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.)
“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.)
http://www.ft.com/intl/cms/s/0/45a86570-1441-11e5-ad6e-00144feabdc0.html#axzz3dR5aAHaC
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!
https://www.youtube.com/watch?v=h9Xu6rMMACA
____________
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.
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.)
http://thehill.com/homenews/administration/4163-bright-line-proposal-stirs-debate-on-gse-reform
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
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