Why Treasury won’t end conservatorship

The Wall Street-Washington Aristocrats desire FnF eliminated or reduced to a former shell of themselves so Big Banks can monopolize the housing finance industry.


Jack Lew, Citigroup and the Ugland Truth

March 8, 2013 by Michael Winship

Along with its sandy beaches and quality snorkeling, the Cayman Islands’ reputation as an offshore tax haven for corporations, banks and hedge funds has become so well-known its financial institutions now are featured in travel brochures as yet another tourist attraction.

So as we traveled across the Caribbean this week — including a stretch paralleling the south coast of Cuba past Guantanamo Bay and the Sierra Maestra mountains, where Castro and his revolutionaries once hid out — we made a stop in George Town on Grand Cayman Island. A short walk along the shore took us to 335 South Church Street, a location made famous by Barack Obama a few years ago and more recently, Jack Lew, during his confirmation hearings to become Secretary of the Treasury.

There you’ll find Ugland House, a five-story office building that, according to a 2008 report from the U.S. Government Accountability Office (GAO), houses 18,857 corporations, about half of which have billing addresses back in the States. It’s the business world equivalent of one of those circus cars that’s packed with more clowns than you thought possible. In 2009, Obama said of Ugland House, “either this is the largest building in the world or the largest tax scam in the world.”

In Foreign Policy magazine in January 2012, Joshua Keating wrote that in reality Ugland is neither but, “… the building makes a mockery of the U.S. tax system.”

Keating noted that the Caymans have no direct taxes, it only costs some $600 to set up a company address there – while the company does business around the world — and that “the Caymans also allow U.S. non-profit entities like pension funds and university endowments to invest in hedge funds without paying the ‘unrelated business income tax,’ which could be as high as 35 percent if those funds were based in the United States.” He also cited “concerns that the complexity and lack of transparency in Cayman Islands transactions can make tax evasion and money laundering easier, though,” he adds, “… the vast majority of Cayman Islands transactions are entirely legal.” This is what the Internal Revenue Service euphemistically described to the GAO as “the Cayman Islands’ reputation for regulatory sophistication.”

Ugland House offers one-stop shopping — it’s also headquarters for the international law firm Maples and Calder, experts at greasing the wheels for corporations wishing to do business via the Caymans. Recently, for example, it was announced that Maples and Calder is serving as Cayman Islands legal advisor to Seven Days Inn, a budget hotel chain in China. In a deal worth an estimated $688 million, Seven Days is being taken private by a consortium, the members of which include the Carlyle Group, the asset management company – third largest private equity firm in the world — whose past advisors and board members have included George H.W. Bush, former Secretary of State James Baker, former Defense Secretary Frank Carlucci and former British Prime Minister John Major. The consortium has lawyers in the Cayman Islands, too.

Jack Lew is… so deeply immersed in the old boy nexus of Wall Street and government as to have little comprehension of how, in the midst of a soaring Dow Jones, so many millions struggle to make ends meet.Wheels within wheels. One of the thousands of entities registered at Ugland House is Citigroup Venture Capital International, a private equity fund in which our new Treasury Secretary Jack Lew invested $56,000 while he was an executive at Citigroup. He sold the investment, at a loss, for $54,118 in 2009 when he joined the Obama administration. Asked at his Senate confirmation hearing whether he knew that Citigroup had a presence in the Caymans – 121 subsidiaries, in fact, including the fund in which he had invested — Lew professed, “I do not recall being aware of any particular Citigroup subsidiaries located in the Cayman Islands.”

That may seem odd, given that, as Bloomberg News and others noted, Lew was managing director and chief operating officer of Citi Global Wealth Management, then moved in 2008 to Citi Alternative Investments, “which managed billions of dollars in private-equity and hedge-fund investments” — the kinds of deals that are as common in the Cayman Islands as piña coladas.

Granted, Lew has said on several occasions that he wasn’t responsible for Citigroup’s investment decisions. And true, $56,000 to many is minuscule compared to the aforementioned $688 million Chinese hotel deal, and may seem even less when stacked up against an estimated up to $11.5 trillion in offshore assets held worldwide. But as Iowa Republican Chuck Grassley pointed out to Lew at the Senate confirmation hearings, with his toe dipping into Cayman Islands-based funds, “You invested more money there than the average American makes in a year.”

