Monday, December 4, 2017

Taxes, GSEs, and Other Rants

Things I am Thinking!!

Well, how do you like President Trump’s/the GOP’s evolving tax plan? Feel  joyous, a little queasy, or just plain screwed?

Do you appreciate how they reduced the taxes in both chambers for those who need it least? Do you like what the Administration insisted on, as far as gotta-give-to-the-rich policy and pace? 

Do you think the nation will be better off with billions and billions more in deficits, while taxpayers’ money flows out of the Treasury to the business community with largely BUBKIS going to people making less than $100,000? 

Get my drift, see where I am headed here? And that’s before you consider what social, healthcare, and other negative effects when President Trump feeds the cows and argues he's really feeding the crows (that’s you).

When this deficit bites, as it will, the R’s will move to cut Medicare, Social Security, and remaining federal healthcare and social programs. Because everything else that could be trimmed belongs to “their people.”

There was no urgency to pass tax changes, just the Trump ego needs. The Obama health care bill (ACA)—before it became law—bathed in sunlight for all to see and grasp and was available for the policy makers, media, press for over a year.

The ACA's advancement was far more consistent with the Constitution and what’s left of our system of government than what the conservative Congress and President produced. 

Big business will win right away, no surprise. I predict the rest of America-- when they grasp what their fate is under these changes--will be very unhappy and, hopefully, angry.

Although some conservatives will figure out a way to blame Barack Obama  for any voter unhappiness, you know, Shhhh, the first B---- President. 

75% of US taxpayers, shouldn’t expect much tax relief, unless you already are financially fat and wealthy. 

In our past, we’ve had massive business tax cuts before which never, never produced the capital investment, jobs, employment training, and new revenue for the Treasury, which this group of congressional R prevaricators and their “Amen Chorus” claim.

Will that historic behavior change this time, just because “the Donald” claims it will? And how will Trump Inc. emerge after all of these tax emoluments?

With this bill, the Grand Old Party removed their hooded masks and displayed their true nature. Avarice and gluttony, you are them!!

Like whipped dogs but well trained dogs, the GOP Congress offered up all the largess the moneyed interests bought from them.

Republicans in Congress should be ashamed and should be voted out as soon as they seek re-election.

I hope all of those Trump-voting lower income families in West Virginia, Ohio, Pennsylvania, Michigan, and Wisconsin due to get the  crumbs from this spread are watching closely.

Let’s Talk About Fannie and Freddie

The GSE community seems all a twitter over reports Mel Watt and Treasury Secretary Steve “Nooch” Mnuchin are discussing ways to allow Fannie and Freddie to keep some of their revenue and build capital before Jan. 1, when—by (bizarre) statute—they will have none.

Others are worried that the tax reform bill—which will go the White House for DJT’s signature—could have a deleterious accounting effect on the GSEs, if they have to write down some of their deferred assets, lessening the DTAs value and possibly producing some headline risk, i.e. “GSEs need more Uncle Sam help.”

Here are my simplistic political answers to those worries. (You should to turn to Tim Howard’s always excellent blog for the substantive and accounting explanations of these same matters.)

Despite the self-serving rumors about a new Senate "get rid of the GSEs" legislation with Fannie and Freddie being rolled up, I don’t believe the Congress is ready to take on the broader comprehensive GSE issue any time soon, no matter what the MBA, Milken, Michael Bright and David Stevens try and promote.

After screwing the American middle-class with their “beggar thy neighbor tax bill,” I doubt Trump and the GOP quickly will follow with a new scheme to drive up costs and disrupt the mortgage and real estate markets—giving total control to the nation’s biggest commercial banks--as we head into the mid-term election years?


Speaking of taxes, if the GOP Tax Conference limits/curtails the writing off of mortgage interest deductions (MID) and/or state and local tax deductions (SALT), will those public officials own up and admit to America’s current homeowners those two actions will result in loss of home equity for most when they sell their houses???

Will the major Washington building and real estate trade associations ever remind them of that?

Most people I know factor equity in their homes  when they measure their “net worth.”

If the Trump-Republican tax changes push down the appeal and price of that house, who incurs those losses? It’s the owner/seller?

Hello, Republican Congress are you listening and thinking about that impact on your homeowner constituent/voters??

