Monday, July 27, 2015

GSEs get whacked in early legislative machinations



A Determined Chairman/Legislator;
Dick Shelby Doesn’t Play to Lose


Several blogs ago, after he just pushed a banking reform/GSE bill out of his committee on a straight party line vote-- when many people were quick to say his legislation couldn’t survive in the Senate--I warned readers not too underestimate the political and legislative acumen and savvy of SBC Chairman Dick Shelby (R-Ala.),

Guess, again, this past week Shelby merely added all of that SBC language to an appropriations bill funding the various federal regulators.

For the banks, his bill raises the bank asset size which triggers greater regulatory control on Systemically Important Financial Institutions (SIFI), from the current $51 Billion to $499 Billion. In the mix, he also threw some monkey wrenches into GSE operations for his buddy Sen. Bob Corker (R-Tenn.). 

Shelby is labeled “wily” for a reason. 

The same Senate has also decided to tap F&F as piggybanks to pay for their highway construction bill, but who knows where that will land in all of the wheeling and dealing with the House and Obama Administration. 

The GOP Congress loves to hate the GSEs but needs F&F to pay for their other policy foibles; ditto the White House. 

Short term, with the Shelby approach, banks and bad guys win again. Does any D Senator have the guts to stand up to “End Run” Shelby? 

And who, besides John Taylor, will help? (Taylor’s letter.)


Did Senate Just Keep F&F Alive For 4 More Years?


In another swat at the GSEs, the Senate last Wednesday night voted to use 10 basis points of Fannie and Freddie g-fee income to fund part of the Highway Bill.

So, the chamber with many GSE haters voted to keep the “golden geese” alive for four more years, because they keep on giving. Yet, the chamber’s actions had little to do with what is the best mortgage finance system for the nation, professionals in the industry, or the American consumer. They just needed a “pay for.” 

Bottom line, if unchanged, that means the GSEs are there to kick around for at least 48 more months. It also gives F&F supporters the same time to rally around their operational strength and possibly build a majority for recapitalizing the mortgage giants, thus removing the self-imposed GSE “Sword of Damocles” over the systems which the pols in both parties claim they want. 

But, after all the back and forth, who knows which of these anti-GSE provisions survive or wind up on the congressional cutting room floor, along with how much of F&F? 

The Washington Post editorialized against the Senate highway bill and its revenue sources—arguing for a gas tax and against cutting Fed bank fees--but could not bring itself to include the GSE fees in their complaint. So, predictable. 


It’s clear to me that the GSEs best hopes are in the myriad “HERA/Third Amendment” court cases, which seem to produce positive vibes each week, but no definitive win, yet, for plaintiffs against the government. Come on, federal judges, do your stuff. 


Kneecapping Candidate Hillary With F&F 

David Fiderer has been predicting for months that the GOP presidential attack campaign against Hillary Clinton—assuming she gets the D nomination—will include various allegations that Bill Clinton and other Democrats supported Fannie Mae and since the hard Right suggests the GSEs caused the 2008 financial meltdown, therefore Hillary is responsible.* 

Not surprisingly, this agenda leaps out of an editorial published July 20, in the Washington Times blaming F&F and—surprise!—ignoring the $2.7 Trillion in poorly underwritten and woefully rated “private label securities,” which Wall Street issued under their own corporate names and which failed at three times the level of GSE mortgage backed securities. 

The GOP also has and will blame the toothless Community Reinvestment Act (CRA) for forcing the “sniff, sniff,” poor TBTF and other banks to lend to those with low incomes or the otherwise unworthy. 

Bullshit, since none of that bank subprime garbage was extended to meet any regulatory goals. It was financial institution greed--shared by all of the designer participants-- plain and simple. 

Here what the Federal Reserve Board said about the CRA connection to the 2008 economic Armageddon.

With their own mortgage backed bonds, the banks, seeking huge revenue returns, thought they could do what F&F were doing but lacked—or chose not to develop--the GSE’s discipline, quality underwriting, due diligence, and guaranty strength and the bank mortgage bond failures prove that.

Where do the R’s think most of that “bank TARP” money went??

But, as the Washington Times displayed, those facts won’t stop GSE critics from distorting, falsifying, and twisting the truth about any Democrat, presidential candidate or not, who they attack. 

The sorry bank private label security (PLS) history cannot be buried from public view.

That story needs repeated and amplified often enough–making it more visible so voters better know the role the big financial institutions played leading up to the 2008 disaster.

As Fiderer often laments, once people consider the Right’s “Big Lie”--which blames the GSEs--they never drop it, no matter how overwhelming the contrary reality.  

(*But---------One long time GSE observer argues that the GOP’s plans to assail presidential candidate HRC, using F&F as a bludgeon, is the main reason President Obama will order a recapitalization of the two before this year ends, so she doesn’t have to fight this fight next year.

It’s an argument I understand, but—if he did--it would be an uncharacteristic dose of BHO realpolitik. And, Obama just may not play his part and do what makes great practical and political sense for Hillary, his party, and the nation’s home buying consumers.)


