Monday, June 29, 2015

GSE Summer-Lite



The Cynic..Who Me??


Some blog readers have noted some cynicism in my comments about HERA and “Third Amendment” court cases and possible outcomes for the GSEs. That’s a fair review. 

In contrast, many solid and smart posters at the “TimHoward717” blog—allies, if you will-- are very optimistic that “the truth and law will prevail” and both their opinion and their personal net worth will be enhanced, when GSE share values skyrocket.

I hope they are right and I am wrong, but…..Washington (courts, Congress, media, opinion leaders, etc.) doesn’t too often anoint “winners,” with the losers skulking off into a corner licking their wounds with nothing to show for it. 

There are endless variations of this exact political principle—almost a staple of democratic process--which occur inside the Beltway daily, with various “half loaves” being handed out. But some of the halves are tastier and fresher than the other half. 

Certainly the Congress, any Administration, and others hope nobody (voters and contributors) goes away too upset with a final resolution —except, of course, if you are a Fannie or Freddie fan and, maybe, a hedge fund principal (aka “those bottom fishing bastards”). 

I point to Judge Thomas Wheeler’s recent AIG decision—which we know is being appealed—when he found that the Fed engaged in takings but the Judge didn’t think it necessary to award damages.

People jumped all over any reported comment Wheeler made during the hearing, suggesting he was sure to side with plaintiffs and against the government. 

So now—when that didn’t happen, because Wheeler middle it--Boies and Greenberg get to say they were right, but the Fed (the government) doesn’t have to pay anyone for its violations. 

Again, just look at some of the post-Wheeler reactions. Tons of people say it was a Greenburg rebuff, while others crow it was a principle win for the GSEs and “takings” case. 

Not that he needs more money, but I doubt if Hank G can monetize Wheeler’s decision, absent a successful appeal. But, we know his legal team will keep at it.

So, are the GSEs forever to be Wily Coyote, close but never quite catching the Roadrunner?


How to boost GSE stock prices….

If someone just could convert the @$240 Billion the GSEs have paid Treasury--under conservatorship--into raisins, it might pave the way for  the SCOTUS—hearing an appeal of a lower court’s “Third amendment”  decision--to graphically visualize the volume of “takings” to which the two have been subject. 

It worked for the raisin producers, ergo….. 

That would be a lot of grapes/raisins dumped on the Court steps, to show the magnitude of the F&F takings, but—one way or another—it might convince our nine black- garbed SCOTUS solons that Boies, Olsen, et al are correct in charging Uncle Sam--now that the raisin folks have been recognized as federal takings victims--with lawlessness in seizing all Fannie and Freddie earnings.


FHFA Report 

I love the irony of these reports which FHFA publishes re F&F’s riskiness. 

IMO, the entities largest risks are their government operators can’t run a business employing any type of entrepreneurial capacity, save giving warnings about possible future problems (which often create). 

As “Pogo”--cartoonist Walt Kelly’s famous comic political and social commentator-- once reported, “We have met the enemy and he is us! 

Just who is FHFA criticizing when it blames F&F for not doing enough or moving fast enough? 

The answer is starring back at FHFA when it looks in its bureaucratic mirror. 

Recapitalize the GSEs and get out of their way, then report how well—or poorly—they do.  

Right now, FHFA looks like a clucking maiden aunt snickering and pointing fingers at her niece’s and nephew’s actions, saying, “In my day, GSEs didn’t……!”  

(See Carisa Chappell’s FHFA report article from Inside Mortgage Finance, below.

By Carisa Chappell

Fannie Mae and Freddie Mac have made progress in improving their corporate governance structure and managing credit risk, but they still face significant headwinds, according to the FHFA’s annual report to Congress.

The report noted that the prospect of negative net worth in future quarters for Fannie might be more likely than in recent periods thanks to a reduction in income from Fannie’s shrinking investment portfolio. Also income from loss reserves and legal settlements is diminishing.

While the report noted that Fannie has significant initiatives underway to improve its governance, risk management and systems infrastructure, it said the magnitude of the projects would expose the enterprises operations to heightened risk.

It also said “critical work remains” for Freddie, despite its efforts to change its overall risk management framework. The organizational changes accompanying that project elevate Freddie’s risk profile during the transition period.

