Monday, April 15, 2019

Fifth Circuit and other meanderings...

GSE Scuttlebutt and other Informa$ion, some interesting!!

First off, I have a tiny clarification to last week’s blog, where I mentioned the world might hear a decision from the Fifth Circuit Court “in the next couple of weeks.”
That was accurate, but it also was pure guesstimate/speculation on my part.
Nobody knows when we will hear a Fifth Circuit decision and nobody knows the parameters of same—although a decision indeed could be coming shortly.

From this point on in this blog, I am practicing-without-legal-portfolio, SINCE I AM NOT A LAWYER, a factoid I will reduce to an acronym for my future blog purposes (“AAFL” or “ain’t a *&^$#@^” lawyer”).
Court Cases
In the shareholders wet dream, the Fifth Circuit Court will find the federal government guilty of an APA violation or possibly “takings” under the Constitution. The remedies are more vague and multiple but—if the sweep is ruled illegal--one form of relief might be Treasury writing checks to Fannie and Freddie for their past payments over and above what they would have paid under HERA’s original pre-sweep dividends (2012). That development could mean payments of @$60 Billion for Fannie and $45 Billion for Freddie.
But the same decision could end the sweep but produce a tax credit which would wipe of the Treasury’s senior preferred, leaving Fannie and Freddie with future tax credits of @$10 Billion each, but could open the way for profits staying with the companies to build capital.
Part of my conjecture is will the WH want to engage in any operational step that adds to the deficit immediately, which check writing post Fifth Circuit decision to the GSEs would do?
If the judges decide for the plaintiffs (the shareholders), the Admin could appeal to the Supreme Court or—if the judicial resolution and financial hit to Treasury was more attractive to the government--possibly because it was consistent with some aspect of its Mnuchin/Phillips/Otting/Calabria GSE fix, which now might need the ideologically unstable Larry Kudlow’s blessing--the government might accept the court’s ruling and seek to implement it.
If the Fifth Circuit decides in favor of the defendants, the federal government, the logical legal procedural remaining to the GSE crowd is an appeal to the Supreme Court, which may or may not agree to hear the case.
If the Administration opposes the Fifth Circuit’s decision and chose to appeal, while it sucks, I expect the “Supremes” will hear the case in a heartbeat.
Big Kahuna, indeed!
The stakes involve maintaining Fannie and Freddie in some measure of their original form, doing what they do best for the people of the United States—or swapping over a long time—a mortgage financing arrangement everyone knows for a scheme they don’t.
Not to mention the billions of dollars at stake when and if, a court finally decides on the legality of the “sweep, “issues still present even if the Fifth Circuit doesn’t favor the GSE forces.
Let me dwell on a more propitious near term outcome, a court finds for the GSE plaintiffs which includes true Fannie/Freddie operating space and real capital generating capacity.
Note, this could come either from a favorable (Fifth Circuit or even SCOTUS) court decision or from an Admin plan removing Fannie and Freddie from Conservatorship and recapitalized. Fresh capital could come from legal damages accrued, future earnings not offset by weird federal obligations, or just fresh GSE stock issued.
In this example, don’t look for the GSE opponents to walk away empty-handed. Those forces are too DC present and give too much campaign money to totally be stoned by the process, judicial or political. That’s especially true if we get a regulatory plan, where the Trump Admin it can decide winners and losers.
Someone in the GOP/trade association cabal will attach some obstacle, limitation, or handcuff to any GSE freedom.
Don’t ask why, it just always happens.
(Good time to point out a quote from Paul Muolo in last week’s Inside Mortgage Finance, when discussing the GSEs, he called them “the straw which stirs the mortgage banking industry drink.” It’s a fact and makes me/you/one wonder, why the MBA, then under David Stevens and now, Bob Broeksmit, always can be found in rank opposition to the GSEs on any variety of issues????)
Related/Unrelated—Maloni on “Clean Political Kills”
The reason for what I just wrote is that there are very few clean political kills or one-sided wins in DC, although every DC lobbyist (including this former one) will swear they produced or help secure one or more.
Where that was true, they were small compared to the issues discussed here and the massive dollars and systemic changes implicit—the nation’s $10 Trillion mortgage finance system and billions of dollars embedded in the remaining lawsuits against the Treasury, not to mention ongoing efforts to try and replace the GSEs with something which won’t be as efficient or fair, will be more costly and not as good for consumers (who vote!!), and predictably will get screwed up in implementation.
Think “Obamacare” and how clean that was and is.
My point being, Washington never does anything simple, neat, and starkly correct.
I hate to skewer more windmills for the good guys, but think of what I’ve written when you see those discussions of hoped-for GSE stocks prices in the hundreds.
Remember, before I get any complaints about 5th Circuit or share prices….AAFL!!

