Will one of you #$@&^%*, please, just act??

“You first Mr. Secretary; no, You go first your honors,”

GSEs, GSEs, GSEs, blah, blah, blah. Steve Mnuchin, for two years now, has been saying "free the GSEs!"
When is it going to happen, man?

Only the very politically naïve believe every single individual at the reputed “independent institutions” in the nation’s capital, like the Fed, the Supreme Court justices, or other judicial officials don’t read the newspapers or follow political events and developments.

Not in this town, because where you sit is where you stand.

In my last blog, commenting on when we might get a GSE decision from the en banc Fifth Circuit judges--which could turn upside down the 2012 Treasury cash sweep of all future Fannie and Freddie profits--I admitted that nobody knows the court’s schedule, let alone inclinations.

Also pending is a GSE case before US Judge Margaret Sweeney, which reportedly now has her court assistants putting tiny mirrors under the judge’s nose—just check if she is breathing--since this case has been pending for as long as GOT’s “Night King” has been threatening Westeros.

(Apparently, just last week there were reports of DC area 7-11 stores selling cartons of milk with Judge Sweeney’s picture on them!)

OK, those were(bad) jokes!

However, the delays the two legal actions are experiencing caused me to wonder if the judges in both cases are waiting for the Administration to move with its “GSE regulatory fix,” which reportedly has been in percolating stage for a dozen or more weeks and now is bouncing around between FHFA’s Mark Calabria, Treasury Secretary Steve Mnuchin, and Larry Kudlow, the latter writing the memo inserting himself in the review of the proposal? (I am sure that fact just made Mnuchin’s day.)

I’ll bet every big trade association has seen/heard some of the WH plan, which is probably why they are so twitchy!

BTW, the longer these non-judicial delays, including whatever is holding up the WH, only plays up their embedded  conflicts with  traditional GOP and Right Wing themes and what the latter hope to get out of a future mortgage finance system. Not that anyone seems to care what is best for the American consumers! (Shhh, it rhymes with "GSE.")

Then there’s this reality, the federal government must settle with GSE shareholders since the public’s junior preferred stock represents a “contract” with federal government.
 Any Treasury Department hope to create new “mortgage guarantors” to compete with the GSEs—however Treasury would do that—begs the questions of why would any sane investor put her or his money up when Treasury in 2012 aggrandized all future GSE earnings from Fannie and Freddie shareholders, without any forewarning or compensation?

That’s a lousy precedent to draw fresh money into the mortgage market through some banker’s and mortgage banker’s wet dream to abolish the GSEs.

Flash to the future from Secretary Mnuchin: Please Ms. And Mr. Investor, forget all about Hank Paulson, put your cash in these new whiz-bang thingy do’s and, trust me, I never will take your money from you, honest!

Keep that in mind when the anti-GSE TBTF bank crowd clamors for more private capital but also wants new federal guarantees for their own (which are not truly private) mortgage securities, because it’s a (not!) commercial bank standing behind that bank PLS. (A little more on that point, later.)

Riddle me this, guys, how would elements of this new bank legislative demand reduce the government’s “at risk” profile in the mortgage market?

Oh, I get it, those new Uncle Sam bank benefits (see the latest “Crapo principles”)—just like the bargain basement FDIC insurance it gives the depositories—can’t be considered a federal benefit, especially when the banks say, lamely, but “we pay for it?!!” (The last time I checked, about $7.5 Trillion in bank deposits was being protected by a $100 Billion FDIC fund!! Talk about leverage.)

Where I am headed with all of this is to suggest maybe this WH loves the GSE current status quo, feels no need to change anything, because its total focus is on the 2020 election.

Hurry up Fifth Circuit and/or Judge Sweeney, nothing but a positive plaintiffs’ decision could be big enough to move these Admin guys from their GSE reform odyssey taking real action.