Wallison: Gift from the Past 

Good friend David Fiderer—doing Saturday night research, I am certain—sent me this comment form a 2014 NY conference panel discussion in which AEI’s Peter Wallison speculated on why the Geithner Treasury opted for the “sweep.” 

It’s not that revelatory but underscores what some of us believe it had a lot to do with Geithner carrying forward Paulson’s plan to dust the GSEs from the mortgage scene. Fiderer wondered if Wallison’s candid assessment might have come from one of more of GOP officials still involved with the FHFA, at that time. 

“The Treasury Department decided in August of

2012 instead of receiving a normal dividend on that preferred

stock that the Treasury Department got for making these contributions,

which paid about 10% on the stock annually and

it’s cumulative, instead of that, what they would do is require

Fannie and Freddie to send them all of their earnings. They

modified the stock in other words so that Fannie and Freddie

were going to be sending the Treasury all of their earnings.

Why did they do this? Now I’m not privy to all the internal

discussions, but the reason that many people like me thought

they did it is that the then-Secretary of the Treasury Tim

Geithner was always a strong opponent of Fannie and Freddie,

and he was afraid that if they became profitable as they have

now, if they became profitable and began to have earnings,

they would recapitalize themselves. And the more capital they

had, the more they looked like a profitable, a successful, corporation,

the more likely it would be that Congress would be

pressured into letting them out of the receivership and to return

to the market probably as government-sponsored enterprises



Presidential Campaign Commentary 

Before I could acknowledge that Donald Trump had joined the gaggle of GOP presidential candidates, Louisiana’s Governor, Bobby Jindal, made himself the 13th Republican to toss his hat in the ring. (Chris Christie’s rumored to be #14, with an announcement next week.) 

Rumor: GOP looking to reserve Grand Canyon for its presidential debates, since few venues can accommodate 14 or more speakers and the resulting hot air. 

I’m no longer rooting for former Texas head man Rick Perry to get the nomination because he would be easy to beat, but have shifted my support to Trump, hoping the GOP names him its candidate. (I was not influenced by Jon Stewart’s response to Trump’s announcement.)

Lenders Hit Watt over CSP for Big Guys

In a letter to FHFA Director Mel Watt, two national small lender trade association small lender trade associations questioned Watt’s endorsement of giving the nation’s largest lenders access to the common securitization platform (CSP).


Let’s Hear it for the Big “B” in DC
And Hope for a Lot More of it….. 

Bipartisanship showed its long missing but still beautiful head last week in Washington and President Obama and the American people—as they generally are when the two p[arties work together--were the beneficiaries. 

Overcoming its own divisions, the Supreme Court twice favored Obama on the healthcare decision and with its support for same sex marriage across the nation—with court Conservatives and those outside of SCOTUS predicting hellfire and damnation. 

The GOP Congress, with help from Democrats, did its share—separately in the House and Senate—combining D’s and R’s and giving the Administration its fast track trade request. 

In the wake of the devastating attack on members of the Emanuel AME Church, South Carolina Republican Governor Nikki (R-S.C.) Haley stepped up and called for removing the Confederate flag from the SC Capitol grounds, which showed real courage and political smarts. Haley struck, quickly, while the iron was hot in support of such a gesture and her actions stimulated other similar developments both in and outside of government. 

No, the “Stars and Bars” did not cause that evil church act but it has been, for 150 years, a symbol supporting Black suppression, subjugation and mistreatment, whether its supporters will admit it or not.

What Others are Saying 

Glen Bradford writes in Seeking Alpha how former Treasury official Mario Ugoletti’s current deposition supports F&F plaintiffs.


The demographics in our nation are changing and it’s worth responsible GOP leaders considering this phenomenon, as per Timothy Egan in the NYT.


Charles Harrison’s thoughts on Wheeler’s AIG decision in Seeking Alpha.


Again, the always thought provoking Glen Bradford, also writing in Seeking Alpha. 


Echoing my blog prediction that the Wheeler decision will bring forth lots of articles and commentary of the question, “Did F&F need a bailout,” Trey Garrison’s Housing Wire carried this very tantalizing/heavy “GSE forensic accounting” article by Adam Spittler and Mike Ciklin.

Go Ahead Uncle Sam, I Dare You to Stop Me…..