Did anyone hear their Congressman/woman or Senator brag about that possible consequence when they touted and voted for this legislation, which sunsets the individual/family tax breaks category in five years , but makes permanent the corporate tax cuts which—only in part—are paid for by making the financial part of owning a house less friendly??

That’s why I had to laugh at Kellyanne “Conwoman” Conway the other day, when--likely violating the Hatch Act which bars government employees from engaging in overt politicking--told some Fox News listeners to oppose Democrat Doug Jones running for Senate next week in Alabama against Judge Roy Moore, who has been accused of being a child molester, using his influence and office to seduce several young woman under the age of 18, when Moore was in his 30’s.

But that didn’t stop Conway who proclaimed haughtily: Jones “will be a vote against tax cuts. He is weak on crime, weak on borders. He is strong on raising your taxes. He is terrible for property owners.”

Since you got your tax bill Kellyanne, does that mean Alabamans don’t need to vote for an accused child molester, who President Trump--in a familiar manic state--now will endorse?

Back to the GSEs and Capital

Allowing the GSEs to keep a bit of their 2017 revenue, say $2 Billion each for protective capital, just moves the corpus from the Treasury’s General Fund to Fannie’s and Freddie books—one federal cash drawer to another--not a big deal in an accounting or budget sense, but a risky political solution, while practical, may cause some ideological headaches for some in the GOP.

Mnuchin just has to assure his R posse that in supporting F&F capital creation, he’s solving a minor headache before it occurs, i.e. the GSEs may need to draw on Treasury for more cash assistance. (Having already sent the US Treasury some $265 Billion, about @$75 Billion more than they were given, Fannie and Freddie by law still have existing Treasury credit lines of  more than $200 Billion.)

Likewise, the Congress--in the dark when it passes legislation without agreed upon analysis of their massive tax changes (what Treasury or CBO should have done before the fact) will—in my humble opinion—do some artificial carve out so tax rule changes suddenly won’t  cause the GSEs to run to Treasury for cash. 

The legacy GSE “losses” legally carried forward to protect against future taxation were posted when Fannie’s and Freddie’s federal tax rates were 35%. Changes (like those in the competing tax bills) lowering the corporate tax number, would suck down the value in the GSEs remaining DTAs and possibly trigger a need for additional Treasury help.

Of course, my “solutions” both are logical and rational, two qualities we know don’t exist in great quantities in this Admin and Congress. 

Congress: Tax and Mortgage Finance Uninformed 

If you need any additional evidence of Congress’s GSE vacuity, as well as the above segment headline, just look at Michael Bright’s congressional testimony before the House Banking Committee last week—or more precisely some of his statements and the Committee R’s wooden/deaf/huh response.

Many of those congressional inquisitors—rushing to bless anything and anyone who can/will crap on the GSEs—showed all of the mortgage finance comprehension of a bag or rocks.

In fact, rocks may be smarter because they seldom babble showing their ignorance.

So, “Bright Mike” (sorry, couldn’t resist it) used buzz words and concepts his audience wouldn’t/couldn’t comprehend (often standard witness behavior) and spun his tall tales, getting out unscathed.

Anyone shocked he suggested greater activity by the Government National Mortgage Association *(Ginnie Mae)—which last time I checked represented the full faith and credit of the United States and is Bright’s current employer, also an agency he soon could lead—happily would take over more/all of the work Fannie and Freddie now do???

I think Bright suggested it might take him/Ginnie only five years to build up the talent or expertise to do so (which the GSEs now have), but he vowed he could do it.

Just  a mere 60 months of chaos, confusion, and uncertainty while Mike and Ginnie—with their big bank posse—significantly increase the government work force and help the nation get mortgage loans, which Fannie and Freddie do already with non-government loans???

Pub Cheers

I can hear “Dilly-Dilly” erupting from the Capitol Hill Republican Club, now. 

I’ll bet none of those congressional Mike Bright cheerleaders know—let alone remember—when for years after it was created from Fannie Mae’s government departure in 1970, the then private Fannie Mae acted as Ginnie Mae’s “back office,” with Fannie employees doing all the necessary mortgage work for the government on those FHA and VA loans.

Fannie still could do it today, more cheaply and efficiently.

Here’s another question aimed at the non-curious, non-inquisitive, and basically non-engaged members of Bright’s congressional audience last week. 