And that’s the problem. Jack Lew is, by all accounts, a decent guy and dedicated public servant, but like so many of our recent treasury secretaries – Robert Rubin, Henry Paulson, Timothy Geithner – so deeply immersed in the old boy nexus of Wall Street and government as to have little comprehension of how, in the midst of a soaring Dow Jones, so many millions struggle to make ends meet. Nor, we fear, much willingness to resist when the next fiscal meltdown hits and the banks once more demand taxpayer billions to be taken off the hook they baited themselves.

In the weeks leading up to his swearing-in at Treasury, we learned how New York University, a non-profit, gave Jack Lew more than a million dollars in mortgage loans when he became executive vice president of operations there and a $685,000 severance when he left the university to join Citigroup – all at a time when student tuition fees were going through the roof (and NYU was receiving a kickback: .25 percent of net student loans from the bank it was pushing to students as a “preferred lender” — Citigroup). And we learned that Lew’s multimillion-dollar Citigroup contract included a $944,518 bonus if he moved on to a “full time high level position with the U.S. government or regulatory body.” (Remember, too, that in the years while Lew happened to be there, Citigroup’s stock lost 85 percent of shareholder value as it received $45 billion in taxpayer bailout cash.)

Jack Lew and his employers have provided seemingly logical explanations for all of these — Kevin Drum at Mother Jones magazine was told that Lew’s Citigroup bonus for moving to a government job, negotiated up front before said job happened, “avoids the problem of voluntarily either paying or not paying a big bonus to someone who will exercise power over it in the future.”

So keep your eye on Jack Lew’s stewardship of the nation’s bankbooks. You may know him by the company he keeps. As the poet wrote, no man is an island — Cayman or otherwise.


It’s not journalism…it’s thought control

Rupert Murdoch is Big Media working with Big Banks to control Washington… and the rest of us…


“With the dawn of the new century, Murdoch continued to expand News Corp’s holdings to control more and more of the media people view on a daily basis. In 2005, he purchased Intermix Media, the owner of the popular social networking site MySpace.com. Two years later, in 2007, the longtime newspaper mogul made headlines himself with the purchase of Dow Jones, the owner of the Wall Street Journal.

Murdoch has drawn wide criticism for monopolizing control over international media outlets as well as for his conservative political views, which are often reflected in the reporting of Murdoch-controlled outlets such as FOX News Channel. In the 2010 American midterm elections, News Corp donated $1 million each to the Republican Governors Association and the U.S. Chamber of Commerce, a group supporting Republican candidates. Critics argued that the owner of major news sources covering the election should not contribute directly to the political campaigns involved.

His empire, however, was dealt a significant blow in 2011. His London tabloid, The News of the World, was caught up in a phone hacking scandal. Several editors and journalists were brought up on charges for illegally accessing the voicemails of some of Britain’s leading figures. Rupert himself was called to testify that same year, and he shut down The News of the World. News Corp later paid damages to some of individuals who were hacked.

Despite this scandal, News Corp retains a significant share of virtually all forms of media across the globe. Murdoch owns many of the books and newspapers people read, the television shows and films they watch, the radio stations they listen to, the websites they visit, and the blogs and social networks they create.”

Comments to FHFA General Council Pollard


Dear Mr. Pollard,

Thank you for asking for input on the Housing Trust and Capital Magnet Funds.

Fighting homelessness is a personal cause for me, so I support the funding of both the HUD and Treasury funds.

However, doesn’t the effort appear disingenuous to you? On the one hand the US Government (FHFA & Treasury) states that the GSEs are failed entities and can never return to the market in their former selves. Then, on the other hand, the US Government is claiming that the GSEs are so profitable that they should fund government-sponsored charitable endeavors. Am I alone in finding this duplicity hard to comprehend?

Therefore, would it not make sense to end the Sweep and release the GSEs from Conservatorship? Wouldn’t these reversals allow the GSEs to generate higher profit, thus increased contributions to both funds?

Further, I trust you share in my hope that the individuals who had their retirement funds invested in the GSEs destroyed (due to the Sweep) are not the very same individuals who will need to rely on the Housing Trust Fund and the Capital Magnet Fund in their golden years of life.

Thank you again for allowing comment. I hope you are enjoying the holiday season!

Fan O. Fred


Eddie “The Decimator” DeMarco: Part 2

This post is Part 2 of 2 and picks up from yesterday’s post “Edward DeMarco: “Treasury cannot be repaid under any foreseeable scenarios.””