But then—think about it--maybe the courts are waiting for the White House and the Trump Administration is waiting for the Courts, to provide cover with the Right, which may not like Treasury’s plan to privatize or recap and release Fannie Mae and Freddie Mac, about which I’ve often written, since nothing done in DC would surprise me.

Christopher Whalen, GSE Critic

I don’t often agree with Christopher Whalen, a dedicated “only in God’s lifetime” GSE critic. In fact I sharply disagreed with his ignorance/feigned avoidance of how deeply the nation’s banking system is riddled with federal bank subsidies.

https://www.nationalmortgagenews.com/opinion/can-we-privatize-fannie-mae-and-freddie-mac-really

But his article did contain this prose with which not only do I concur but I offer because it makes extremely difficult the task of those who would replace Fannie and Freddie with one of their “reform solutions.”

“The fact is that the GSEs are creatures of Congress and are de facto backed by the full faith and credit of the U.S., regardless of what the law may say. Welcome to Washington. Mess with this convenient fiction and liquidity in the secondary mortgage markets will be vastly reduced. Without the subsidy provided by the federal government, the revered 30-year mortgage will likely disappear as the market for secured mortgage finance evaporates. As the old saying goes, be careful what you wish for Secretary Mnuchin — you may get it.”

Thank Chris for an effective warning and reminder—from a GSE opponent--you offer the pols and DC stakeholders of what screwing with the current system could produce.

And—having little to do with Whalen—the political reality for the GOP and its allies to remember is that you can’t legislate or regulate memories away.

Until Treasury Secretary Hank Paulson, seeking to implement his ideological scheme to neuter Fannie and Freddie--and serve the TBTF institutions, while claiming he was protecting and preserving the GSEs—harassed and blackmailed their boards to accept his $189 Billion ersatz solution 11 years ago--neither Fannie or Freddie ever required emergency federal financial support (and, as the courts now are haggling over, maybe didn’t need it in 2008!!).

The GSEs—which printed the factual law at the time “not the full faith and credit of the federal government” on every debt instrument or security-- covered all of their own losses from earnings before the infamous Paulson Shanghai.

I may be repeating stuff said before but it never hurts to separate the honest facts from the storm of distortions from the big bank, anti-GSE crowd since they keep spreading all town, along with a lot of campaign cash.

For the Record:

In a previous blog, which I think I nailed, I suggested if Donald Trump’s two Federal Reserve Board candidates—Herman Cain and Stephen Moore-- not make it, Sarah Palin, with her rifle rack in hand, still is available for Fed service. Especially, if DJT just wants someone to follow his lead and screw up the Fed’s culture and works.

Well, with Trump’s recent “let me attack the Fed through idiot appointments” now behind him, several new names have cropped up who would support the President on anything he wants and are deserving, since he self-proclaims that he  nominates “only the very best.”

Highlighting my list of colorful potential Fed Board candidates are: losing Alabama Senatorial candidate Judge Roy Moore; former Arizona Sheriff Joe Arpaio; current Alt-Right fuhrer Richard Spencer; front line white supremacist, anti-Semite, and ex-KKK Wizard, David Duke; for balance there’s Louis Farrakhan, not a white supremacist but certainly an anti-Semite, ready for a Faustian DJT appointment deal; and there’s both Marcus Bachman, former Rep. Michelle Bachman’s husband (if he will give up his lucrative practice urging his clients to “pray away homosexuality” or as they call it “Pray out the Gay”--and former Congresswoman Bachman herself, would be good, since she served on House Banking and once visited a bank. Plus, if the Prez chooses Palin, Ms. Bachman  could team with the former Alaska Governor as a cabaret pair, “Fed ditzies for Trump;” last, there’s Ronald McDonald, but he has a good paying day job and gets to wear a neat outfit!

Since all Fed Board nominees require Senate approval, it shouldn’t be difficult to prep any of those “best” folks on the nation’s financial services system, US monetary policy, and the role of the Federal Reserve and related issues, since all would represent blank slates.

Maloni, 5-6-2019