Do you realize, after telling you that he couldn’t answer your questions about “capital” (possibly the most significant element of designing a secondary mortgage market, since it’s the basis of how you price your services), he blithely endorsed exactly the same debilitating fixed capital ratio, i.e. 4%, that the large commercial banks have urged for the GSEs, despite that amount being several times higher than any risk based capital model—based on years of rich, public  investor history of how mortgages on their books performed in a variety of stress scenarios--and how much capital was required to protect them from losses. 

There is a cost to “capital” and the banks want to drive that cost high for any surviving GSE operation to make the F&F market presence uneconomical for borrowers, while their new federal bank subsidies make bank financing appear more competitive. 

Hey House Banking Committee members--home of Jed Hensarling (R-Tex) who wants to return to the 1920’s and get the federal government out of the housing market--did you understand what Bright, the Corker-Milken alum, was proposing and endorsing? 

He is seeking to put Uncle Sam more on the hook for the US mortgage market, which--I know you realize—is not what existed with pre-Conservatorship Fannie and Freddie, where private investor capital was at risk.

The Banks Are Not Worthy

Once again, I will repeat this and leave you with this refrain, and urge you to share it with you Washington Senators and House Members, if you agree? 

The US commercial banks have paid more than $230 Billion in federal regulatory fines, since the 2008* financial debacle which had bank-DNA all over it, far more than anything Fannie and Freddie did. (Uncle Sam even bailed out the banks with almost three times taxpayers’ funds than Treasury put into the GSEs, but gave Fannie and Freddie far harsher repayment schemes. Under the Housing and Economic Recovery Act of 2008, the GSEs can never reduce their government, no matter how much and how fast they pay Treasury. 

(*Source: 2016 report from Boston Consulting Group, thanks NF.)

Whether it is Too Big to Fail commercial behemoths attacking the remaining tougher regulatory remnants of Dodd-Frank, which the banks have tried to scuttle ever since Congress passed it, or attacking the Consumer Financial Protection Bureau, which they and their GOP allies all but shuttered last week, the big banks are not worthy stewards of the nation's mortgage markets. Despite the industry's rhetoric and advertising, they don't care about consumer protection or advocacy.

The Mortgage Bankers Association and other big financial groups seek reduced financial regulatory controls,  the opposite of  what American families want when seeking fair treatment and well structured mortgage loans.

Check out their position papers and the regulatory records and see large banks invariably oppose anything useful to America’s consumers and anything which might put the regulatory brakes on those sometimes rapacious industries.

Maloni, 12-4-2017


G. Buckman said...

Bill, thanks for your thoughts on the current GSE issues. I'm sure many feel the same as me and are glad to see the blog on a more regular basis, as it's always informative and equally entertaining!

Bill Maloni said...

Thanks, friend.

It took MrF two tries--after I failed--to get the cartoon into the layout.

But, I am building myself up for this evening Penguins-Rangers game and then the Steelers Bengals football.

I've asked my wife to hold off sharing our daily "six words between ourselevs" exchange until about midnight.

Anonymous said...

Anytime our taxes are reduced, it's great. For everyone that "pays" taxes. It's possible you don't understand business tax/deprecation and how it spurs investment.

Bill, do you know any self made wealthy people? I do. And I know what each and every one of them do with their money. They invest, create, take risk and buy stuff. One person said the rich folk only buy expensive cars, boats and houses. I say who is building them?

Are you even remotely serious about "billions and billions" of new deficits when the last guy created $10 TRILLION in new debt? BTW, BHO is not really black like Supreme Court Justice Clarence Thomas. Shame? Shame on you for that BS. The only racism is Liberals against truth who have enslaved minorities for decades for their vote but nothing in return. Take a ride to Selma and see what the liberal Democratic Party has done for those people. Or Detroit. Or Cleveland. The list is endless. Wherever there is long term liberal control there is property, unemployment and crime.

The Housing and Economic Recovery Act of 2008, the GSEs can never reduce their government, no matter how much and how fast they pay Treasury. Who owns this Bill? Neither Party's innocent but if you throw darts then you should write facts. The Democrats own it lock, stock and barrel. More and more you are moving away from facts.

Anonymous said...

Anyone accused of any crime should be Procecuted to the fullest extent of the Law. But, our great Constitution says we are innocent until PROVEN guilty by a jury of our peers. Not CNN, NBC, ABS, MSNBC, NYT. or any other pundits.
No outcry from you on the SF murder trial. Or Matt Lauer, Geradlo Rivera, etc., etc., etc. if these news organizations didn't get caught red handed being dishonest and were believable, Judge Moore woukd be toast in the election. But clearly, the people don't trust or believe them.

