Hide the valuables and the feedstock, Congress is Back

 

Cats and Dogs 

Many Americans—who briefly experienced recent but fleeting contentment, wellbeing, and joy—probably didn’t connect those feelings with the fact Congress was out of session all of last week. But that bliss ends when both chambers return to DC tomorrow for their regular grappling/snarling sessions. Just take a ticket—they’re free—sit down and watch the one circus in the world where the participants primarily are just elephants and asses, all of which double as spectacle clowns.

They’ll grumble about Obamacare, immigration, the Ukraine, ISIS, Keystone Pipeline, funding the Department of Homeland Security (an issue which makes the R’s cringe as each chamber’s majority tries to stab each other in the procedural back), global warming, cutting IRS funding so the agency can’t pursue tax cheaters, and whatever else was on the front or editorial pages of the back home newspaper.

A general waste if time. But, here are some ideas for them to consider if they want to  do something with value.

 

GSE Stuff--Gretchen Morgenson’s Column

If I’m on the Hill, What Would I do….?

 

Gretchen Morgenson’s superb column, in the Feb. 15th Sunday NYT, detailing the government’s obfuscation and delay tactics in carrying out Judge Margaret Sweeney’s “discovery order,” continues to stimulate discussion. I was asked by one prominent reporter if anyone on the Hill has reacted to it or plans to utilize her work?

“I have no idea,” I told the gentleman, "wait until they return.".

But, if I was a member of either the House or Senate Banking Committee—or a staffer to same—especially if I was a “Newbie,” trying to establish my bona fides, I would think along these lines.

 

First, I would expand knowledge of the work.

I would send a “Dear Colleague” letter to the entire Senate or House (depending on the sender's position, since Hill letters seldom are sent across “to the other chamber”) or just to the members of my House or Senate Banking Committee, making sure they saw Ms. Morgenson’s work and calling their attention to what I believe is very unusual, evasive treatment of 3-6 year old government reports, memos, email, etc., the release of which the Obama Admin unconvincingly claims could bring markets crashing or some other fiscal/economic catastrophe. (Oh no, Fannie almost dropped its acceptable credit scores from 720 to 715 in 2009, thank God they waivered. Can you imagine the worldwide blowback?") 

I might then put Morgenson’s column in the Congressional Record—every Senator’s or House Member’s right--with an appropriate introductory statement, calling attention to the points she made and expanding Morgenson’s audience which might begin to question this rather bizarre  F&F government treatment. 

If I dropped it in the Record, I might also issue a press release noting my own actions. (Congressional truth: “He who tooteth not his own horn shall not have the same tooted.”) 

If I was a SBC or HBC member, I might call on my Chairman to formally look into these matters or……I might ask SBC Chairman Dick Shelby (R-Ala.) and/or HBC Chairman Jeb Hensarling (R-Tex.) to hold a hearing—with Treasury and Justice witnesses—to explain the rationale for their transparent obfuscation.

Are these Republicans too deferential to ask, “Is anyone downtown covering up the legal/political mistakes of prominent former Democrats or a few still present?

I mean, where is Reince Priebus, when you need him?

And, finally, I might ask my Chairman to demand the Administration send to the committee the documents, which Ms Morgenson identified, for committee oversight perusal.

(If I did the latter, I would issue a press release, telling the Capitol media and the western world what I had suggested to “the Chairman.”)

Judge Sweeney/DoJ discussion

Before everyone laughs and says, “Well it’s only Fannie and Freddie, so who cares,” I want to make sure people are aware of this exchange, three weeks ago,  between Judge Margaret Sweeney and Justice Department lawyers. (Thanks Glen Bradford for generating this.)

DOJ attorney confirmed in Judge Sweeney's court the independence of the GSE's.  "Our position is, yes, they are independent — independent companies"...


http://www.glenbradford.com/2015/02/fnma-court-transcription-from-last-session/

Excerpts from Jan 28, 2015
Judge Sweeney' court
Mr. Schwind, DOJ attorney

THE COURT: Okay. So, I don’t understand — it
sounds like you’re somehow trying to say that the — or
imply that the Government has been circumvented when the
Plaintiff seeks documents from — directly from Fannie
and Freddie, but how can you complain because you’re
saying that Freddie and Fannie are not components of the
United States Government, therefore, this case should be
dismissed? It sounds to me like you’re trying to have
it both ways, but perhaps I’m missing something. 

MR. SCHWIND: Well, Your Honor, we’re not trying to have it both ways. 

THE COURT: Okay.

MR. SCHWIND: We did not object to the document discovery from the GSEs. Our position is, yes, they are independent — independent companies

(A few moments later—)

THE COURT: Well, no, let’s be clear, then. I wasn’t focused — I wasn’t concerning myself at that
point with any — because these are third parties. I mean, it’s up to a third party to come in and complain
that they have been served with a document request. It’s not up to the United States Government to do that, and, in fact, it would lend credence to — and support to Plaintiffs’ position that, in fact, these third-party entities are controlled by the United States Government, because the Justice Department, who represents government agencies in Federal Court, is coming in to complain on their behalf.

MR. SCHWIND: Your Honor, we don’t control them, and with respect, we don’t think pointing out to the
Court that discovery directly from the GSEs and from the auditors exceeds what — not only what Plaintiffs asked for in limited discovery but what the Court has allowed.
We think we are allowed — we do have standing, essentially, to come in here and say that the discovery
that Plaintiffs seek exceeds what the Court has allowed... 

