Monday, September 21, 2015

The Pope, Fannie, McLean, and a Little Fiderer

Pope Francis, Fannie, Freddie, and Hope;
Could he Condemn a Mongolian Mormon?

During his two day visit to Washington DC this week, Vatican sources—whose identities I cannot reveal because of my adherence to the International Blog Source Secrecy Guidelines (IBSSG) —implied Pope Francis expects to warn congressional and Administration policy makers, “Hands off the GSEs.”  It was hinted His Holiness may also suggest that banks not be given early access to the CSP.

My source says this GSE communication will occur when the President and the Pope play their round of golf at Andrews Air Force base, since the Pope hurt his wrist and can’t dribble a basketball, as he smoothly once did. BHO has offered the Pope three strokes--because the Pope wears his white cassock when he plays--which Francis immediately took, betting $10 a hole.

I wonder if these talks will get attention from this town’s jaded media and federally appointed and elected public officials.

Administration sources madly are racing to find someone who—by Thursday--can explain to President Obama what Fannie and Freddie do and why they are so important to low and moderate income families whom the Pope adores, especially minorities whose home ownership rates significantly trail whites.

Also scurrying around were clerks to Judge Margaret Sweeney, who snagged one of the gilt-edged invitations to see the Pope. Judge Sweeney’s assistants are hoping to secure the proper Latin pronunciations of “DTAs, lying under oath, depositionUgoletti, and redaction,” should Pope Francis raise those matters with “somebody.” 

(Apparently out-of-town Popes are not covered by Judge Sweeney’s gag order. After all, how/why would you gag the Pontiff?)

In a related development, Mario Ugoletti, former Treasury and FHFA employee (see impotence above), reportedly has moved to UlaanbatorMongolia, shortly after joining the Church of Jesus Christ of the Latter Day Saints. Before leaving, MU muttered something about, “Francis can’t excommunicate an ex-Catholic Mongolian Mormon novitiate can he?”

We’ll know by week’s end, if the papal GSE intervention took place.

Bethany McLean’s Book Tour 

Bethany McLean started her book tour last week for her GSE volume, “On Shaky Ground: The Strange Saga of the U.S. Mortgage Giants.”
I managed to see one of her four Washington DC events.

Unfortunately there was no video of that one at the Politics and Prose book store, but I did get a chance to speak with her before, after getting two books autographed (one for the very helpful Mr. Fidlsticks) and one for myself.

Mine replaced my original galley proof copy, that the author provided to me weeks ago, which disappeared after I lent to a well-known GSE personality, an author in his own right, whose name I won’t mention.

(Psst.  OK, I confess, it was “the real” Tim Howard, who joined us at P&P with his lovely wife Debbie. They also bought books.)

Bethany’s efficient synopsis and P&P presentation were excellent, with the history and current limbo perils to Fannie and Freddie floating in conservatorship surrounded by a WH and Congress uncertain of how to proceed enamored with their love of F&F’s revenue generating capacity but knowing the present design leaves the GSEs each year with less and less capital to protect against losses.

That’s even before you mix in the GOP hate and disdain of anything tied to the Roosevelt Administration or federal support for conventionally financed home ownership. But, as Bethany told the P&P assemblage, loosely applying Winston Churchill’s logic and words, “Fannie and Freddie may be bad, but they are better than whatever is next.”

Ms. McLean recounted a revealing vignette, unfortunately one shared by too many people “inside the Beltway,” and which, quickly, got incarnated within another P&P book buyer.

Bethany described, twice, seeing old pals months ago, on a visit to New England and, separately, when she was in a friend’s wedding. Two acquaintances, after asking what the four time author and mother of two daughters was working on and being told “researching a Fannie and Freddie issue,” both responded with a variation of the line. “Well, I can tell you all you need to know about them. Their pursuit of bad low income loans caused the 2008 financial meltdown.”

After her friendly Politics and Prose audience laughed at that distorted and very inaccurate historical factoid, a man in the back of the room loudly exclaimed, “That is me, I’ve been telling that to people for years.”

I later found the man and as he was checking out his McLean book purchase, and asked him why he believed that and he said, “Well weren’t all of those bank securities (meaning PLS) backed by Fannie and Freddie?”

When I explained why the opposite was true and “$2.7 Trillion in PLS” sold internationally by banks meant  Private Label Securities, issued outside of the GSE systems and not backed by F&F, he was embarrassed and perplexed, saying, “I have to read this book right way.”

I hope that gentleman becomes a microcosm for the nation and learns the truth after reading “On Shaky Ground…” and then engages others with his fresh knowledge.

By all means, buy and read Bethany McLean’s book, consume those interviews and watch the videos.

