Monday, February 13, 2017

Trump Admin: Look out, here come the Judge(s)

First they came for the Socialists, and I did not speak out—
because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out—
because I was not a Trade Unionist.

Then they came for the Jews, and I did not speak out—
because I was not a Jew.

Then they came for me—and there was no one left to speak for me.

Martin Niemöller (1892–1984) was a prominent Protestant pastor who emerged as an outspoken public foe of Adolf Hitler and spent the last seven years of Nazi rule in concentration camps.

Benjamin Franklin: “We must, indeed, all hang together or, most assuredly, we shall all hang separately.”

Some GSE Cats and Dogs, a Little DJT

--As predicted, more anti-GSE types are finding themselves in second tier policy positions and--at some point—that negatively could impact Trump GSE decisions. Unless, Steve Mnuchin—up for Senate approval this week (today?) as Treasury Secretary—puts his strong stamp on the Fannie/Freddie issue, with the President’s backing, and suggests all of the wannabes stay far away from his turf.

That won’t stop all GSE policy envy, but will force the amateurs and marginal players to the sidelines.

Most pro-GSE folks feel positive, if not euphoric, over recent events. But, as I’ve noted, don’t discount the bad guys, because there remains lots of them inside the Beltway, plus the majority of media.

When past troublemakers gather—now with new Admin titles and portfolios--it’s inevitable that they will try to galvanize and push some mischief, unless promptly spanked.

Some of these mini-chefs will want to add ingredients to Mnuchin’s GSE soup.

CATO’s Mark Calabria—who was a committee staffer for former Senator Phil Gramm (R-Texas) and current Senator Dick Shelby (R-Ala.), neither of whom were GSE friends when they were Senate Banking Committee chairmen--now will be VP Mike Pence’s chief economist.

Yes, Calabria has some GSE views but if they are contrary to Mnuchin’s, I expect the Treasury Secretary will prevail—but one never should say never, especially with the current Admin changing priorities, i.e. one China, two Chinas;  Japan the enemy, Abe the golf partner; Mexico will pay, US taxpayers now will pay for the “Wall.”


--It’s all good news that attorney Chuck Cooper’s chose not to join the new Administration as Solicitor General but remain in his law firm, where he has been a major tour de force, supreme intellect, and comprehensive voice representing GSE plaintiffs.

Had he taken that post, he would have had to recuse himself from any future cases involving the GSEs, but more significantly, the GSEs would have lost his experience, style and brains.

Also on the plus side, Cooper has some major Admin friends and his opinions will matter in some quarters.


--GSE earnings this week (Fannie on Friday, but Freddie will follow quickly, if they don’t precede by a day) will produce more green stuff for the taxpayers and the Treasury’s General Fund.

Those positive numbers shouldn’t but might give a kick to the current upward trending stock prices, but Fannie’s and Freddie’s revenue capacity never has been an issue (except for some Obama Admin distortions). 

But investors and would-be investors should understand only WH/Treasury actions ending the “sweep” and freeing the GSEs from strict government control will signal a return the equitable, efficient mortgage finance machines all Americans need and deserve.

I won’t/can’t make earnings estimates, Tim Howard is better than me on that stuff, but it will be enough, unfortunately, to make some DJT people realize that they still will need money because their current plans—at least until they succeed in putting together a real set of trade policies and the crucial tax reform plan—will mean the dreaded deficit spending.

That same principle, albeit in reverse but not in effect, will apply to any financial settlement reached with GSE lawsuit plaintiffs. Previous dividends sent to Treasury/taxpayers will need to be sent from the General Fund to plaintiffs. Unless negotiators get super creative.


You’ll know it when you see it and I won’t plug it, except to say, there soon will be a new GSE book out, written by a former Freddie Mac official—who I never met or heard about in her reported Freddie 20 years, and never heard her name in connection with shaping and Freddie policies, when I worked closely with so many Freddie execs from Leland Brendsel on down—but it already has attracted Right Wing praise.