This certainly will get “The Donald” and the GOP all those desired/important Hispanic votes. 


I hope 24-year old Bristol Palin's second out of wedlock pregnancy doesn't ruin her Mom's VP chances with the Republican’s party’s rank and file!



Enjoy these! And thanks to former Fed colleague and friend, Ed Ettin, for sending them and of course to Winston Churchill for spouting them...          


Paraprosdokians: (Winston Churchill loved them.) are figures of speech in which the latter part of a sentence or phrase is surprising or unexpected, and generally humorous.

1. Where there's a will, I want to be in it.

2. The last thing I want to do is hurt you. But it's still on my list.

3. Since light travels faster than sound, some people appear bright until you hear them speak.

4. If I agreed with you, we'd both be wrong.

5. We never really grow up, we only learn how to act in public.

6. War does not determine who is right - only who is left.

7. Knowledge is knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad.

8. To steal ideas from one person is plagiarism. To steal from many is research.

9. I didn't say it was your fault; I said I was blaming you.

10. In filling out an application, where it says, 'In case of emergency, Notify:' I put, 'DOCTOR'.

11. Women will never be equal to men until they can walk down the street with a bald head and a beer gut, and still think they are sexy.

12. You do not need a parachute to skydive. You only need a parachute to skydive twice.

13. I used to be indecisive. Now I'm not so sure...

14. To be sure of hitting the target, shoot first and call whatever you hit the target.

15. Going to church doesn't make you a Christian any more than standing in a garage makes you a car.

16. You're never too old to learn something stupid.

17. I'm supposed to respect my elders, but its getting harder and harder for me to find one now.



Maloni, 6-29-2015

(Today starts the second week of the annual “Camp Maloni,” when five of six grandkids (the 2 ½ year old, Seaver Star Maloni, stayed in San Diego) descend for three weeks of Grammy and Grandpa—mostly the former (the kids say I’m a grouch)—last week’s activities list is too long to record but tent camping is this week (this year, Swallow Falls park not Skyline Drive) and a week at the beach after that. My wife is an angel with Spartan energy.)


Monday, June 22, 2015

A July Approaches.....



Judge Wheeler’s Decision


“Third Amendment” plaintiffs. their lawyers, advocates, F&F fans, and others—who find some joy in Judge Thomas Wheeler’s decision claiming government “takings” but granting no financial damages to AIG plaintiffs—going forward need to establish the case that neither Fannie nor Freddie were bankrupt or unable to access the market for working capital, in 2008 when taken over by Treasury.

And I believe they can, but will any federal judge agree?

It’s a subjective call that will be argued vehemently both ways.

In Fannie’s case, I’ve always thought that that Treasury Secretary  Hank Paulson----torn between ideology and pragmatism--ignored Fannie’s $47 Billion in capital and near unilaterally decided the company was penniless, without market hope, and couldn’t function. But, he was mindful to use the public’s and the Congress’s distraction over financial woes to implement a long time GOP agenda against the GSEs and, possibly, try to enrich some of his wealthy friends who were alerted early to his plans. 

I believe Paulson steamrolled and intimidated both GSE boards, and implicitly threatening to include them in his mix of “guilty parties,” if any refused to cooperate with his conservatorship takeover plans

There were few “Profiles in Courage” candidates on those boards, but no idiots either!! 

However, instead of rushing to grab the two, had the Treasury and Fed just stepped back and extended their continued oral support (not the full faith and credit equivalent they ultimately assumed), who would have objected? 

F&F likely could have managed themselves out of the mess, albeit paying a little more for debt. 

Of course, then Tim Geithner wouldn’t have had the chance to siphon F&F revenue and enrich the US Treasury, either. 

Some will say, “But, you’re wrong. It’s not that simple.

My response is, “Yes it is, since the government went ass over teacups to go in the opposite direction with less justification." 

That’s what I believe and that’s what the remaining GSE lawsuits all are about. Expect them to be amplified now that Wheeler has established one half of what GSE plaintiffs have claimed. 

Bruce Berkowoitz, Fairholme CEO  and major GSE investor, said it best, when he was quoted in a Financial Times article about the recent AIG decision,  discussing Treasury’s bipartisan fabricated stories backing conservatorship and total profit sweeps.