Remember, she firmly believes Fannie and Freddie need to stay operational in the mortgage market to insure long term fixed rate financing, standardization and efficiency for consumers and as a counterweight to the market and political influence of the nation’s big banks.

(Related/unrelated. I bumped into two Fannie employees at the P&P event and both laughed and threw cold water on any talk of an "employee walkout", noting that the individual associated with such talk does not work for Fannie or Freddie.)

Here is a list of the events, with videos in which Ms. McLean engaged. In addition, I also linked some articles and reviews about her and her book, as well as a link to upcoming events.


Columbia Global Reports: 'Shaky Ground' Launch Event Video McLean, Bill Ackman, and Frank Raines)
Tuesday, September 15, 2015


Charlie RoseA discussion about Fannie Mae and Freddie Mac with Bethany McLean, author of “Shaky Ground: The Strange Saga of the U.S. Mortgage Giants,” and Bill Ackman of Pershing Square Capital.


MarketPlace: U.S. mortgage giants under the microscope


WNYC: The battleground that's Fannie and Freddie 


Museum of American Finance: Bethany McLean on "Why Does the US Government Want Fannie and Freddie Dead?"


Yahoo: Video interview: The biggest remaining risk in today's financial system, hiding in plain sight


CNBC: Mortgage giants on 'Shaky Ground'? 


New America:   Shaky Ground, The Strange Saga of the U.S. Mortgage Giants

The Street: Fates of Fannie and Freddie Need to Be Settled ASAP Says Bethany McLean

Columbia Global Reports Upcoming Events Link

What’s New With David Fiderer’s Book

David Fiderer is someone who has written extensively about the bank PLS investment madness documenting their sloppiness, blunders, lying and, most importantly, their huge losses, far larger than any set of F&F securities.

In a surprise to me, a week ago, David Fiderer published his e-book on Amazon, “The Plot to Destroy Fannie Mae, Anatomy of a Power Grab, which excoriates in great detail senior government and regulatory officials, starting with former Treasury Secretary Henry “Hank” Paulson, for their haphazard, reckless, and demagogic treatment of Fannie Mae and Freddie Mac.

In his author’s zeal, David later admitted that the book was not totally ready for prime time and needing some reorganization, cleansing of typos, and made easier to read.

While I didn’t disagree, I also told anyone who asked me, Fiderer’s research and fact finding are solid and his conclusions so disturbing, that his work’s surface flaws do not undercut what he produced.

Read it and see for yourself.”

The good news is DF is working with an editor and hopes shortly to reissue his work, possibly in print form. But, I’ll remind all that, the original is on Amazon, you don’t need a Kindle to read it; any sort of e-reader can access it.

Senators reintroduce F&F “Jump Start”

This Jon Prior article in Politico last week (below) caused some angst in the GSE community because Sen. Elizabeth Warren first supported this bill, then opposed it taking off her name, and finally jumped on a new version but with the same poisonous impact. Its fate still is up in the air because the SDC ranking member, Sen. Sherrod Brown (D-Ohio) opposes it and reportedly has a “hold” on the legislation?
By Jon Prior

09/16/2015 11:13 AM EDT

Members of the Senate Banking Committee, led by Bob Corker, Mark Warner, and Elizabeth Warren, reintroduced a bill today that would prevent the government from selling its stake in Fannie Mae and Freddie Mac without instructions from Congress.
After failing to be fast-tracked through the Senate this week, the bill is being pushed for a vote after language was added that would prevent lawmakers from raising fees charged by the two companies to be spent on other government programs. The committee's top Democrat, Sherrod Brown, had put a hold on that process. He told POLITICO earlier today he was against a piecemeal approach to housing reform and wanted the proposal to go through regular process. Warren had thrown up a roadblock, too, after language centering on the fees was taken out. Another provision was separated out that would suspend pay hikes for the chief executives of Fannie and Freddie, but that was pushed through the Senate last night.

"While comprehensive reform is my preference, we must not allow a small minority to prevent us from making any progress at all," Corker said in a statement today.

The bill stands long odds of becoming law, as it's unknown whether Senate and House leaders will want to take up the controversial proposal. The bill would hurt shareholders who are suing the Obama administration seeking a court to allow Fannie and Freddie to pay down the government's stake in the firms after they returned more in profits to the Treasury than the $187.5 billion they received in bailouts.

What Others Are Saying?

Presidential Corner
Latest GOP Candidates Rankings

Trump and Carly Fiorina at the top
Support me so I can sell your info (Carly)

Common Question: Hillary’s Achievements??