Jeb Hensarling on 5th Anniversary of Dodd-Frank


House Banking Committee Chairman Jeb Hensarling (R-Tex.) offered these banalities on the fifth anniversary of the Dodd-Frank legislation, which banks strongly opposed, watered down in Congress, and then sought to neuter during the regulatory process.

Really, Jeb?? Dodd-Frank caused banks to suddenly charge for checking accounts? Why?

Banks have all enjoyed very healthy earnings since D-F became law, still have engaged in unsavory and illegal acts, and certainly—if they wanted—can afford to offer customers free checking (as well as umbrellas, coffee pots, or other tchotchkes).

Chairman Hensarling, do you think the financial institutions may be using D-F regulation as an excuse to jack up prices on their products and services and cut back on any customer bennies?? It’s hardly beneath them, as they’ve proved, little is.

In his remarks, Hensarling rails at big banks but most of the legislation he champions hugely favors them and he still takes their campaign contributions. That makes his comments Texas-sized “bull pucky!” (Hensarling emotes....!) 

“Since Dodd-Frank, the big banks have gotten bigger and the small banks are now fewer.  Today there are fewer community banks and credit unions serving the needs of small businesses and families.  Local financial institutions tell us they can’t keep up with the sheer weight, volume and complexity of Dodd-Frank’s regulations.  In fact, because of Dodd-Frank, we’re losing on average one community financial institution per day.  It’s no wonder that small business deaths outnumber small business births for the first time in 35 years.
It is also now more expensive for American companies to raise working capital that’s needed to grow and create jobs.

Services that we all once took for granted – like free checking – are being curtailed or eliminated because of Dodd-Frank.  Before, 75 percent of banks offered free checking.  Just two years after Dodd-Frank became law that number was cut almost in half.”

Dodd-Frank became law five years ago and then it took a while for his regulations to be issued, most of which the banks fought. But, through this year, I count 157 bank failures since 2011, as the chart below clearly shows.

Um, er, sir, Mr. Hensarling, that’s hardly one per 1835 days. I suspect to puff up your number and inflate your rhetoric you are trying to count the 192 banks which failed in 2010; but virtually all of those were history or soon to be, when the Congress passed the Dodd-Frank legislation. No fair distorting, JH.


Jeb also ranted about the GSEs but his only legislation on the topic was to totally do away with F&F and let the TBTF banks control the primary and secondary mortgage markets. 

I guess he has forgotten or sublimated the sorry PLS history of 7 years ago.
I’m sure it’s never occurred to him that maybe Fannie and Freddie are needed to balance the banks’ strength and inclination to cut corners with regard to mortgage lending, which—absent the GSEs—would be very consumer unfriendly. But, I forgot, Jeb opposed the Consumer Finance Protection Board.


And Now There Are Sixteen, With Kasich 

I wonder which bottom six won’t make the GOP debates, assuming nobody else decides to throw his hat into the ring. 

My memories of John Kasich, then Chairman of the House Budget Committee when Fannie lobbied him, all are negative. Wasn’t interested in what and where we did anything and was a regular irritant. 

I remember just going around him, working with House GOP leadership. 

I asked in last week’s blog, who might be the 10 GOP candidates in the first debate in August (two months from now)? Here the Washington Post takes a stab at who those might be.

What Others Are Saying

Harlan Green in Huff Post rooting for F&F plaintiffs.


Friend Bethany McLean gets it right in her 7-20 NYT op ed.

(I also like the number of commenters who seem to have grasped that many in Congress and government have been distorting the post 2008 GSE reality. Her new book--out in September--is well done.)

Glen Bradford nails another one in his Seeking Alpha article. 


Who is backing ($$$) which presidential candidates? 


Tweet from Politico’s Jon Prior, following remarks from SBC ranking member Sen. Sherrod Brown (D-Ohio). (Guess he wasn’t watching Shelby in Appropriations.)

Sen. Brown says 'bridge too far' on Fannie, Freddie reform, still pushing talks for community bank reg relief  


Major trade groups opposes using F&F G-fee revenue for other federal program costs, because it gores their ox, but you’ll see no letter about Shelby’s anti-GSE legislation used as an amendment in the Appropriations committee.


Trump Has GOP’s “Number”, Says E.J. Dionne 


Third Party Trump, Third Party Trump, Third ….

Show those country club Republicans, Donald!


Oh--wee, Let’s watch them R’s Fight


Alexandria Petri identifies kindergarten bully behavior. 

This NYRT column is a desirable “yardstick” against which we should measure all candidates for federal office, especially presidential competitors, whether Democrat or Republican. Do they have vision? 



Maloni, 7-27-2015


Bill Maloni said...

Hill may back off G-fee pay fors.

From Poltico.

7/27/15 5:05 PM EDT
Senate leaders appear to be backing off a proposal to extend higher mortgage fees Fannie Mae and Freddie Mac charge as part of a long-term package to extend funding for the highway bill.

House leadership is souring on the bill in favor of a shorter-term package that would not carry the controversial offset. But Senate Majority Leader Mitch McConnell filed an amendment over the weekend that would have struck the proposal to delay a 10 basis point reduction of the Fannie and Freddie fees by four years, according to a Senate aide. The $1.9 billion in savings would have been used to offset some of the bill's cost.