Maloni, 4-15-2019


Anonymous said...

When I think ObomaCare I think NWS. When I think NWS, I think Oboma.
Bla, bla, bla on the GOP this and GOP that. The sweep (theft) was installed under an extremely far left Democrat and the only hope is that a Conservative Administration rights it. Each side has their greedy and corrupt motives, you just continually focus on one. There is a long history of how this mess started way before Trump, Husain or Bush.

Bill Maloni said...

Looks like I am writing for more people than you. But thanks for your reading and writing.

Reformed Apologist said...

Sadly, little Jo Jo on Google board deletes the posts of a big investor (common and preferred) who understands what’s going on. This investor answered your question tonight, but little Joey deleted it because he’s a coward.

Bill Maloni said...


You're speaking in "tongues?"

TruGld said...

I agree with you 100%, there is no way the GSE'S are left unscathed, one way or another they will be carrying a large ball at the end of a chain.
However, I can't find a solution where they are not pushed out the c-"ship" right back into the ocean, where swimming will be a bit more challenging.
On the other hand, I don't see a wipeout for the shareholders.
Definitely not a stock price in the 100's that's for sure, but I just don't see the administration intentionally looking to wipeout the common investor. That would saddle blame and tarnish credibility in upcoming election season with no "CRISIS", or accounting gymnastics, to use as cover. It would just be bad politics and as you mentioned before elections are great incentives, wiping out the investor when it's just not necessary would diminish the accomplishment.
A trifecta is the goal...Release the GSE'S, pander to the Banks "enough", and throw some bread to the common man.

Bill Maloni said...

Tru--You should write this blog!!

I am an investor, but my highest priority is seeing the GSEs return as much as possible to their original financing role because that's where they can produce the greatest good for the nation, its consumers, communities, and professionals in the mortgage finance business.

stock prices and related concerns will work themselves out if the GSEs still are well regulated but are free to make market-related decisions.
Thanks for reading and sharing your opinions.

HR said...

Thanks for all the info you post, Mr. Maloni. If I understand the history of bad blood (or, some of the essentials of it) between FnF and Treasury and the banks well enough would I be correct to state that the biggest beef from UST and the banks was that FnF were using their implicit guarantee to: 1) borrow cheaply, 2) perform their affordable housing and liquidity jobs, and 3) use some of their cheap funding to speculate/hedge/invest. And they made a lot of money and paid themselves very well and had the best lobbyists working for them.

Now that those naughty little side activities have been stopped years ago wouldnt the banks be somewhat pacified by now? Or it is so personal its like Michigan vs Ohio State in football? They will always hate. Wouldnt a lot of people have already retired by now?

Now I know FnF make billions and the banks want some of that biz.But after trying for over 10 years to kill them and salt them so they never come back and escape as it were...they have to see that it aint gonna happen. So what now, highly regulate them, restrict them, shrink them? How much does the pound of flesh that they are going to extract actually weigh?

And last question for you, Sir: Do you know why the Sweeney court is so slow? She has to have already seen all the dirty docs and know that the govt is lying and did some bad bad things. I hope the 5th circuit en banc goes nuclear on the defendants. Cheerio and thanks for your postings.

Bill Maloni said...


Your analysis is not perfect close enough "for grenades" or horseshoes; last is the first.

Sweeney has said all the right things but has moved most sloth-like. Is she eyeing judicial elevation and wants to be on the "right side," literally and figuratively. I have no idea because of I "ANFL." (See Fifth Circuit comments in my latest blog.)