“Any notion of a ‘death spiral’ was fiction,” said Mr. Berkowitz of Fairholme. “Fannie Mae and Freddie Mac performed as promised, had mountains of cash and generated cash during the financial crisis. Reported losses were the result of decisions by a handful of government officials to reflect a doomsday scenario that did not and could not occur.” (Story link below.)


Will Any Federal Court Agree???


Here again is where we get into federal judges deciding “How many angels can dance on the head of a pin,” or more precisely, could F&F have survived without conservatorship. Could they borrow in the debt markets?

The courts will continue to hear from lawyers saying F&F easily could have raised market funds and continued operations, especially with FHFA toughening up their operating rules. 

The US government, Paulson, Geithner, and Bernanke, plus others—when/if they get called as witnesses, as they did with the AIG case—will argue the opposite. 

Kicking the can down the road—or higher up the judiciary chain—is not solely the province of  Congress. 

Judge Wheeler—operating under a different statute-- found the Fed engaged in “takings,” but who at Treasury is going to admit 2012 “sweep” actions grew from wanting to get at the GSE revenues which someone had to realize were about to turn favorable. 

Or has some Administration official already admitted that in depositions? 

As I’ve written, I still am waiting for anyone in Washington—including the courts—to offer a substantive decision benefiting Fannie Mae and Freddie Mac (or their investors) as dominant mortgage market participants. 

Can two institutions consistently be in the wrong, even when the government is running them?

Lew and Royce Play Patty-Cake

At a HBC hearing last week, Rep. Ed Royce (R-Cal) continued in his “the GSEs” haven’t paid anything back” and his badminton partner witness Treasury Secretary Jack Lew—fresh form being booed in Israel-- who reiterated how serious the 2008 debacle was. No surprises in either statement and said he was for mortgage reform.

But, why did the “Ed and Jack Show: fail to mention the  $2.7 Trillion in poorly underwritten and falsely rated private mortgage backed securities which the non-F&F issuers poured on the market, racking up three times the losses that F&F did?

One reason is that both guys see the same exact players—which pulled PLS, 2008’s biggest rip off-- being the logical inheritors of the primary and secondary mortgage markets, if/when they succeed in disabling the GSEs.

But, what Royce and other R’s don’t seem to understand is—without Uncle in the market, somewhere—you are not going to get all of that “new private capital” flowing into mortgage lending. 

Lew and Capuano exchange

Rep. Mike Capuano (D-Mass) did his latest public service, by quizzing Lew and having the Treasury Secretary put on the record that F&F have repaid all that was infused in them, plus  nearly $40 Billion more and growing. (Did anyone else listening to this feel Capuano was channeling a little Barney Frank? Must be the geography!



What Others Are Saying

Wayne Olson in Capital Alpha values GSE common and preferred stocks.


The Financial Times looks at GSE court cases, after Wheeler decision.


What are a few sanctions between banks???


Josh Rosner scores again on “MBA mission creep” while offering prudent advice to the smaller lenders.

(I thought I had a link to Rosner’s latest report, but I couldn’t get it synched. I’ll work to add it, even after I put up the blog.)

Mr. Fiddlesticks comes through; here is Rosner 's report. Thanks, Mr. F.


He said the Shelby bill could be a honey trap. Rosner nailed the hypocritical trade association’s position for wanting to get banks into the GSE common securitization process (CSP) and the single GSE security development.

It wasn’t too many years ago, albeit before David Stevens MBA time, that the same trade group was complaining that F&F were trying to get into the mortgage bankers market position and remove them as participants.

The MBA advocated then for a “bright line,” to show a/the demarcation between primary and secondary market roles.

Just like today, 10 years ago, the MBA was shoveling a line, more BS than “bright”--but still a line, since it defied the logic of an independent “secondary mortgage market.”


Fannie (and I am sure Freddie) had no desire to disrupt an ideal situation for them, which featured a legion of primary market mortgage supplying lenders-- banks, thrifts, mortgage companies, credit unions, and others—contractually wedded to delivering business to them—but with none of the overhead costs, i.e. bricks and mortar, office and personnel, all laboring to underwrite borrowers (using GSE standards).


Most of the mortgage bankers loans made were sold or securitized with Fannie or Freddie, anyway. So why would those two ever desire to supplant the primary market???

