Monday, November 9, 2015

No-nothings, Watt (knows some things), Corker (oh, oh), and marbles

Fannie/Freddie Earnings and Corker Pratfall;

Pols Better Off with “Woulda, Shoulda, Coulda”

Except from those who know enough about the issue to parse it and put it in context—see Mel Watt’s statement among the F&F links, below--the hubbub over Freddie’s bookkeeping loss and Fannie’s smaller than normal profits has drawn mainly negative attention.

Wrongheaded example #1

WASHINGTON, D.C. – Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, issued the following statement after Freddie Mac posted a third quarter loss of nearly half a billion dollars:

“We’re back to business as usual at mortgage giant Freddie Mac. Its third quarter losses are a harsh reminder of the not so distant past where its monumental failures cost hardworking American taxpayers untold billions of dollars. It’s not fair to expose American families to Fannie and Freddie’s liabilities, and it’s not fair to reward executives at these government-sponsored enterprises with huge salaries while taxpayers are on the hook for more bailouts. We need to stop the bailouts and limit executive pay as long as Fannie and Freddie’s misguided leadership continues to cost Americans money.”

Garret woulda have been better off had he said it’s important to realize that Freddie has been doing just the type of low risk business we need them to do, but this Third Quarter business report is the result of an accounting matter, not misguided business efforts.

Wrongheaded Example #2

Fannie, Freddie Losses are the Warning Shots of a Return to a Pre-Crisis Model
Washington, Nov 3, U.S. Representative Ed Royce (R-Calif.), a senior member of the House Financial Services Committee, released the following statement in reaction to third quarter losses reported by Freddie Mac earlier today:

“Losses like this combined with multimillion dollar CEO salaries at the GSEs are the warning shots of a return to the pre-crisis model of private gains and public losses that wrecked the economy. We can't simply put the blinders on and say that Fannie and Freddie are just like other companies when taxpayers are on the hook if they go in the red."

Royce shoulda said, “I’ve opposed paying the CEOs more, but they are in a tough spot since no matter how well they run their operations none of their profits can ever wind up as capital, which means people have to understand that unique issue and Congress or the Admin should change that process.

I started out calling these “jackass statements,” but decided I didn’t want to malign the poor animals. In each instance the elected public officials had an opportunity to explain what really happened with Freddie (or maybe an enlightening overall picture of the GSEs and their capital predicament), but all three opted to go low road and issue some threat or faulty allegation.

Just couldn’t bring themselves to suggest Freddie’s tiny, relatively speaking losses, were not a return to  pre-2008 mismanagement, but an accounting anomaly, which likely will turn itself around within 6 months, if rates go up as many people believe will happen.

But all three of these sorry public officials support the screwy arrangement where neither Fannie nor Freddie are permitted to hold onto their earnings—beyond a minimal amount—to build protective capital.

Again, the only companies in the nation which are treated that way. Why?

In just three years, they have paid back to the Treasury over $240 Billion plus or $55 Billion more than they were given but because they can’t keep it for protection against losses, they are screwed.

I know I am preaching to the choir, but occasionally an apostate reads me and maybe I can reach him or her.

Wrongheaded Example #3

WASHINGTON – U.S. Senator Bob Corker (R-Tenn.), a member of the Senate Banking Committee, today released the following statement regarding government-sponsored enterprise Freddie Mac reporting a $475 million loss in the third quarter and the Federal Housing Finance Agency’s (FHFA) efforts to de-risk these entities.
“Today’s announcement by Freddie Mac is yet another reminder that our government-sponsored mortgage enterprises continue to put American taxpayers at risk,” said Corker. “While Congress must act to protect taxpayers by reforming our nation’s housing finance system, I commend Director Watt and the FHFA for taking steps in the meantime to de-risk these behemoth duopolies and hope the agency will accelerate the process.”

Freddie’s Loss, Fannie’s earnings and Corker’s Stumble
I guess Sen/ Bob Corker (R-Tenn.) was so busy giving others stock advice when he told CNBC’s Rick Santelli a few weeks ago  that investors should “short Fannie and Freddie,” he forgot to file his own required stock transactions history with the Senate.

Hey, it’s tough, as you millionaires reading this know. It’s amazing how some of those seven figure deals can just slip your mind—as the Wall Street Journal’s Brody Mullins  reports happened with Sen. Corker. But, look how quickly Senator Corker remembered them—once the nation's primary business newspaper gigged him--and had his staff comply with the rules.

If he hadn’t so quickly cleaned up that record, once Mullins and the Journal looked into it, someone might think the Senator wanted to avoid calling attention to those trades and that little Tennessee company which facilitated them.

Piling on? Nope, not in the least!

Here's Corker's back home newspaper.

All of this prompted a nice blog report from a regular GSE commentator, Ron Begala Swanson,who produced these graphics—from publicly available material--comparing Banking Committee Senators reported stock transactions. It does seem to raise some questions about Senator Corker’s trading activities vis-à-vis his SBC colleagues, but that alone doesn’t raise any questions, right, right?