Amazingly, most real lawyers blithely accept these things (more time to bill clients?) and just shrug it off wiht, "Oh that's how the court operates."

I have no better answer.

I am forced to go back to your analysis for a moment.

Treasury and Fed beefs (institutional) were that the GSEs were not banks and their activities weren't easily controlled, which is what you get when Congress gives you private management, shareholders, and tells you to achieve a statutory mission, gives you private management and does not want you to operate like HUD, earn a profit, etc.

Banks somehow believed the GSEs were "advantaged" and wanted to balance or end that arrangement. With the Reagan Admin, they got major political support.

The hypocrisy of the banks is that their "cost of funds," generally what they pay on deposits is/was far lower than GSE costs borrowing in the debt markets, because of the subsidized rate the depositories pay for FDIC coverage. It goes way beyond that, very supportive/husbanding federal bank regulators, i.e soft money windows at Treasury and Fed (which reportedly lent the banks $4 Trillion during the 2008 meltdown); the exclusive "non-conforming" jumbo mortgage market, when the GSEs are not permitted to compete, about 10% of all loans written but historically about 25% of the dollar volume. There are numerous bank assisting facilities (Ex-Im Bank, etc.), none of the latter there for Fannie and Freddie.

On the "why don't they quit after 10 years of failure?"

Think trade association heads justifying their salaries and agendas and uninformed membership--intimidated by their larger counterparts--and not willing to urge "their employees in DC" to change the tune.

All industry issues I am sure you understand, which don't require a DC zip code.

Anything which injures or wings the GSEs will be hoisted like a scalp by the anti-GSE trades and their own legion of lobbyists, again saying to the membership, "See we told you we are needed. (At a time when the GSEs have no lobbyists!!!)

It takes "leadership" and someone saying "enough of this crap" and here's what we are going to do, which today only can come from the WH. (As I noted, even a pro-plaintiffs court decision will have some/many loose ends.)

And that final procedural step only will be done when--after adding up the winners and losers--the Admin moves and then gives some goodies to those perceived as losing; ergo when the "no clear wins" comes in.

I hope I've answered your questions, but I am afraid I've left you with the same thing my 97-year-old Aunt say when we talk twice a week.

"Bill, I've had it, I'm fed up wiht all o them. Isn't there anyone in DC who listens to the people does what they want them to do?"

No Aunt Goldie, there are not many!

Thanks for reading and writing HR!!!

HR said...

Thank you very much for the answer!

Anonymous said...

"why don't they quit after 10 years of failure?" and the answer is "trillions of dollars at stake".....Old Hanky Paulson Ex-CEO Goldman Sachs..turned treasury secretary... knew how the system works and he was trying to get his banker buddies the trillion of dollars...he has done a great job of stymieing F&F....for 10 years.
The Investment houses "Goldman and others"and the Big Banks will fight to the end...

Anonymous said...

More on Hanky from Wikipedia

Conflict of interest claims

It has been pointed out that Paulson's plan could potentially have some conflicts of interest, since Paulson was a former CEO of Goldman Sachs, a firm that might benefit largely from the plan. Economic columnists called for more scrutiny of his actions.[39] Questions remain about Paulson's interest, despite having no direct financial interest in Goldman, since he had sold his entire stake in the firm prior to becoming Treasury Secretary, pursuant to ethics law.[40] The Goldman Sachs benefit from the AIG bailout was recently estimated as US$12.9 billion and GS was the largest recipient of the public funds from AIG.[41] Creating the collateralized debt obligations (CDOs) forming the basis of the current crisis was an active part of Goldman Sach's business during Paulson's tenure as CEO. Opponents argued that Paulson remained a Wall Street insider who maintained close friendships with higher-ups of the bailout beneficiaries. Some time after the passage of a rewritten bill, the press reported that the Treasury was now proposing to use these funds ($700 billion) in ways other than what was originally intended in the bill.[42]

Bill Maloni said...

Try getting people to believe that Hank Paulson told a gaggle of his NYC buddies he was going to take down the GSEs before he did it (time to get your bets in/down??)

Yet that meeting has been reported and documented, time and time again. Has anything ever happened to HP because of it???

