Monday, August 31, 2015

WH and Other Odds and Ends

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)
@DavidHStevens @MBAMortgage So if you were on Senate Banking Committee, you would have voted against J/C?

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.

Presidential corner

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
Gretchen in NYT: SEC to Citigroup: Who done it? “It wasn’t you, it wasn’t me, must be the fellow behind the tree.” (With apologies to the late Senator Russell Long (D-La.).

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?

Panda Corner

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

Maloni, 8-31-2015


G. Buckman said...

Bill, I haven't had a chance to comment as much lately as I was recently traveling out west, but I wanted to say good stuff as always and thank you for your continued efforts.

And, please continue to update with any new DC rumblings you might hear surrounding the WH legal look into the FnF cases.

Thanks again,

PS...Go Steelers! Any thoughts on the Vick signing? Seems many in Steeler Nation are not very thrilled.

Bill Maloni said...

G-thank you for your reading/support.

I will because it either is nothing, i.e. bureaucratic and mundane, or something signalling a change.


Vick was a god signing, considering they needed a back up QB.

But, the Steelers problems are on the other side of the ball; they have a crappy D and too few playmakers to dramatically change that.

I also think their GM (and head coach) have done a poor job of drafting for the past three years, making "dud" high choices.

Anonymous said...

Bill, thank you for sharing your thoughts and observations with the rest of us. I was wondering if you have any news regarding the book David Fiederer is writing. I know you mentioned a few blogs ago that you will not pressure him on the topic but we would appreciate if you have an update. Thank you.

Bill Maloni said...

Anon--Very fair question since I touted my reading of his early galleys and endorsed his entire project--which I still do and believe people will enjoy reading it--and the only thing I can tell you is, as recently as today, I encouraged him to publish it soon before Congress gets back and all the GSE oxygen gets sucked away by Iran or other F&F issues.

As I may have noted, he is responsible for older family members and has to meet other demands beyond his book. For those of you who "Tweet," he's been active there on GSE matters.

About six weeks ago, he went into major rewrite mode for reasons known only to him and produced some fine revised passages, which he gave me to read and said he was acquiring a professional editor.

Beyond that, I can't answer your question any better. He reads the blog so maybe he'll offer a more definitive answer.

G. Buckman said...

Hey Bill,

This info just popped up and I was wondering if you had access to Politico Pro. Thought you might, but wasn't sure....

Jon Prior ‏@JonAPrior · 1h1 hour ago
A new, possibly bipartisan bill being drafted in the House would recapitalize Fannie and Freddie, per sources

Jon Prior ‏@JonAPrior · 1h1 hour ago
Long road to being taken up, let alone becoming law as housing reform's pretty much off the table this Congress. More of a marker.

Jon Prior ‏@JonAPrior Rep. Mulvaney driving it, potentially getting Dem support by filling affordable housing funds, lots of technical hoops to jump through yet

Again, any insight you might have would be greatly appreiciated!


Bill Maloni said...

G--Thanks, I do, but as several commenters already noted--this is positive--but not a game changer for this Congress.

However, any manifestation of support for recap and continued market operation is a welcome sign.

Think early interest and support for the original Capuano (D-Mass) legislation?

G. Buckman said...

Thanks Bill. Most don't have access to Politico Pro, including myself, so I didn't know if there were any specific details of importance in the article.

It is nice to see more talk of GSE recap for sure.


Bill Maloni said...

I'm two thirds done with next week's blog and in it, I make your point, the more people talk the more sources will emerge and--if there is anything happening "behind the scenes"--it will come out sooner.

At worst, we all are left with the legal status quo, still in search of a "hero" federal or state (Delaware) court/judge.

Bill Maloni said...

G--Send me an email and I'll get you the Prior article or get it from Mr F, to whom I sent it.

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