Tuesday, August 27, 2019

Keeping my eyes on the bad guys and other things…..

“Jots and Tittles,” F&F minutiae, and some GSE things I think

For those of you who read my blog's comments section, you're aware that my major blog-friendly protagonist--Anon#1--and I have agreed on a significant matter.

Based on history (my rationale) and intuition (likely his reasoning), something BAD is due to upset the GSE applecart which has been moving along quite nicely based largely on news suggesting a pending Admin announcement of its plan to free Fannie Mae and Freddie Mac from "Conservatorship."

Not sure exactly what will occur when, but I suspect Fannie/Freddie detractors will assemble a “not now” list and pitch a “wait longer” agenda.

Last week, Sen. Sherrod Brown (D-Ohio) suggested financial chaos if the Admin released the GSEs from Conservatorship, although he and his staff must have missed the past 10 years’ worth of tight regulation and de minimis GSE credit losses as well as their superior and low risk “stress test” result just reported by their regulator, the Federal Housing Finance Agency and its new Director, Mark Calabria.

Plus, nobody I know recommended getting rid of their regulators, as Brown suggested. The GSEs, Treasury, nor the Federal Housing Finance Agency certainly haven't.

But, it is that kind of off-the-wall bloviating which derails trains and schedules.

On the other side—far more tactical than strategic--in a periodic development at which I often point with greet glee** to showcase media hypocrisy, Fannie and Freddie, led the Saturday (8-24) Washington Post stock market table of "local gainers and losers" each with 24% percent growth over the previous week. 

(**The Post for years has been a GSE-opponent, often arguing against the GSE mix of public mission and private ownership--at least until the 2008 conservatorship, which took away most of the GSEs private control--yet still reports on them as if the two were totally shareholder-owned, in a way making my primary point that their private ownership drives their success. The alternative GSE replacement being some configuration of the nation’s largest banks or some purely government HUD or Ginnie Mae concoction which for good reason Congress rejected in 1979, when the original Fannie was recreated/rechartered, and I strongly believe would still do that today.

The horns of the Post’s “dilemma” are not unlike the federal government’s own, because of the inconsistent (“Are they government or not?”) longtime ideological treatment of the GSEs. The Congressional Budget Office (CBO), a historical (and hysterical) GSE critic, still treats the GSEs as if they were part of the federal government (“private shareholders, what shareholders?). While the Office of Management (OMB)—which, is seldom GSE-friendly, and fashions the Admin’s annual Budget—treats them as private entities, even after the 2008 Conservatorship.

Welcome to federal government accounting schizophrenia GSE-style.

For more detailed understanding of this bizarre ying-yang treatment—which makes it easy for F&F critics to hide behind one or the other formal mistreatments of the GSEs, read the CBO document which elaborates on the historic conflicting budget treatment. (This doesn’t occur anywhere else with multi-billion financial institutions and the Budget.)

Also, remember, if you treat the GSE as one of Uncle Sam’s parts, you would need to put all of their debt and MBS on budget, which is a $5 trillion “add on” matter no pol wants to touch even for consistent federal accounting purposes.

Say it ain’t so

While shopping last week, I bumped into an old acquaintance, who for the past 20 years or so has worked for the GSE regulator at OFHEO/FHFA and—as with most employed there---never has been a GSE supporter.

After making agency small talk with the person, I asked, “How is it working for the new Director, Mark Calabria?”

The concerning answer was, "Oh he's fine, reminds me a lot of Ed Demarcotouching this little thing and that, always trying to make small things work!"

In view of the fact that most people looking back at Ed’s tenure think, “Only termites were more destructive to housing than Ed Demarco's GSE time,” I didn't react warmly to the veteran regulatory employee’s analysis.

Say it ain’t so, again (the Return of "User Fees?")

A few years ago, the Obama Administration started tapping the GSEs for non-housing, non-GSE purposes, to wage war against their deficit spending. It employed a 10 basis point fee which went to the Treasury for deficit reduction purposes.

But one mortgage policy analyst, Cowen Associates’ Jaret Seiberg  believes the matter could get back into a Trump budget if the Admin needs additional revenue to pay for an election-year tax cut.

JS says using the GSEs as cash cows, just as Obama did, could be in the cards. 

In my Fannie lobbying days when similar issues arose, we coined the derisive term “homeownership tax,” to describe and defeat (for several years running, every time it came up) a Reagan Administration proposed 25 basis point fee on all Fannie and Freddie debt and securities. 

It was a very successful meme which allowed us to rally housing organizations and consumer groups across the nation--as well as the media--to denounce or editorialize against any similar mechanism, instantly making most in Congress very hesitant to endorse it.

Interestingly Cowen (Seiberg) quickly jumped to the same conclusion/rationale we did --possibly because he was around way back when and saw it in use--when he wrote, “What starts as a temporary 10 bps hike could become a material and permanent tax on housing.”

