F&F Produce Reliable Profits

They Lied about Fannie and Freddie and the two prevailed despite the propaganda--could it be the excellent business model?

“Failed business model; in a death spiral; bleeding sinkhole; excessive subprime investments; desperately need Uncle Sam’s help; heads they win, tails you lose; they pose a systemic risk; we're going to move quickly and take them by surprise; the first sound they'll hear is their heads hitting the floor."

These are a few of the colorful—and wrong—descriptors Hank Paulson at Treasury and later some in the Obama White House and Treasury, used to malign Fannie Mae and Freddie Mac. Of course the uninformed on Capitol Hill and the media mimicked the same trash.

Together that bipartisan mélange became David Fiderer’s “Big Lie,” and like a malevolent snowball growing as it rolled downhill when nobody challenged the proponents.

(Every financial business model should be so flawed; wait, most of them are, since one way or another Uncle Sam stands behind them! Of course the big banks like to claim they are “private,” but the facts belie that.)

In 2008, the GOP elements first abused the applicable Fannie and Freddie accounting principles--to suggest terminal financial weakness--and manacled the GSEs, then their Democrat successors doubled the political assault by taking away all of the GSEs earnings (see next paragraph) leaving them with insufficient capital but still under tight Treasury and Federal Housing Finance Agency (FHFA) regulatory control while mandating the two continue to support the nation’s secondary mortgage market.

Since Paulson and the Obama others uttered and acted on those falsehoods, the two GSEs have sent the federal government @$280 Billion in “dividends” (all GSE business earnings) for their meritless 2008 capture and abusive treatment, unique since no other major financial services entity active in the 2008 suffered it. Federal lawsuits still are challenging whether the initial $190 Billion in GSE aid even was needed.

HA! HA!

That’s my hardy and hearty caustic financial laugh at those lie-telling GSE opponents.

It’s not the last laugh because there are more F&F profits coming, but we all got a robust guffaw last week as the tried and true GSEs earnings engine cranked out $4.5 Billion for Fannie Mae in second quarter earnings with Freddie contributing an additional $2.4 Billion, which means nearly $7 Billon more flowing from the GSEs into the Treasury’s General Fund to financially support heaven knows what.

Again as a reminder, this year, the Federal Deposit Insurance Corporation (FDIC) in a seminal report on the 2008 financial debacle found the nation’s largest banks and their frivolous creation and sale of $2.7 Trillion of near worthless mortgage backed securities—not Fannie and Freddie—were primary cause of the Financial Armageddon a decade ago.

Does anyone think there are 10 people on Capitol Hill who notice the GSEs black ink tap dance and applauded or tied it to the FDIC report? Not from all of the raucous and know-nothing noise you hear from our Senators and Congressmen and women.

Maybe the only one--and her staff--is Rep. Maxine Waters (D-Cal.), the ranking Democrat on the House Financial Services (Banking) Committee, who vowed to take on GSE issues if she becomes Committee Chair if the House flips after November’s election.

New non legislative tax cuts?

As GSE fans consider the “F/F fix options,” they see a possible administrative fix from the White House and the possibility of a legislative fix, which can’t seem to get off the Hill’s ground because most of the congressional GOP wants to reward the nation’s largest banks at the expense of the American mortgage consumer (go back and read the FDIC report ladies and gentlemen of Congress) and a sufficient number of Senators don’t want to do that.

I didn’t mention the courts because I don’t believe in unicorns but do consider Bigfoot and UFOs possibilities.

I mention a “new tax cut”—via executive fiat--in the headline above because of the ease that possibility flows from the tongues of advocates seeking more deficit financing for their personal coffers. If the Trump Administration follows through and seeks to achieve this end, without the Congress, i.e. using executive or regulatory authority to lower capital gains rates, the nation should howl.

Where I would welcome executive action

As outraged as I would be as a citizen and tax payer—even though I might be helped personally because I am an investor—I would ask the POTUS to eschew that goal—because the people he hopes to please should have been sated by his major tax cuts earlier this year (“give us mo money, mo money, mo money!), and instead turn his Treasury Secretary/FHFA Director toward using whatever authority the WH claims to “free Fannie and Freddie” or remove some of the GSE operating obstacles allowing them to do what they have done so well in the past, provide copious amounts of mortgage finance to eligible low, moderate, and middle income individuals and families and remove several current obstacles to home ownership.

Closing this blog loop of the D’s taking control of the lower chamber, my one concern, if the D‘s accede to House control, would be the tendency to overload Fannie/Freddie with a far greater housing mission, since the GOP and Obama team before it, shuttered Fannie and Freddie away from a job they carried out quite effectively years ago—and those results show.

A better approach is to give life to the current withered community/neighborhood reinvestment laws and require the nation’s commercial banks to help the GSE with desirable task.

November’s elections

New congressional control is several “what ifs” in the future, although those defining election are only 3 MONTHS away.

So those of you who want to change the current congressional arrangements, need to focus on your own Congress person and Senators. Make sure you and all of your friends, neighbors, eligible children, etc. are registered to vote and ask yourself if you are willing to personally contribute to congressional campaigns which offer the hope to alter federal policy, defeat incumbents—and then go ahead and do it.

Now is your chance to speak up and act on your frustrations and beliefs, if you want true change.

Talk is cheap and action speaks louder than mere outrageous shouts.

If your local races aren’t competitive—meaning there is an overwhelmingly clear favorite—look around for where is are close congressional contests near you. Think about contributions to those men and women (lots of female candidates running with great credentials) who can use the help to oust incumbents who support this President and back up some of his noxious policy calls?

You can continue to complain or moan or you can monetize your anger and decide how much you would give to begin to turn things around, politically. Give that amount, in pieces, to worthy congressional office seekers, no matter in which state they are running.

Maloni, 8-6-2018