End of August “Cats and Dogs”
I don’t Tweet, as I’ve often said, and am not really sure of how people connect and maintain “Tweetosphere” connections.
What happens for me, as occurred this past Friday, is people send me copies of others’ Tweets and responses.
Wall Street Journal reporter Joe Light tweeted the MBA’s David Stevens, about whom I wrote last week when Stevens suddenly (in my view) came out supporting Fannie and Freddie retention and recapitalization.
I expressed my blog doubt about Stevens veracity because the he and MBA had been so adamant about support this Administration and various Senate legislative vehicles, first Corker (R-Tenn.)—Warner (D-Va.) and later Johnson (D-SD.)--Crapo (R-Idaho) all of which would have blown up F&F, substituting a new mortgage system—likely controlled by the nation’s largest banks—but using the GSEs as an interim support system host until the new beast could come on line.
Light asked Stevens the following “pass/fail” question.
Joe Light (@joelight)
Joe or somebody, let us know when David Stevens answers and then ask David if he will debate Josh Rosner?
Why the White House Counsel Got Involved in the GSE Cases?
As most people know, about 10 days ago, the White House Counsel’s office requested access—via the US Court of Federal Claims (Judge Margaret Sweeney)—to documents filed by the defendants in the Fairholme vs U.S. case. Plaintiffs did not object to giving the WH access to the information, some of which has been labeled by the DoJ or Treasury as “privileged.”
"Pursuant to paragraph 7 of this Court’s Amended Protective Order dated July 29, 2015 (ECF No. 217), defendant, the United States, respectfully requests that Jennifer O’Connor, James Walsh, and Allison Murphy be permitted access to information protected by the Protective Order. All of the applicants are attorneys representing the United States within the meaning of Paragraph 4 of the Protective Order, and work in the Office of the White House Counsel. Counsel for the United States has consulted with counsel for plaintiffs, Fairholme Funds, Inc., et al. (Fairholme), who has indicated that Fairholme does not oppose these applications for access to protected information."
Why the WH sought this info remains an outstanding question and there have no official explanations, just a lot of guesses and hopes (mainly by plaintiff interests that the action reflects some pending maneuver by the government to reach an accommodation).
I’ve heard many of the guesses, i.e. the WH always gets involved when the president’s name is mentioned; probably didn’t realize how much Treasury and DoJ screwed up and the WH might need to bail the Admin out; WH needs to know what’s been said before it seeks accommodation; appeals court suggested the WH consider arbitration, which requires understanding the messy legal terrain agencies created: this is SOP at some point in any judicial hearing involving the federal government.
I’ve also two things on this matter: if something dramatic is brewing behind the scenes, we’ll all soon know because there are very few “domestic policy” secrets in DC; since I am a cynic and don’t believe in miracles or Leprechaun pots of gold, I suspect the true reason is somewhat mundane, pedestrian, likely bureaucratic and non-thrilling.
That doesn’t mean the courts won’t find for the plaintiffs, but I think it still will be a lot of slogging.
Bethany McLean’s Latest GSE Book
This is not a review of Bethany Mclean’s latest GSE book, “On Shaky Ground, the Strange Saga of the U.S. Mortgage Giants,” because I am not allowed to do that until after her book officially comes out.
But, having read it and spoken with the author, who will be starting a book tour (she’ll be in DC in a few weeks), I will highlight out two salient facts.
Ms. McLean is supportive of the Fannie and Freddie going forward operationally and believes they are a necessity in the mortgage market to balance the large commercial banks mammoth market power.
Also coming this week on F&F….
On September 4, Judge Margaret Sweeney will conduct a “status conference” and I am sure it will cause much early consternation—since it is closed to the public—but that won’t stop stories/developments from post facto discussion.
What Others Are Saying
Fannie & Freddie Corner
Investor’s Business Daily (IBD) editorially dumps on FHFA new GSE housing goals
Center for American Progress says “Good job Fannie.”
The “Right” weighs in against F&F recap
Dick Bove—on CNBC--why the WH’s is interested?