Bill Maloni said...

Anon--Hey, glad I gave you something to work yourself up over.

So, I guess I should list you as "very happy" over the tax bill, Judge Moore (?), new campaign spending by religious organizations, whatever else was in these sorry tax packages, and the other stuff you beat me up over?

So who was wrong, the past 50 years of GOP opposition to growing federal deficit spending and all that red ink or this lame crew who likely have outspent all of their Republican peers?

Yes, having worked in two major Fortune 100 corporations before coming to Washington and being around some very creative and wealthy people then and when I worked in the mortgage business, I do have that experience, intimately.

Do you like the real estate changes your guys want? How will that affect you and yours?

As I noted by "history," when did big business ever put their new tax cuts (under Reagan and then Bush) back into the economy as capital investments or used that new income to hire more people or raise current workers’ wages—or is there a chance what capital spending they do make becomes automation investment and the rank and file get dumped?

Please email me when you see all of those corporate tax savings get invested and deployed with middle-income America and their lower income co-citizens benefitting?

It's a history test, man, not a trick question. Go back and look for when the economy grew at the GOP's predicted rate that will both make these tax changes non-deficit producing but also reduce the remaining US red ink?

“Billions and billions” was meant as additive not geometric. Most reports I've seen suggest a Trillion in deficits attributed to this tax plan.
Anyone CONVICTED of a crime, since lots of people are accused, especially by this Admin.
I also can't wait until these/your marvelous GOP tax plans revive America's urban concentrations and their mostly minority residents. How soon will that be?

Ron Haight said...

Thanks, Bill, for eloquently,rationally, yet forcefully defining a position supporting the gses and justifiable anger about policies further increasing the wealth gap and destroying the middle class which many people forget made this country great and the envy of the world. Now truth, justice and the American way are under attack by the very people who claim to be the most patriotic.

Bill Maloni said...

Ron--It's scary in a historic porportions way.

"The bad guys" now are out of their ideological closet in all of their hypocritical glory and for all to see. Its up to the nation to decide if those are the public officials, poliy makers we want or, if we should sack them, ASAP, and choose a new crew?

I know what I'm doing.

Anonymous said...

“When Rep. Conyers would inappropriately touched me like this, my eyes would pop out and I would be stunned in disbelief,” Grubbs wrote in an affidavit posted on Twitter by Brown’s attorney, Lisa Bloom.

Conyers, the longest-serving member of the U.S. House, has repeatedly denied claims he mistreated staffers.

Calls for his resignation reached the highest levels of House leadership last week, as Brown and another accuser went public detailing his alleged misconduct.

Supporters held a rally in Detroit on Monday to call for Conyers to receive “due process” and for critics to stop pressuring him to step down.

"Due process for a liberal "icon" but not for a Judge? Double standard?

Travis said...

Sort of interesting how on the same day on the GSE blog there is a very forceful article on how bad the Democrats are, and then one on how bad the Republicans are --

Now I am only a college graduate not a Ph.d but I don't think it is possible both sides can be completely right and completely wrong at the same time, can they? Is it not more logical that one's view on right or wrong is in how you want to spin the story? Maybe capital did not flow in great gushes back into the economy when other tax cuts have been made, but it went somewhere and maybe other laws encouraging US investment were not updated at the same time. In other words, after other tax cuts, plants got built, jobs created, but maybe in say ---- China? as we practically encouraged companies to move overseas. Neither side is perfect, there is a reasonable middle ground. Each side simply insisting the other side is 100% wrong and have no good ideas is incredibly short sited and needs to stop.

Anonymous said...

Not worked up at all. Just sad. In fact, your reply indicates that it you may be worked up. I assume what you read you believe as fact and then you re-write it and add your personal spin. Many times as noted being dishonest.
I am not a Republican. I am a registered Independent and try to see the liberal point of view but it's so outside of commen sence and dishonest that it disqualifys itself most of the time.
None of this really changes anything or our opinions but enjoyable to rebuttal each other. Our United goal continues to be the GSE issues.

Bill Maloni said...


Well, we do agree on some things.

"Outside of common sense and dishonest" is a good standard.

I would argue that a lot of what I've seen from DJT and the current Administration violate that measure. You might say, not so much??