Crossing the MBA specious “bright line” to own the whole mortgage shebang would have been a lousy and expensive business model, which F&F didn’t need or want—and certainly something Congress would nip quickly—and with great aggression and dispatch--if anyone at F&F ever coveted the lenders. 

About the $$$$


But, the MBA’s real objection was not F&F becoming direct lenders—again a really dumb business model—what truly ruffled those mortgage bankers was that F&F’s operational efficiency made the mortgage application and approval process work better for consumers because it rung excess mortgagor costs from the loan process, which really ticked off the MBA and its members who benefited from that fat.


They often told Fannie that behind closed doors, but for public consumption, the MBA created a fictitious “bright line” make believe scenario to disguise its real agenda. (Link, from “The Hill” in 2005.)

Some current MBA officials should play closer attention to history.

Rosner both called out the MBA but also appropriately warned the ICBA that blessing the Shelby legislation, which makes the big bankers bigger, just hastens the ICBA’s demise—sooner rather than later--as large bank acquisition targets or neutered non-competitors. 

Again, there is a solid reason why the little banks also showed concerns over rules easing the life of the larger institutions. 

Big fish eat minnows. 

Forget that lesson and perish!!

Rosner on a Twitter roll, calls out WSJ and Reporter John Carney. (And he still is seeking a debate forum with D. Stevens.) 

@WSJ Don't you have a pub affairs editor. Given @carney's inaccuracies & clear biases re GSEs, & ties to AEI shouldn't that be investigated? 



“The Hill” asks if Shelby’s bank regulatory relief bill is losing momentum.



Maloni, 6-22-2015


Monday, June 15, 2015

Musings on the Shelby GSE Preovisions


(So, when you finish some 1500 words of original prose, as I did on Sunday, and make your final edit, are supposed to hit “Save” on the WORD page? Why didn’t anyone tell me this before?)


When I Walk Point, am I a Scout or Sniper Bait?


I’ve always been a worrywart, never content with today’s success, always scanning ahead for the next trouble spot, or, when I ran Fannie GR operations, the next political challenge.

If I was/am fortunate enough to see the next headache early enough, I planned, strategized, and sought help to manage and, ideally, head off the problem and the more creative, he better.

I employed that skill professionally at Fannie, with great encouragement (and hoping I taught that skill to those who worked for me). It was one of the reasons Fannie was so successful when we lobbied, but also the source of lots of stories--some true, some apocryphal---about our lobbying intensity and pervasiveness. 

I remember one House Member, who revealed at a hearing that--earlier in the week--he contemplated introducing some anti-GSE legislation and told only those on the Hill closest to him.

After a harrowing day on the Hill, the very tired Congressman arrived home late. He and his wife had dinner and the guy quickly prepared for a good night’s sleep. It was then he reported to his colleagues, his wife asked him, “Why are you hassling Fannie Mae?”


Current Worries

I think the GSE community is paying too little attention to the GSE provisions in the bill shepherded through the SBC by Chairman Dick Shelby (R-Ala.), which features a few steaming piles courtesy of Bob Corker (R-Tenn.)--and likely his D partner in GSE crime--Mark Warner (D-Va.). 

Shelby's F&F proposals primarily would  alter the existing system. 

I called these “camel’s nose under tent” amendments or “stealth,” because—while they don’t end the enterprises-- they begin the weakening process and open F&F to easier takeover by competitors (a group some future Congress will better define). 

One change would bind the hands of any Administration—by limiting its use of the government’s GSE preferred and common stock ownership—in any recapitalization plan. Another forces the banks into the common securitization platform project, others andates more risk sharing (which both F&F already are doing), limits Admin use of GSE revenue for non-GSE uses (I like this one), and more. 

The remainder of the Shelby legislation—which passed the SBC on a straight 12-10 party line vote—contain popular regulatory relief provisions for small banks,  anti-Federal Reserve language giving some of the Fed regional bank presidents authority at the expense of the Washington Board of Governors, big bank holding company relief and other flotsam and jetsam.

Here is a section-by-section discussion of the Shelby bill, with all of the GSE statutory proposals in Section 7.

Nobody in Washington has spoken out against the Corker-Warner-Shelby GSE provisions, although the Admin and FHFA should. So should many of the trades which sit quietly convinced they don’t need to go on record, hoping that section of the bill dies?