Anonymous said... Hope is that it will all come out,and he and others involved will pay

Read all of that and then some.....

The BIGGEST Theft in American History....
and we witnessed it right out in the need for any armament or to have hidden it as no one would ever believe it..after all he saved us all riding in on his Gleaming White Stead...bragged about it in his book...sound like another... Keep the lies coming.... noD pmurT

Bill Maloni said...

The Paulson "Evermore" story has been out and.....Nada!

Hate to beat a dead horse, but you can get away with a lot of crap, when the GSEs are on the receiving end, as 10 years worth of big bank money and propaganda has produced.

No financial services company--recipient of Treasury support--were as poorly treated as the GSEs (because Paulson had an ideological agenda which went beyond keeping them afloat and supporting the mortgage market).

No private company had Treasury create 79.9% ownership stake with pledges to keep them healthy reneged 4 years later, when his D successor "swept" virtually every penny of earnings when it unilaterally changed the repayment rules, while refusing those to allow those fresh earnings to reduce the GSEs original obligation; ergo they paid Treasury more than $300 Billion on the @$189 Billion infused, but that obligation still exists.

Just to ensure that nobody in DC--or the world--would understand the details, they denied the GSEs their corporate first amendment rights and had them all but do away with their lobbyists and corporate communications, advertising, etc.

Anonymous said...

my Hope is that it will all come out,and he and others involved will pay....

summed below you are so right...

"No private company had Treasury create 79.9% ownership stake with pledges to keep them healthy reneged 4 years later, when his D successor "swept" virtually every penny of earnings when it unilaterally changed the repayment rules, while refusing those to allow those fresh earnings to reduce the GSEs original obligation; ergo they paid Treasury more than $300 Billion on the @$189 Billion infused, but that obligation still exists.

Just to ensure that nobody in DC--or the world--would understand the details, they denied the GSEs their corporate first amendment rights and had them all but do away with their lobbyists and corporate communications, advertising, etc."

None should be let off the hook......
Both political parties are faulted when it comes to the GSE's
They all know of the complexities the average jane/joe can t even begin to rap there pea b's around the issues. One does not have to look very far to see
most are so off the bag...Ones Beliefs blind themselves quickly.

Thanks for writing this blog....appreciate your humor and your ability to blacken the eye of either political persuasion :)

Bill Maloni said...

Part of the problem may be some of the 20-year-old corporate adages on which we followed through and which I still try and employ, although absent the resources of two decades ago.

"Throw one brick too many rather than one too few."

"If you punch my brother, I will burn down your house!"

Stories behind the story.

You don't know how much of the truth you are speaking; part of Jim Johnson's political genius was the realization that nobody--even in the business or certainly on the Hill--knew much about how the FSE operated, which is why he wanted to generate massive public understanding and uspport so that your "jane/joe" would have a reason and be in a position to rally, at least lean on their own Senators and Representatives, when the inevitable crap went down.

We learned the hard way that "A lie can travel around the world, while the truth is getting up in the morning."

They bad guys did a lot of lying and got away with it.

Anonymous said...


Keep up the outstanding work. I learn something new from you every time you post!

I do wonder how Jamie Diamond's recent comments resonate with those who would like to see the big banks take over for FnF.

"You’ve got to look at that and ask a lot of questions about whether banks should even be in” the mortgage business.."

In any event, keep this conversation going Bill!

PS....I assume you will be taking a few days of mourning for your beloved Penguins. :-)

Bill Maloni said...


Re Dimond. Who on the Hill is listening and comparing alternative systems?

I plan to mourn for the Pens's season, but won't bury the franchise, yet!!

Now I can route for the Pirates who started two players--last night--hitting below .100!! You or I could do that and for far less money.

But, they wear Black and Gold and have Pittsburgh on their unis, but talk about a AAA lineup disguised as major leaguers. They just need to get me through the NFL draft in 9 days and the start of Steelers training camp in July--to get my necessary "Sports Jones" supplied!!

And then the Pens will be back in September.


GSE volume today has tripled, based--I think--on the rumor the WH will do something GSE positive to cover any embarrassment over Muller findings.

Beware pump and dump.

TruGld said...