Bloomberg, quoting WSJ’s Joe Light, says WH GSE interest is SOP
Pershing Square Shareholders letter from Bill Ackman
Fannie Mae / Federal National Mortgage Assn Fannie Mae (OTCBB:FNMA) (FNMA) / Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) (FMCC)
Fannie and Freddie reported another strong quarter. These results further corroborate our thesis that both entities could recapitalize and safely exit conservatorship if the Net Worth Sweep (the U.S. Government’s expropriation of each quarter’s net worth by extraordinary dividends) is eliminated. During the quarter, there were a number of positive legal developments in the shareholder litigation against the U.S. Government expropriation.
In the D.C. Court of Appeals, the plaintiffs filed a strong appeal brief against the decision last September dismissing their claims that the Net Worth Sweep violated applicable statutory restrictions. Numerous amici (friends of the court) briefs were filed in support of the plaintiffs, two of which are worth highlighting.
One came from several parties including the Independent Community Bankers of America and William Isaacs, the former FDIC Chairman, who during his career personally oversaw the conservatorship or receivership of hundreds of banks during the S&L crisis. The brief argues that Fannie and Freddie’s conservatorships were modeled word-for-word on FDIC conservatorships, and that the Net Worth Sweep is both unprecedented and inconsistent with the goals of conservatorship as understood and implemented for over 80 years. If allowed to stand, the brief argues, the Net Worth Sweep will cause providers of capital to financial institutions to question whether the rule of law and the established hierarchy of corporate claims can be preserved in conservatorship. Banks rely on low-cost debt and preferred stock financing in order to provide low-cost loans to consumers. If the courts allow assets of a private financial institution to be expropriated during conservatorship, there will be few if any lenders willing to provide financing to financial institutions, particularly during a time of stress.
In his amicus brief, former Fannie Mae CFO Tim Howard offered an accounting-based analysis that questioned the necessity and motives behind the Net Worth Sweep. During conservatorship, the FHFA changed the GSEs accounting policies, accelerating non-cash charges, generating paper losses, and leading to a substantial majority of the Treasury’s $190 billion preferred stock investment. From 2008 to 2011, Mr. Howard shows, the GSEs’ actual credit losses were exceeded by their cash profits, while the non-cash charges that necessitated the capital injections have largely been reversed, leading the Treasury to “sweep” away almost all of the GSEs’ capital since 2012.
In the Court of Federal Claims, plaintiffs have filed redacted documents that suggest that their discovery process has uncovered evidence that contradicts the government’s defense of the Net Worth Sweep and calls into question both its necessity and true purpose. Although these documents are filed under seal, Judge Sweeney has allowed them to be used in related cases in the District Court and Court of Appeals.
“Rule of Law Guy,” writing in Seeking Alpha; Please read this excellent explanation of some of the nuances in the court cases and the plaintiffs’ arguments and amici briefs. After page 1, there is a free sign-up to continue to read this analysis.
Trump and Fox’s Ailes, Kiss and Make-up, again…..
Read: Trump versus Bush is a Family Soap Opera
Troubling Signs for Jeb??
John Podesta on possible Biden run.
Gov. Walker is a “crony capitalist”
Big Bank Screw Up Corner
New England Judge looks under Royal Bank of Scotland’s kilt, F&F lawsuit won’t be dismissed
Iran Deal Corner
CNN—What are the Iranians Building at Parchin Site??
Bull Pucky Corner
I’ll willingly sign it, but will HBC Chairman Jeb Hensarling (R-Tex.) or presidential candidate Sen. Ted Cruz (R-Tex.) secession petition?
Someone should ask them?
Washingtonians have been mesmerized for the past two weeks about the stories of the impending Panda Mommy’s birth, and her delivery of twins, one of which—the smaller of the two—unfortunately didn’t survive.
Alexandra Petri, a regular Washington Post columnist, who often pens fringy, offbeat, sometimes humorous op-eds on sensitive issues, found something in this saga worth noting.
Good GSE info site