GSE allies need to remind Senators that disassembling F&F can come one brick at a time and could be more successful than previous efforts which contemplated blowing them up over five years. 

The Democrats have put together their own “reg relief for small banks" bill to match the R’s, since Sen Sherrod Brown (D-Ohio) knows you can’t beat something with nothing.

They have no GSE provision of their own, but what could come out of negotiations is concerning because there are few overt GSE allies in the SBC, but several (Corker and Warner) who would reduce their F&F effectiveness, ASAP. 

Dick Shelby, who I repeat should never be underestimated, doesn’t construct legislation to get it jammed back in his face.


Last week, Shelby was asked about the progress of his banking bill and he smiled and said, “It’s just resting.”   

Shelby’s still raising prodigious money and now may have upwards of $20 Million in his campaign war chest. 

Corker may not be the most well liked Senator in the GOP Caucus, but he has some GSE momentum. 

Mr. Worrywart (that’s me) easily can see Senators, late in this session, seeking to look good, rallying around the small bank provisions, and going with the anti-GSE stuff, and whatever other bank and Fed language Shelby pack can roll in because they appear popular nobody cares to stop them. 

Maybe I just should stop this blog lobbying and take the direct route to power, invite Annette Shelby and Elizabeth Corker--wives of the Senators--to lunch and appeal to the real decision makers in those two congressional families.

(“Bobby, Richard, are you hassling Fannie Mae, again?)

That would be marital music to my ears. 

Forget the White House 

I don’t know what cards the Obama White House has to play in this game but years of ignoring he Hill are coming back to haunt this Admin here and elsewhere. Can you say inter-national trade.
The  limitation on using the GSE securities is designed to tie Obama's hands, but the WH  may not want to recapitalize F&F anyhow. It can’t welcome being told not to use GSE revenues for things other than GSE business; but then it might welcome fouling up F&F in other ways. 

Trevor Thompson on F&F and Minority Home Ownership

Last week, U Massachusetts Trevor Thompson issued a homeownership paper  pointing out how minorities will suffer if Fannie and Freddie are blown up by Congress. 

It’s a point which many of us have tried to preach to the White House and this President but which seems to fall on deaf ears because those closest to President Obama and maybe the man himself seem to believe that the big banks will do a better job for minority mortgage aspirations.
What a misread of history that view is!


The Hebrew Hammers knocks it out of the park.

David Fiderer produced an outstanding response to the Wash Post article by Steven Pearlstein.

Naturally, his piece is reflective of his longer Paulson tome ,headed for e-book publication in several weeks. Great work DF.


Judge Wheeler’s AIG Decision

Screwing up the blog production (my bad!), as I did, allowed me an extra day and the opportunity to see Judge Wheeler’s AIG decision.

Not moved. It’s like “kissing your sister.”
Wheeler middled it and kicked the judicial can down the road.
Yes, there were government takings but nobody deserves compensation. Perfect decision for appeals purposes.

I am sure all of the jailhouse lawyers and other ones who should be JHL’s will read tons into Wheeler’s call for and against the GSEs.
But, I still am waiting for a judicial decision which supports F&F; it will be the first one.  

The WSJ on Wheeler


What Others Are Saying 

The Leadership Council for Civil Right sent a lengthy letter to the White House, calling for a relaxation of the GSE conservatorship and arrangement whereby F&F shareholders would help boost low income lending activities. Some in DC saw it as a “trial balloon.”


This Admin doesn’t need the artifice--if it wanted to recapitalize F&F--which I don’t think is on its agenda anyway.



Josh Rosner’s excellent recent GSE presentation to the CATO group.



“Bro with no Ho!”

Who needs D naysayers when the GOP attacks their own?
Sen. Mark Kirk (R-Ill.) earned the Washington Post’s, “Worst Week in Washington”, award last week for his snarky comment about fellow Senate Republican Lindsey Graham, a presidential candidate.

BTW, many of my Republican friends don’t believe Sen. Graham (R-SC.) will stay in through the entire nomination GOP process. One reason is his realistic political interests revolve around his home state and not the presidency.


Just give these damn tropical storms numbers or name them after colors! I don't want that attention.





Maloni, 6-16-2015