It’s not surprising since, apparently, the author buys into the Pinto-Wallison view of GSE mortgage purchase, which claims Fannie’s 1990 books of business were 10 years’ worth of “subprime purchases,” but—unfortunately for them and blowing large holes in their tall tale—those excellent and non-subprime loans had credit loss rates of less than 4 basis points.

As David Fiderer would observe, “The Big Lie” continues.


With all of the banker driven Dodd-Frank drivel, my observation is the only two features that have clicked are the Consumer Finance Protection Bureau (CFPB) and higher bank capital levels.  Effectiveness of the Volcker Rule, prohibiting inside dealing, has been spotty. Notice—despite all their bitching--banks still have made huge earnings over the past 10 years (while still paying massive fines for aberrant financial behavior, i.e. somewhere north of $150 Billion).

IMO, Everything else D-F has been nada, which is the result of bank lobbying the original legislation, later the regs, and quiescent federal financial regulators, who husband their regulated institutions. (Ironically, the only one that doesn’t foster the financial institutions it oversees is the FHFA.)

Some DJT Thoughts

Get over it. He’s our President for at least the next four years.

---The good news bad news about his constant tweets is, at least, we all know with his demeaning shout outs what he thinks that day (and who he is targeting).

Part of me doesn’t want him to stop because—absent normal filters—Donald Trump’s tweets are a transparent, an open window to his mindset.

Also, if he continues shotgun targeting so many individuals, groups, political interests, and institutions, he just might undercut his own support (think congressional allies) and not be able to carrying out some of his more bizarre agenda elements.

The POTUS may be energizing more Americans to get civically active and communicate with their Senators and Congressmen, as well as the media.

However, if I was advising him--on the theory that he won’t stop tweeting--I would urge him to record his “tweets” and then have Reince Priebus, Ivanka Trump, or Eric Kushner, rewrite the POTUS’s ideas and let DJT tweet them a day or two later.


---I can understand why some Americans might get their fill of Massachusetts Senator Elizabeth Warren (D-Mass.), but I would urge DJT to stop demeaning her with the derogatory “Pocahontas” label, no matter what the history of it and his angle.

If you want respect you should give respect.

It‘s beneath a President to engage in that silly slander and it’s unlikely to earn him or his GOP colleagues--virtually all of whom will run, again, in two or four years--support from hostile female voters.


--I want Secretary of Education, Betsy DeVos to visit as many public schools as she can. They all are not wastelands filled with slow or no-learning kids.

The more of those she sees and understands, hopefully, the better her judgment.


---It’s tough to discern, but I hope President Trump gets smarter, faster about Russian motives, intent, and leadership. (He might also see Mike Flynn is over his head, likely panicked and lied to VP Pence and Steve Bannon—for now--is channeling Machiavelli, Catherine de Medici, Rasputin, and Joey Goebbels.)

Maloni, 2-13-2017


Anonymous said...


This comment is good and appropriate. Even though most of the DJT selected nominees are not Fellow Travelers some seem to be from financial establishment.

"When past troublemakers gather—now with new Admin titles and portfolios--it’s inevitable that they will try to galvanize and push some mischief, unless promptly spanked."

Bill Maloni said...

I was talking about various GSE troublemakers. No matter their new positions will want to dabble because the issue is moving. Speaking of which.....

I interrupt this response with the news that Steve Mnuchin was as Treasury Secretary approved tonight 53-47!

I am rooting for this to be very good GSE news.

Anonymous said...


How important it would be to be chief economist for VP.
Calabria appears to be a moderate fellow traveler (based on his free wheeling thinking).
Probably he represents fellow travelers from conservative think tanks in the DJT administration.

Bill Maloni said...

The VP is important, as is his staff, but as I suggested in today's blog, if Mnuchin--who as I've written really possesses strong GSE/securities/market experience--stakes this out as his issue and world--with DJT's backing--I don't think Mark Calabria or his ilk can gain too much headway, especially if the ultimate beneficiaries here are the mortgage consuming public, i.e. the little guy who the Obama Admin all but ignored with its GSE policies and who Candidate Trump promsied to help.