Thank you for the compliment Bill, but my knowledge of the Mortgage market and the history of the GSE's is no where near yours...I will leave the cogent arguments to you and offer tidbits to look smart on occasion.
I know when to stay in my lane!
Besides, I don't think we will always agree but I value your opinions because your passion is not spoiled by politics, it is tainted by principles and morals ;-)
These are the best people to converse and exchange ideas with because principles may not be the same in a discussion or even an argument, but morals in good people are universal so I think at the bottom of any issue you will look to the issue not the politics and that's what matters most.
I greatly appreciate your insight and alway check in for your opinions and/or interpretation over the years.
You're a good man, I don't care what Trump says about you ;-)

Bill Maloni said...

I've tried to tell the Trumplicans, I'll change my ways (slightly) as soon as DJT changes and begins acting like a more traditional President, respecting our nation's people, our history, its guiding principles, and quit spewing hatred to appease that segment of our country which buys into his aberrant, racist, misogynistic behavior. They--mostly--were here when he came on the scene. While I don't directly blame him DJT for their existence, I think he made it far more acceptable to come out from under their rocks.

Ergo, I am betting I won't have to change much!!

We no longer are a "White country" and nothing will change that demographic.

Again, thank you for reading and writing.

(Working on a new blog which should be out late this week or a week from now.)

TruGld said...

Look forward to reading the new blog...
You will most definitely have plenty to write about, particularly after today's price action and Calabria's interview.

Bill Maloni said...

Yes--Calabria--in my opinion and that of others--is both whistling past the graveyard and also being very inconsistent/illogical, reflecting that he really doesn't understand how the mortgage markets works and how his comments--worriedly--fall on the ears of future investors.

It shows you can have a nice shiny degree, worked on the Hill, and for the Veep, and still mumble inanities and not comprehend true market forces.

The Hill never will produce the legislative structure he advocates, as long as D's hold the House.

Bill Maloni said...

When I responded earlier to TG, I hadn't read Tim Howard's blog and seen his response to the Calabria comments.

If you haven't seen what Tim said, I encourage you to do so now with the link below.

TruGld said...

Just read it...good stuff, always need to hat tip the guru.

Bill Maloni said...

Tim is just that but think about how often you've seen reporters use him for quotes, especially when compared to the "usual suspects" from the trades an elsewhere?

You won't find many because--in my weird opinion--the reporters are reluctant/afraid to engage with him because of his smarts and GSE intellect (which expose what they don't know).

Imagine having the smartest guy in the GSE world so close to the action but neglecting to get his input on whatever GSE story, angle, development, you plan to cover??

TruGld said...

That's where I put my tin foil hat on, pull out my easel and enormous paint brush for a really broad stroke of disdain.

I have an enormous collections of books (the tablet bug just ran right by me) and after reading everything and anything on all sides of the political spectrum.
I was intrigued a couple of years ago by Nomi Prins. She has put out some outstanding literature and it consistently reminds me (All The President's Bankers, rather voluminous but worth the read)..."It doesn't matter who the smartest person is, it matters who is PAYING the smartest people to speak the loudest".

I've always said, If you want to destroy truth take away it's voice and pay someone to stand next to him yelling lies to the ignorant. Ie...CNBC, FOX, MSNBC, Wells Fargo, Milken, WSJ, JPM ETC...the list goes on...

Bill Maloni said...

As I wrote last week or whenever, "Lies travel around the world, while the truth is just getting up in the morning."

When I worked on the Hill, there was a notorious HBC staffer, Curt Prins, very creative and bold (and a few other things), named Curt Prins.

I wonder if he has/had(?) any relationship to you author??

TruGld said...

No idea but I'd be curious to find out...

Bill Maloni said...

Me, too.

TruGld said...

Quick heads up on an article by Hannah Lang. (American Banker)
Very informative and good insight with timeline and actions in the coming year proposed by Calabria.
Not sure of your feelings on a post of her full article (you need a subscription) I can post it if you like.

Bill Maloni said...


Bill Maloni said...

New Blog out Monday.

TruGld said...

New Bookmark on Monday

Bill Maloni said...

(Actually, be out tonight, dated tomorrow.)