Also, remember, if you treat the GSEs as one of Uncle Sam’s ribs, you would need to put all of their debt and MBS on budget, which is a $5 trillion add on matter nobody wants to touch.
Over the weekend, the Trump team said a new tax cut was “off the table,” but I suspect that means for the nano-second it took Kudlow and others to correct the POTUS.

New Fannie Board Appointee

The Administration named former FDIC head Sheila Bair to the Fannie Mae board, a collection which seldom says anything or does anything for their $125K-$150K annual base comp (just like their Freddie counterparts).

These rubber stamp entities represent (R's and D's, when they hold the White House) sinecures to be ladled out in return for past party allegiance, which is why—if Conservatorship ever ends—new shareholders will elect different directors.

Maloni, 8-27-2019

(Thanks, again, MrF for your invaluable help; while "jots and tittles" is a phrase a brilliant former Fannie boss, Bob Zoellick, used to describe important but small details.)

Monday, August 19, 2019

And the GSE Beat (and Heat) Goes On

Where are Sonny and Cher* when we need them?

There is a good reason why very little happens in the nation’s capital in August. Most locals are gone avoiding Washington’s stifling summer heat, that-–despite what you may think about climate change—has been worse this year. 
That includes most Admin policymakers, the media, DC yakkers, lobbyists, and the Congress—which despite opposing federal laws giving workers mandatory six weeks paid vacations--manages to take 10, 20, and thirty day variations of the same for themselves. (“Me? Harrumph, why should I walk a mile in your unpaid vacation-less hot shoes?)

GSE Stuff

Yes, without being asked, Larry Kudlow looked and sounded a little ill or under the weather this weekend, when he told economic tall tales on the Sunday shows. No, he didn’t mention the GSEs, but that’s almost beside the point since he is somewhere in the Admin’s GSE decision tree.
That brings me back to a signature main point…again. 
For what is the Administration waiting before it unveils its long-promised plan to free Fannie Mae and Freddie Mac from Conservatorship??? 
President Trump is running for re-election (if you hadn’t noticed) trying to generate more voting support than any of his would-be opponents might generate, meaning Republicans in their primary, or one of the 600 Democrats seeking that party’s nomination.
In between trying to buy Greenland (wait till he finds out Greenland/Denmark have banned tanning salons and hair coloring facilities for God’s lifetime) and bragging how much his recent New Hampshire visit produced a bigger crowd than Elton John, and don’t forget in Pennsylvania where he took credit for a plant put together in 2014 before he even ran for the WH, DJT seems to be ignoring an action that is a far better investment of his valuable time and energy—ending the Fannie/ Freddie Conservatorship. 
Is Steven Miller the only one advising DJT? 
If the President wants to cut into the Democratic Party’s future Black/Brown vote, free Fannie and Freddie; if he wants to show he cares about the aspirations of moderate and middle-income American families, yearning for their share of the American Dream, free Fannie and Freddie; if he is worried that the economy is tiring from his phony tax and farm stimulus injections, free Fannie and Freddie and watch homebuilding/home selling employment grow and get credit from happy mortgagors, free Fannie and Freddie;  and if he’s worried that he has no credentials--other than name-calling and demeaning anyone who challenges him--he should prove he’s a “houser,” not just a real estate hustler and free Fannie and Freddie and avoid being put on the defensive, if and when some federal judge or judges force the issue. (I am hoping that one of you Republicans who read my blog will share my advice with the White House.) 
If the POTUS calls for it to happen, it will be done.
Treasury Secretary Steve Mnuchin--with a stumbling, slow walking Mark Calabria (“Wait, wait, Sir, I’m the GSE boss”) by his side, but slightly behind--will do it for you in a political heartbeat Mr. President and add "bigly" to your 2020 campaign arsenal.

Fifth Circuit

I’ve tried, by talking with others better in the know than me, to discern what’s going on in New Orleans and the Fifth Circuit Collins’ deliberations, I came up with little, except some very reasonable legal procedural issues. 
The view is the subject matter is so important—both for purpose of the court’s opinion and possible appeals--those writing what they hope to be the majority opinion (supporting the plaintiffs) and those disagreeing are taking their time and being super precise with regard to substance and process. 
The flip side of that is so are those who might not agree with what’s shaping up as the majority opinion?
And, not too laughingly, is the fact that judges and clerks take summer vacation, too.

Wilbur Ross

Last week, I was asked if Commerce Secretary Wilbur Ross is considered a significant player in Admin's GSE considerations??? 
I never heard that before about Ross but one clue is the Commerce Secretary did leave former FHFA Director Jim Lockhart at home as Vice-Chairman to watch over Ross's corporate businesses and I assume the two communicate regularly. If anyone knows more than that please enlighten me/us.

Maloni, 8-19-2019

(*In 1967, S&C recorded, "The beat goes on.")