Having said that, the GSEs are "Big Casino," involving hundreds of billions of dollars potentially going back to plaintiffs, a $9 Trillion national mortgage market, and lots of moving pieces.

That means there are a lot of daggers out there ready to work against the GSEs getting resurrected. But,if Mnuchin is a man of his word, Fannie and Freddie haven't had a Treasury Secretary supporting them for more than a dozen years.

That balances many scales and maybe even tilts one of two toward the GSEs.

Anonymous said...

good thinking.

Anonymous said...

BTW Calabria does not represent the views of DJT team.

May it is the sop offered to unemployed fellow travelers in conservative think tanks to keep them placated.

Bill Maloni said...

Anon--Mark Calabria has not been a long time GSE friend, but in the past my fuzzy memory is that he surprised backing some issue that was GSE supportive.

If you are aware of what that was, please add it in this location.

(I used MC because his appointment was fresh and his last piece was not GSE-supportive.)

Bill Maloni said...

Damn, Flynn Resigns tonight; I guess the POTUS read my blog!

Anonymous said...

Bill you may have covered this, but what are your thoughts on how they can/will recap F&F?. Tim howard talked a little renegotiate warrants(cancel) and convert preferred to common but he makes it clear he wont speculate.. whats your best guess?

Bill Maloni said...

Like Tim, I won't speculate, but it's because I have no flipping idea.

Taking Mnuchin at his word--and also what Gray Cohn said--the new Treasury Secretary has some ideas about how to carryout this necessary operation, ideally using his executive authority.

I'll go with Tim who suggests there likely will be negotiations among large plaintiff/shareholders/stakeholders and the Treasury.

You also have two very pregnant court cases, the Lamberth appeal and in Judge Sweeney's Court of Claims which will figure somewhere in this mix---and, again, I am clueless as to exactly how.

The point I made yesterday in the blog and worth keep an eye on is any significant settlement will represent deficit spending in the near term and that will draw opposition.

If you own GSE stock, that means don't spend that cash until it's safely in your hands.

Unknown said...

thank you Bill for your insightful analysis. And wise comments, we do not know what the courts will do or even what exactly Mr Mnuchin has in mind.
While we can safely assume. Mnuchin does have options, and larges shareholders must have settlement concepts they have not shared.
I generally think this is good long term, as it is difficult to negotiate in the press.

Anonymous said...


1. Any thoughts on possibilities, if single director structure of FHFA is declared unconstitutional.

02/09/2017 - Plaintiffs’ Motion for Summary Judgment on Their Constitutional Claim

2. U.S. District courts in Seattle seem to be good place for FnF shareholders to file lawsuits against FHFA conservator. Shareholders can expect their cases to be heard unlike other courts.

Is it a good idea?

Bill Maloni said...

Duncan--As I've written, the best thing going for the pro-GSE forces is Mnuchin's experience and knowledge of the mortgage and securities markets. But, he's now living/operating in a political--and somewhat poisoned partisan DC environment--and he has to be on top of his game (and watch his back!) to prevail.


Anon--Think "making seafood stew." (I like lots of fresh ingredients when I make mine, including veggies, ham, seafood, etc.)

Once Mnuchin begins whatever planning required in implementing his ideas, all ingredients are on the table and possible for the "seafood stew" he's producing.

Dropping the metaphor, I have no idea how wide he'll have to cast his plans to take in all the consideration needed, settlements, GSE structure (utilities?), capital, new boards, new senior execs, ownership, securitization, portfolio capacity, regulation, existing business relationships, policy, political sensitivities, etc.

The courts have disappointed me, so far (with the exception of Sweeney), so speculating on what they might do is beyond me, relative to the various cases. There's a reason it's said, "It's not easy suing the federal government."

Right now, like you and others, I am waiting for Mnuchin to bring forward a working proposal to get this big train back on its tracks and maybe, in concert with Justice, drop the government's opposition to the major lawsuits in return for executive relief for plaintiffs.

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