Housing groups and some members of Congress aligned against the proposal out of concern it would unfairly lead to higher fees for home buyers. Opponents also said the plan would complicate the potential for compromise on how to take Fannie and Freddie off government support if unrelated programs depended on them as a source for funding.

Senate Banking Committee top Democrat Sherrod Brown had offered a similar amendment to the highway bill. Sens. Mark Warner and Mike Crapo had planned to raise a point of order too claiming the proposal would have conflicted with a resolution lawmakers agreed to earlier in the year not to count Fannie and Freddie fees as an offset to funding for other purposes.

— Jon Prior

Bill Maloni said...

Earlier today, former D Treasury official, Jim Millstein--who has advocated for keeping F&F around but in a different operational mode--corrected something I had reported in the blog and touched on above--what using the GSE revenue means.

Here is what Jim wrote:

"The highway trust fund 'pay for' of 10 bps of the Gfees actually is a four year extension of the existing 10 bps pay for that was enacted in 2011 to pay for a two month extension of the payroll tax holiday. That was a ten year pay for period. (10 bps over ten years generated enough cash to pay for two month holiday on the employee portion of the payroll tax). The new one for highways just extends by four years that original ten year period, now out to 2025. So, F & F will be with us for another ten years or Congress will have to find a couple more 'pay fors' to kill them."

The one addition I will offer is, Jim's description becomes fact, if the F&F G-fee revenue is employed by any other congressional sponsor to pay for any part of the Highway bill or any other legislation.

G. Buckman said...

Bill, thanks for the insight and the Millstein info also, I've always liked him. You were right on the mark about Shelby, unfortunately.

Have you heard any rumblings from FnF-land on Royce's "salary cut" bill (H.R.2243)? Do you think this a planned game between Watt and congress? If/when it passes, could/would Watt say screw you guys and release from c-ship? I know it's highly unlikely, but I guy can dream I guess. ;-)

If it passes, do you see a mass exodus from FnF management?


Bill Maloni said...

G--You tipped my target "plan" for the pay raises.

F&F never will win (meaning get their comp increased) with this Congress. It has to be done through fiat (regulation) or it won't get done at all.

I have no idea if the amount Watt chose is the right number (seems a lit high to me), but that's not the issue.

Like it or not the top managements of F&F are overseeing $5 Trillion in financial assets and should have the best minds/talent they can attract.

But, tactically, I would line up a half dozen officials in each company willing to walk--and announce such in advance--if the $260K (?) cap is applied to them.

Royce seems to think that whatever "old Tom and old Betty" down at the corner S&L make is a fine pay standard to apply to the F&F financial rocker scientists.

It isn't.

Posturing political rhetoric and if the President undercuts Watt, the Mel should consider turning in his agency door key, too.

Obama is a very long shot to release and recap. It's not in his DNA.

So just hope the courts do the right thing and blow up some of the HERA/3rd Amendment decisions set the tone for the enxdt Ad,ministration.

Anonymous said...

Why would Watt resign if undercut by the WH?

He has the ability to bring in the courts and challenge the 3rd himself as well as the full PSPAs. It was a prior conservator who signed them. HERA provides for that exception to judicial review. As for Congress, I do not think they will care one bit if half a dozen executives resign from FF. They understand mediocrity as if it were running through their veins. They may actually love to have new, underpaid employees in FF that for all practical purposes may resemble federal ones.

Bill Maloni said...

Anon--Pique, ego, pissed off; his Boss joined Royce and the GOP Congress against Watt's compensation judgment.

Those are a few reasons, although they might seem childish, it's how people operate in DC.

If Tim M walks, as has been rumored,it makes Watt's job harder.

There still is a lot of real work and active management operating the remaining portfolio business and the securities side, where all of the new activity has been.

It doesn't run on remote control and you need people with skills and good market judgment making those decisions.

It's not an ideal work environment, if you get scolded and second guessed all of the time, and Congress--which doesn't understand one twentieth of the GSE's business constantly talks about doing away with you.

When the comp story broke yesterday, there were no comments by FHFA, F or F.

Paul Tashner said...

Bill, thanks for another fine summary. With all the DC rhetoric, squabbles, debates over executive compensation, backdoor taxing GSEs, etc, I thought it timely to link Congressional approval ratings. GSEs are profitable while Congress can't balance a budget and have us 19-100 Trillion in debt depending on whether you count net future liabilities not recognized... Well with 17% approval and 78% disapproval these folks should be looking pronto for their next juicy job on Wall Street. Here's what Gallup shows.

Bill Maloni said...

Paul--Thanks. Yes, it's an old story and to make it even more dreary, most people like their Congressperson but not Congress.

It used to be that the public liked/respected their local garbage man more than their federal officials. Of course that's because the garbage men do something.

Anonymous said...

Really is too bad that David is not releasing his e-book

Bill Maloni said...

"Yet" is the operable word.

I believe he has been furiously re=writing and editing his 20,000 words.

I know what I go through with far less and he is a perfectionist.

So, it will come out when he is ready, but I feel very confident that it will come out.

David has put too much into it, not to publish something this important.