These two posts are exploring some of the history of the Conservatorship.  A forthcoming post will consider what the future may unfold regarding Conservatorship.

Recall that FHFA Acting Director Edward DeMarco sent a plan to Congress in February 2012:

A Strategic Plan for Enterprise Conservatorships: The Next Chapter in a Story that Needs an Ending 


As noted yesterday, Mr. DeMarco asserted to Congress in his Strategic Plan “…it is clear that the draws the companies have taken from the Treasury are so large they cannot be repaid under any foreseeable scenarios.”

However, while making that bizarre, baseless claim he also stated “…FHFA has filed 18 separate lawsuits in connection with alleged securities law violations in private-label mortgage-backed securities purchased by the Enterprises.”

How could Mr. DeMarco at the time claim that the Enterprises could never repay “the draws from Treasury” when FHFA had 18 outstanding lawsuits with an unknown amount of damages to be collected? We now know the bank settlements were in the billions of dollars, which Mr. DeMarco would have foreseen!

It is clear that Mr. DeMarco, acting as Conservator, never intended to repay “the draws from Treasury.” He entered into the Net Profit Sweep Agreement just six months after his February 2012 report to Congress.  The Sweep made it impossible for the Enterprises to repay “the draws.”

“The strategic goals and performance objectives set forth here provide an outline for the next chapter of conservatorship, one that focuses in earnest on building a secondary mortgage market infrastructure that will live beyond the Enterprises themselves.

This plan does not anticipate Fannie Mae and Freddie Mac continuing as they existed before conservatorship. And though the Enterprises may well cease to exist at some point in the future…an orderly transition to a new structure is needed.

This next chapter will also see a gradual reduction in the Enterprises’ dominant position in holding mortgage credit risk as private capital is encouraged back into that role.

Today, this business line is already on a gradual wind-down path. The Treasury support agreements require the Enterprises to shrink their retained mortgage portfolios at a rate of 10 percent per year.”

So, the plan was to not repay Treasury and to have the government seize Fannie and Freddie so that they could reverse-engineer their securities platforms in an effort to build a better mousetrap for themselves vis-à-vis today’s Common Securities Platform.

The Strategic Plan did offer a glimmer of hope for the Enterprises. Even though Mr. DeMarco frequently refers to Fannie and Freddie “ceasing to exist,” the Plan alludes to diminished and weakened Enterprises where they would lose their “dominant position” in the market.

Further, the plan notes “multifamily lending has played an important role in how the Enterprises have fulfilled past affordable housing mandates…

In conservatorship, the Enterprises have seen their market share grow in the multifamily sector but they do not dominate that market as they do in single-family.

…contracting the Enterprises’ multifamily market footprint should be approached differently from single-family, and it may be accomplished using a much different and more direct method. To evaluate how to accomplish the second strategic goal in the multifamily business, each Enterprise will undertake a market analysis of the viability of its multifamily operations without government guarantees. This will require market reviews of their respective business models and the likely viability of those models operating on a stand-alone basis after attracting private capital and adjusting pricing, if needed, to attract and retain that capital.”

So, the intent of the government take-over of the private companies of Fannie Mae and Freddie Mac was intended to make them less competitive in the single-family mortgage business while allowing Big Banks to dominate on this playing field.

The problem is that the shareholders of Fannie and Freddie did not get to vote on this vitally important issue.

The secondary goal was to seize the companies’ back office systems and to have the Enterprises design and pay for the new securitization platform that will be turned into a “public utility.”

The problem is that the shareholders of Fannie and Freddie were not compensated when their assets were seized Gestapo-style, nor will the shareholders likely be compensated for the creation of Common Securitization Solutions, LLC, which Fannie and Freddie are funding.

I’ll conclude this review of Conservatorship through the nearsighted eyes of Mr. DeMarco à la Mr. Magoo… We all do wish to see Mr. DeMarco again in the very near future at a court proceeding, Congressional inquiry, grand jury, special prosecutor, etc. etc.

In a future post, I will review the likely direction Conservatorship is heading under FHFA Director Melvin Watt who is nearing celebration of one year in the role. Godspeed Mr. Watt!


Senators’ Letter to Director Watt: January 2014

Press release on Senator Schumer’s official website:



“Fannie Mae and Freddie Mac have since fully repaid the taxpayers.