But what if some of those trades involved companies which regularly appear before the SBC and/or lobby the Senators?


What Others Are Saying

Only 8 in the next “Adult” GOP Debate; Christie and Huck get pushed to the earlier "kids" forum.


Presidential Corner

GOP Says, “We Trust Trump!”


Fannie and Freddie Corner

FHFA’S Mel Watt statement on Freddie Earnings:

“Freddie Mac’s strong business results in the 3rd quarter were more than offset by losses associated with managing the company’s interest rate risks.  This resulted in an overall quarterly loss that was not due to a decline in credit quality or an increase in credit related losses.  Freddie Mac’s financial disclosures have consistently highlighted how accounting rules and changes in interest rates could negatively affect their quarterly earnings.  Freddie Mac continues to fulfill its obligations to support the housing finance market and provide liquidity and access to mortgage credit.  However, as both Enterprises continue to reduce their retained portfolios and transfer credit risk away from the taxpayers to the private sector, these activities will also reduce their revenues.  Volatility in interest rates coupled with a capital buffer that will decline to zero in 2018 under the terms of the Senior Preferred Stock Purchase Agreements with Treasury will likely make both Enterprises increasingly susceptible to the possibility of quarterly losses that could result in draws going forward.”

Dick Bove, a Long Haul

Bank Corner

Fed Make Banks Write “Wills”

Jamie Dimon: “And to my dear lundsman Bill Maloni, I leave my home in London, the condo in Palm Beach, my Shelby Mustang, and $7 million in cash, $15 million in bearer ……!” Oh, it’s not that kind of will??


NY Fed Chief Calls for Bank Culture Improvements

GOP Bank Butt Kissers, Again 

(Needed federal revenue: “Don’t get you, don’t get me, let’s get the guy behind the tree.”)

Let’s Violate Some More US Banks Rules;
There is lots of Money in the Middle East

General Politics Corner

Will and O’Reilly; Let’s Watch Them Fight!!


Fannie Angle in Will-O'Reilly fight

I don’t know enough or care about the George Will-Bill O’Reilly President Reagan spat (see above), but Will’s response in Sunday’s Washington Post included him protecting former California Republican Congressman and later head of the SEC, Chris Cox, from an O’Reilly barb that at the SEC Chris Cox, “presided over the mortgage debacle that collapsed the economy in 2007,” saying O’Reilly’s comment was “simply weird!”

Was it?

After all, it was agency head Cox and his chief accountant, Donald Nicolaisen who placed the SEC’s seal of approval on the bogus OFHEO’s 2004 claim that senior Fannie executives engaged in “securities fraud,” a lie which stood for 8 years before a federal judge obliterated the allegation in his rulings.
Years later, Nicolaisen backed off his certitude and belief Fannie failed to comply with relevant accounting standards, but that was too late to stop the erroneous rush to judgment on the individuals and the resulting bank driven Private Label Security subprime stampede, seeking to fill the GSE vacuum.

But, in rubber stamping that original spurious OFHEO tale, 12 years ago, I believe--with his 2004 complicity--Cox did have his fingerprints all over the coming mortgage debacle and the subprime mess the nation’s major banks and investment banks produced when they sought to take advantage of the GSEs weakened state.

Ergo, on Cox, O’Reilly is correct.

Humor Corner

1. The sport of choice for the urban poor is BASKETBALL.
2. The sport of choice for maintenance level employees is BOWLING.
3. The sport of choice for front-line workers is FOOTBALL.
4. The sport of choice for supervisors is BASEBALL.
5. The sport of choice for middle management is TENNIS. And . . .
6. The sport of choice for corporate executives and officers is GOLF.

THE AMAZING CONCLUSION: The higher you go in the corporate structure, the smaller your balls become. There must be a boat load of people in Washington playing marbles..

Maloni, 11-9-2015.


Anonymous said...

No comment on Friday night's Shapiro recap proposal, is it really that insignificant to you Bill?

Bill Maloni said...

Anon-I was asked this in the last blog, which I didn't see until Sunday night.

It's a good approach as any on recap and release, but I don't think it reflects some major schism between the President and the anti-GSE elements at Treasury (Lew, Stegman , and Weiss).

It only failed to make this week's blog, at least as a link, because I couldn't find a link which survived the "Notebook" editing process, which I use to vet live links or those that won't open up or translate. The one I had didn't make it.

But, more substantively, if we ignore the major, major opposition from "Treasury" and assume BHO is playing some sub rosa surprise, we need to remind ourselves the President doesn't/shouldn't need Treasury--or care what Jack Lew thinks--if he wants to use his executive authority to recap or recap and release the GSEs.

But, as I often noted, I could be wrong, what do you think?

Anonymous said...

Thanks Bill. I guess in a phrase I would say: I believe in a phrase I would say that the President would like to find a way to log a political win here and still hasn't settled on whether a sufficiently safe opportunity exists, but he is getting closer to finding it.

Bill Maloni said...

I hope you are dead-on correct; it's a much better way to go than t0 leave it for his successor or for the Congress.