Fannie and Freddie Need an Ally,
Or Need to Be Treated Like One!
How can Ally Financial (GM’s former financing arm) buy itself out of federal "jail", but F&F's hefty repayments don't produce the same “turn them loose” treatment?
Ally Financial helped consumers buy some cars while Fannie Mae and Freddie Mac bolstered up the $ multi trillion US conventional mortgage market for over 5 years since being "bailed out."
As I asked several friends and former colleagues, “What am I missing?”
Wikipedia and Hank Paulson
Speaking of missing some things, regular blog reader and commenter, Robert Mae sent me a “comment” to the last blog (actually sent several), but the significant one dealt with a “Wikipedia” description of some of former Treasury Secretary’s actions—and possible motives—when he “Bushwhacked” Fannie Mae and Freddie Mac.
Robert Mae sent this in response to me observing that “the victors write the history” and I want to be there—at the end—to make sure that future discussion of F&F is accurate.
This is interesting. I have read Wiki's 'Fannie Mae' topic page many times in full, but this morning is the first time I noticed the following edit:
"The Administration PR effort was not enough, by itself, to save the GSEs. Their government directive to purchase bad loans from private banks, in order to prevent these banks from failing, as well as the 20 top banks falsely classifying loans as AAA, caused instability. Paulson knew that Lehman Brothers and other banks were in trouble and would soon require Fannie Mae and Freddie Mac to purchase their toxic debt; this meant that he would need a fast method to bailout the banks, so he devised a method to use Fannie and Freddie as a backstop. Paulson's plan was to go in swiftly and seize the two GSEs, rather than provide loans as he did for AIG and the major banks; he told president Bush that "the first sound they hear will be their heads hitting the floor", in a reference to the French revolution, and the taking (fifth amendment) of their assets -- without compensation:. The major banks have since been sued by the Feds for a sum of $200,000,000, and some of the major banks have already settled: http://www.nytimes.com/2011/09/03/business/bank-suits-over-mortgages-are-filed.html?_r=0 . In addition, a lawsuit has been filed against the federal government by the shareholders of Fannie Mae and Freddie Mac, for a) creating an environment by which Fannie and Freddie would be unable to meet their financial obligations b) forcing the executive management to sign over the companies to the conservator by (a), and c) the gross violation of the (fifth amendment) taking clause"
History being written....
From the Mouths of Babes
Spent a few minutes explaining to my very precocious granddaughter, five year old Daryn Kelly Maloni, about my blog and why I write it.
This produced the following exchange.
Me: "Yes Daryn?'
Daryn: "If you ever write a movie, don't put any naked people in it."
Me: "Why not, sweetheart?"
Daryn: “Because that is so 'inappropriate.' "
Return of the “Hebrew Hammer”
The slightly odd but heavily reported story about the Federal Housing Finance Agency IG’s report (twice in the “we’ll go with anything anti-Fannie Mae” Washington Post) produced several clones, but then some sharp rebuttals.
One sharp rejection was written by my friend and former Fannie colleague, Tom Lawler, writing in his own daily newsletter
“Calculated Risk” picked up Tom’s angry rejection of the Washington Post’s FHFA IG story, a slight variation of the same story appeared today in their Sunday edition, too.
Another most comprehensive rebuttal was written by our friend, David Fiderer, aka “THH” (see headline above).
Anyone—obviously few of the professional reporters—who read the IG’s letter and report could see that IG Linick, was upset at FHFA for giving F&F more time than he felt desirable to implement a new FHFA dictated loss accounting rule.
IG Steve Linick—writing with or without his gun--didn’t suggest either company was misrepresenting quarterly numbers, hiding losses, or were not GAAP compliant. He was bitching at his FHFA colleagues for giving F&F too much time to operate under the new proposal.
That fact didn’t stop lots of headline writers and some journalists from jumping to predictable anti-F&F conclusions.
Here’s a link to Fiderer’s smashing rebuttal.
One more wrinkle in this matter.
I exchanged emails with one writer whom I suggested had gotten the story wrong.
In doing so, I challenged him by saying (paraphrasing): “Do you really think that their outside auditors, FHFA, the SEC, OMB and also Treasury are complicit to blessing Fannie and Freddie for falsely reporting their earnings?”
The WH Behind the IG’s Report?
Try and solve this one. (I wouldn’t make this up and I have the email exchange to prove his statement.)
When challenged, the person claimed that the “White House” was supporting the IG’s report.
I asked him (once again, paraphrasing), “So, is the WH pissed because DeMarco won’t do their bidding and they are going to back an IG report which suggests DeMarco and his team are falling down on the job?”
The guy hasn’t answered me, yet.
What Others Say