GOP  targets the GSEs, knowing it can’t pass legislation removing them, it could strangle/impair the two via appropriations process or just kill any market innovation the WH/Mel Watt seek, it can be done with no D on the Hill able to stop them. (Although an Admin veto always exists.)

   A really PO’d, excuse me, motivated House and Senate majority, could try and reach back and use future funding to blunt actions already planned, i.e. “No funds in this act shall be used to implement any regulations which allow Fannie Mae and Freddie Mac to offer 3% down payment financing....” 

   Doesn’t mean FHFA can’t/won't do anything via regulation, but anything valuable could be dicey.

    Just sayin’.’’ 

 Backlash 

   That could be a dangerous strategy which could blow up the faces of congressional Republicans—and their 2016 presidential candidate--if the GOP crazies overplay their hand and next year send out different program threats "every day of the week and twice on Thursdays."

   That behavior might also end the idea they’ve sought to cultivate, i.e., the GOP can be a  responsible governing party.

    But actions will speak louder. 

 Maloni 12- 8-2014