Trump on “Obama is a Muslim”

Have Trump antics driven up Hispanic voter registration

Fannie and Freddie Corner


“Big Banks Can’t Be Trusted to Replace GSEs”

Paul Muolo in IMF

Short Takes: Almost All GSE-Related Legislation is DOA / Don’t Kill the Golden Goose / Those Crazy Common Investors / The GSEs Are Worth $35.2 Billion? / Brian Webster’s Resume

By Paul Muolo
What will happen if Congress gets the authority to block (or approve) the Treasury Department from selling its senior preferred stock in Fannie Mae and Freddie Mac? First off, it’s unlikely that such a bill will ever pass. Industry lobbyists suggest that the only GSE bill that might have a chance in the current Congress is one that guts the recent pay raises implemented by the Federal Housing Finance Agency for the CEOs of the GSE

Keep in mind that few think Treasury would be willing to unload its senior preferred shares because that means the $20 billion to $30 billion the two contribute to the Treasury each year (at least) would go away. Then again, if Treasury received a bid of $100 billion (for example) for their holdings maybe…
GSE FACT CHECK #1: Meanwhile, the common shares of Fannie and Freddie have a current market capitalization rate of $19.60 billion, based on trading prices Tuesday afternoon. Many consider the common shares worthless, but no one has told the dreamers and speculators who continue to buy the stocks.  
GSE FACT CHECK #2: So, what are Fannie and Freddie really worth? At three-times annual earnings (based on 2Q15 results) that would be $35.2 billion. The calculation excludes franchise value and goodwill.

General Politics Corner

The Odd Couple

Bye-Bye Randy, Good move, enjoy your family

Bank Screw Up Corner


Maloni, 9-21-2015

(Note: This is going up after original publication. There is no Pope, golf, Ulaanbator, Mormon  GSE discussion, etc. etc. it is Maloni tongue-in-cheek humor.)


Trayjay1 said...

Hi Bill,

Thank you for sharing your comments and wisdom!
I posted a challenge in efforts to support a shareholder-friendly narrative of FNMA at TH717, but will ask you directly. (we're talking a personal discussion with my ex-banker brother here - nothing more)

The GSE Forensic Analysis "2008 snapshot" on surface seems to indicate that Fannie could survive quite a while on existing assets. In discussion recently, the idea of GSE survival sans bailout was questioned, because one cannot see potential impacts of other "risky behaviors" in which the GSEs were then engaged - for example activities that might generate Mother of all margin calls that might have instantly wiped out every bit of GSE liquid assets.

Do you have an opinion on this, or can you direct me to resources where I might find info?

Fiderer has clearly shown (years ago) that the Alt-A and subprime segments were the main MBS " culprits" in the crisis, and also that the GSE more conventional loan pools performed exponentially better. I had this as meaning that the GSEs were in far more survivable shape than the banks during 2008.

With the announcement of SEC backing off Lund and Dallavecchia (yesterday), I reviewed that complaint. The SEC contends that the Alt-A and subprime content of Fannie's portfolio was approaching 18% - this is far higher than I had guessed, and given the severe troubles in that MBS genre, seems to support that maybe the GSEs were in severely unsound condition.

Can you share any thought on this, or dispense some relevant wisdom?


Tray Jay

Bill Maloni said...


Thanks for the question and I will try and answer it and then--since I know he is traveling--I will put your question to "the real" Tim Howard when he gets within email range.

But remember the relative nature of needing government help or not needing help, "it's in the eye of the beholder."

Paulson made that call seven years ago and while many of us believe he was wrong, he and the government's lawyers will and have argued otherwise.

Before giving you my best answer, know that I have "some issues" (that's putting it mildly) with how any government agency, regulatory or otherwise, historically has qualified GSE assets or capital adequacy.

Invariably some official either doesn't understand their business (true, read Tim Howard's book) or the agency officials have an agenda, which does not support the GSEs. (That "indictment," based on my own experience, includes the Fed, the SEC, and The Congressional Budget Office to name three.) Somewhere in Howard's books are descriptions of endless meetings with Treasury and Fed staff where they just could not grasp what F&F did.) This was long before "conservatorship."

Sounds made up, but believe it.

On your specific question, the best source--going back to the person I think is one of the smartest in the nation re mortgage market and securities activities--is the amicus brief Tim Howard filed on behalf of Fairholme plaintiffs.

As he does in his book, "The Mortgage Wars," Tim writes in his amicus why he believes Fannie Mae did not require the Treasury bailout in 2008.

If you have trouble acquiring this filing, let me know and I'll try and get you a copy.

Lastly, I believe you can rely on much of Fiderer's work here, as well. But even David will defer to Tim on your specific question of whether F&F needed the 2008 bailout to maintain market operations given their financial conditions at that time.

As I was wrapping up this answer, I also thought of the Adam Spittler-Mike Ciklin "forensic accounting" paper, which supports, also, that neither F nor F needed a bailout.

Bill Maloni said...

TrayJay--Apropos your question, see Housing Wire, today.