My Greatest GSE Fear--People Will Forget GSE Achievements
Nobody should be surprised by what I write or my feelings.
I coined the term “GSE Shit Wall,” signifying the great height and depth of Washington DC opposition to recapitalizing and reviving Fannie and Freddie.
I have little hope that the courts suddenly will reverse Judge Lamberth and believe the last four Administrations (starting with Bush/Paulson) royally screwed the GSEs, for different reasons.
The Big Lie of GSE culpability, greed, arrogance, or irresponsibility has blinded virtually all to their virtues of systemic, operational efficiencies, reliability, low consumer costs, willing/capable industry leadership across demographic and income levels. The latter is part of why they both are envied and despised by their opponents.
Over the past two weeks, I was reading a lot about the 10 year anniversary of the 2008 financial debacle, its related fallout and principals’ ass covering, and came across this thought about another institution, not a GSE, which no longer exists.
I’ll shorthand what one writer said about a certain financial institution (paraphrasing), “Washington insiders will not let anyone they think bore responsibility for the financial devastation to walk away unscathed and/or benefit.”
We can argue all day—and I do and have--about why big banks or other Wall Street firm CEOs never did time or were ousted, but the facts are 10 years ago the GSEs were falsely labeled as being responsible for mortgage failures—despite all the bank botched PLS-- the GSE story was loudly underscored and repeated by their ideological, business, and political enemies for a decade plus.
Consequently there is nobody today around the Capital’s corridors of power or policy making who doesn’t believe it’s true—besides Tim Howard and a few more.
Yes, we have the CMLA and the community and low income groups, Investors Unite, and major hedge funds and other investors, but no constant communicators who rival the constancy, variety, and pitch of the opposition.
I’ll conclude with what I’ve said before, only Steven Mnuchin—or possibly—a Democrat House and Senate—for wildly different reasons can overwhelm the GSE Shit Wall, but it won’t be easy.
One definition of crazy is doing the same thing, time and time again but expecting different results.
Color me crazy.
This past week, the Washington Post had a lead editorial endorsing a new Jeb Hensarling (R-Tex.) “I’m leaving town” GSE reform bill, which gives the mortgage world to the not so worthy Michael Bright and Ginnie Mae, as well as—naturally—the big banks.
It took me about two minutes after reading the latest commentary to respond, sending a letter to the Washington Post editor based on the paper’s Hensarling proposal ratification. (Linked below.)
Yawn, yawn, the Washington Post editorially pounds Fannie and Freddie, yet endorses an inefficient replacement arrangement which still has Uncle Sam--via Ginnie Mae--picking up the tab for a bank-centric model, that claims to have private mortgage insurance taking major first losses.
Before such a rabid endorsement, the Post should realize that Ginnie is part of HUD--not the sharpest agency in town--has little experience/talent in managing conventional mortgages--meaning non-government backed--which most Americans have. Ginnie has several hundred employees while combined the GSEs have some 12,000 managing their large mortgage-backed securities portfolios, which need close and deftly supervised oversight, "stress tested" multiple times per day as rates and strategies constantly change?
Does that sound like an easy HUD task to you?
Ginnie Mae, in the past relied both on Fannie Mae and Freddie Mac, to provide the agency's "back office," because the government’s resources and talent were so thin.
Ginnie--as the securitizer of FHA/VA loans, where lenders not Ginnie personnel do most of the work--also was in the middle of several major FHA problems, especially in inner cities where most government loans originate and abuses occur.
After deciding if Ginnie Mae truly is capable of operations envisioned in the legislation, the Post also might want to ask:
--Does the smallish mortgage insurance (MI) industry (a shrinking handful of companies)--which the Post says is part of the solution (to what?)--have or can raise sufficient capital, efficiently, to replace Fannie and Freddie??
--Also why has the MI industry historically had turmoil when lenders sought to get it to pay legitimate claims??
--Whether new Ginnie head Michael Bright is up to the task or merely is a one-trick pony, carrying water for the big banks, since no matter where he's toiled, he's always been associated with plans to do away with the Fannie Mae and Freddie Mac??
This latest legislative proposal will go nowhere because Congress isn't ready to spring on the American people the inevitable delays, inefficiencies, cost, and chaos, of a new mortgage finance system, when the current one working efficiently.
Despite the sponsorship of Chairman Hensarling, who soon will leave the Hill, his scheme is far less efficient than the current GSE model and only gives the big banks a greater share and say in US mortgage decisions.
Lastly, nothing is happening before 2019.
William R. Maloni
I was on a “Don Quixote binge” last week, tilting at anti-GSE wind mill operators, since I also responded via email to Daniel Press at the Competitive Economic Institute, who wrote an article picked up by “GSE Links,” blaming the GSEs for the 2008 financial meltdown.
"That housing collapse itself was a consequence of an unprecedented number of weak and risky mortgages, driven predominately by the government-sponsored enterprises, Fannie Mae and Freddie Mac. When many of these mortgage holders defaulted, the mortgage-backed securities held by financial institutions around the world also buckled, leading to the financial crisis."
(D. Press in Competitive Economic Institute publication)
How does all of that Rightwing Kool-Aid taste Daniel?
It must be flavor rich because you've been writing this drivel for so long, you obviously believe it.
I won't even cite the most recent substantive and total rejections of your "GSE blame game"....(oh drat, yes I will, the 2018 FDIC report on the 2008 financial disaster, Fed Report on same, Phil Angelides' Financial Crisis Inquiry Commission report). Few agree with you, save the AEI guys and many in the GOP.
But riddle me this Mr. Conservative Solon?
How do you explain--in your myopic 2008 scandal worldview--the $2.5 trillion in near worthless, commercial bank "private label securities or PLS" (not GSE) underwritten and originated 2006-2007, securitized with the banks' own flimsy guarantees, falsely rated with purchased agency ratings, and sold throughout the world to institutional investors, quickly gushing red ink everywhere when they soon failed????
Those weren't Fannie and Freddie bonds, which--if you ever were honest--you would note the GSE MBS performed geometrically better in incidence and severity than their ersatz "private label" clones.
C'mon Danny just answer me where those actions fit into your explanation of the era?
They were not costless since the US taxpayers paid out to the banks far more in TARP funds than was infused into the GSEs, an action several federal lawsuits have suggested wasn't necessary because both Fannie and Freddie had market access (and capital), despite Hank Paulson claiming they didn't?
You bank-apologists always seem to ignore that commercial bank episode of the 2008 debacle.
Pardon me for being sarcastic, but I have to wonder why so many of your ilk pay no heed to this financial perfidy?
(Bill Maloni email.)
Further evidence that the Community Reinvestment Act is hardly the burden the banks suggest.
My letter/email comments above were offered to similarly themed recent posts. I sent them to various authors, generally Conservative, whose work appeared in different venues. But you get the flavor and feel.
Knowing the Post wouldn’t accept my letter, I shared a copy with Tim Howard. He responded this way.
“The editorial board has no understanding of what they're writing about; they just repeat what their "trusted sources" tell them. And I did see your response. But remember, you're writing to people who don't understand the subject matter and don't care to learn about it--they're just pleasing the "powers that be" that serve as sources for their news stories.”