Maloni takeaways from the exchange

A few things worth noting here. One is the BS about “we don’t control them…”

Talk about situational ethics (also known as lying, “speaking with forked tongue,” or talking out of both sides of your mouth). It’s been affirmed time and again, that the FHFA (and likely Treasury behind the scenes) blesses every business decision Fannie and/or Freddie makes.

The two are not free and can't make their own market judgments, so maybe Lawyer Schwind was speaking narrowing about his Justice Department’s ties with F&F, but he surely couldn’t have been addressing the relationship between Treasury/FHFA and F&F.

Second and more politically compelling for free market Conservatives thinking, “Pish-tush, it’s only F&F.”   

If the Treasury is treating these two “independent” entities in this manner (pretending they’re private and control  themselves), it could chose to do the same to any other corporation/business, even ones nearer and dearer to the GOP’s heart. You know, companies that believe they are abuse-immune because they are not Fannie and Freddie? 

GSE Stuff--Earnings 

At the end of last week, Freddie and Fannie both announced their final fourth quarter 2014 earnings figures (see link below), which were lower in each instance because of losses on their derivative hedges, losses that will return to them in subsequent reporting periods. Both still had positive earnings and will sent “dividend” payments, as per usual, to the Treasury next month, adding to the $225 Billion already sent, and now exceeding by @$40 Billion the $187 Billion Treasury infused in them in 2008. 

http://www.wsj.com/articles/fannie-freddie-weak-earnings-raise-possibility-of-future-bailouts-1424463119 

With the permission of Inside Mortgage Finance publisher, Guy Cecala, and writer Paul Muolo, I am reprinting Muolo’s F&F earnings story.

By Paul Muolo pmuolo@imfpubs.com Fannie Mae and Freddie Mac late this week released fourth quarter results, reporting much lower profits and huge hits due to losses on their derivative positions. Not to make this too complicated, but the GSEs (and many other financial institutions) use derivatives to prevent large losses when interest rates unexpectedly take a sharp turn in either direction. And that’s exactly what happened in late December: the yield on the benchmark 10-year Treasury went south, heading toward the Equator. (Two weeks ago rates went north again, reversing the trend.) Freddie’s 4Q hit from derivatives was an ugly $3.4 billion, Fannie a milder $2.5 billion. But how can that be? Fannie’s book of business is $2.803 trillion, Freddie’s $1.663 trillion. Shouldn’t Fannie have a larger loss on derivatives than its little brother? Anyway, as the weekend approached some GSE watchers were taking note of the differential. But don’t expect any Congressional hearings on the topic. It would mean that our elected leaders would first have to understand hedging, derivatives, interest rate swaps and much more  that is, if they want to speak intelligently about the matter.  One theory is that either Freddie was being too conservative with its hedging or that Fannie wasn’t being conservative enough. One GSE watcher raised the issue of whether maybe Fannie was “flying naked” on some of its positions. In other words, it wasn’t hedging everything. Then again, what does it matter? If you listen to the explanations of Tim Mayopoulos of Fannie and Don Layton of Freddie you get the sense that a hedging loss in one quarter turns into a profit the next when rates rise. Right? Perhaps the most important issue raised during the GSE earnings calls this week was the capital “buffers” of the two. In 2018 the allowable buffer falls to zero dollars. Zilch. Nada. Hopefully by then, President Bush or President Clinton will have worked out a GSE reform deal with Congress…

What Others are Saying 

Memories, memories… Congressional Reference Service (CRS) GSE Thoughts in 2008

http://assets.opencrs.com/rpts/RS22916_20080715.pdf

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Wealth gap

http://money.cnn.com/2015/02/18/news/economy/wealth-blacks-whites-hispanics/index.html

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Excellent David Min article 

Professor David Min was one of the first commenters to detail the many flaws and holes in the Ed Pinto/Peter Wallison “research” claiming Fannie Mae did little but originate subprime loans in the 1990’s. Of course their definition of subprime never matched any standard definition and very few of the Fannie loans originated in the 90’s defaulted then or even in the following decade.

But that fact—as well as several other rebuttals from serious mortgage observers and government agencies--never has stopped the AEI pair from peddling the line.

In this very thoughtful article, Professor Min discusses the future of the nation’s mortgage finance system.

http://clsbluesky.law.columbia.edu/2015/02/18/the-future-of-the-federal-housing-system/

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NY Daily News

http://www.bgdailynews.com/opinion/letters_to_the_editor/government-needs-to-act-on-bailed-out-company-risks/article_13362054-051c-542e-8405-334afabeb0a5.html 

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Cato Institute (should we, dare we…)

http://www.cato.org/blog/we-decide-keep-fannie-mae-around 

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AG Holder seeking (some, any, all) mortgage bad guys?

Just when the Wall Street/PLS guys thought it was OK to come out of hiding, the AG speaks up!!

http://www.dailymail.co.uk/wires/reuters/article-2957575/U-S-identifying-individuals-prosecute-role-mortgage-crisis.html

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Longtime Republican Michael Smerconish reacts to  Obama criticism 

http://www.cnn.com/videos/tv/2015/02/21/smerconish-commentary-02212015.cnn

 

Maloni-2-23-2015