In addition to being one of the authors on the legislation to create the National Housing Trust Fund, Senator Schumer along with 32 of his Senator Colleagues wrote to FHFA Director Mel Watt urging him to fund the National Housing Trust Fund and The Capital Magnet Fund.”

The letter that Senator Schumer references was written and signed by 33 Senators in January 2014 and is posted here:

January 24, 2014

The Honorable Mel Watt
Federal Housing Finance Agency (FHFA)
400 7th Street, SW
Washington, DC 20024

Dear Director Watt:

We write first to congratulate you on being confirmed and sworn in as Director of the Federal Housing Finance Agency (FHFA). We also share your concern about the need for more affordable rental housing in this country and ask that you end the suspension of contributions to the National Housing Trust Fund (NHTF) and the Capital Magnet Fund (CMF), in a manner fully consistent with all applicable laws, rules, and regulations.

The affordable rental housing crisis that prompted Congress, on a bipartisan basis, to create the NHTF and CMF has only gotten worse in the last five years. Since passage of the Housing and Economic Recovery Act in 2008, the number of homes that are affordable to renters with incomes at or below 30 percent of area median income decreased by more than 1 million units. According to the Harvard Joint Center for Housing Studies, there is currently a national shortage of nearly 5 million units affordable and available to extremely low-income renters. Funding the NHTF and CMF would help ameliorate this crisis.

We are all committed to reforming the mortgage finance system and do not believe Fannie Mae and Freddie Mac should be returned to their previous form. However, directing much needed funding for affordable rental housing should not wait until Congress and the President are able to agree on a new system. The time is long overdue to lift the current suspension of contributions to the NHTF and CMF, and we ask your full and fair consideration of our request.

We look forward to hearing from you in a timely fashion and working with you as FHFA Director on this and other important matters.


Jack Reed
United States Senator

Barbara Boxer
United States Senator

Elizabeth Warren
United States Senator

Bernard Sanders
United States Senator

Patrick Leahy
United States Senator

Richard Blumenthal
United States Senator

Carl Levin
United States Senator

Jeff Merkley
United States Senator

Chris Murphy
United States Senator

Ed Markey
United States Senator

Jeanne Shaheen
United States Senator

Debbie Stabenow
United States Senator

Tim Kaine
United States Senator

Kirsten Gillibrand
United States Senator

Cory Booker
United States Senator

Al Franken
United States Senator

Ron Wyden
United States Senator

Mazie Hirono
United States Senator

Richard J. Durbin
United States Senator

Robert P. Casey, Jr.
United States Senator

Tammy Baldwin
United States Senator

Amy Klobuchar
United States Senator

Tom Harkin
United States Senator

Sherrod Brown
United States Senator

Sheldon Whitehouse
United States Senator

Dianne Feinstein
United States Senator

Robert Menendez
United States Senator

Charles E. Schumer
United States Senator

Patty Murray
United States Senator

Benjamin L. Cardin
United States Senator

Barbara Mikulski
United States Senator

Brian Schatz
United States Senator

Mary Landrieu
United States Senator


Edward DeMarco: “Treasury cannot be repaid under any foreseeable scenarios.”

Part 1of 2

In February 2012, just six months prior to implementing the Net Profit Sweep Agreement, FHFA Acting Director Edward DeMarco sent a letter and an updated Strategic Plan to Congress entitled:

A Strategic Plan for Enterprise Conservatorships: The Next Chapter in a Story that Needs an Ending


In the plan, Mr. DeMarco makes two claims:

  • “…it is clear that the draws the companies have taken from the Treasury are so large they cannot be repaid under any foreseeable scenarios.”
  • “The absence of any meaningful secondary mortgage market mechanisms beyond the Enterprises and Ginnie Mae is a dilemma for policymakers expecting to replace the Enterprises. This fact was a key motivation for the conservatorships and for the Treasury support agreements in the first place.”

On the first point, Mr. DeMarco was either patently wrong or he intentionally mislead Congress. The Senate and Housing Banking Committees should have initiated inquiries into the circumstances contributing to the February Strategy Update…and they still can conduct investigations.

The second claim is a clear admission of an ulterior motive.

So, if the first claim is a blatant lie, the second claim uncovers the truth. A “key motivation” of the take-over of Fannie and Freddie was to systematically disassemble them and move toward creating a new securitization platform. By now, we all know that the FHFA and Treasury instructed FnF to build the Common Securitization Solutions, LLC.

From an entry on my December 17 blog:

Mr. DeMarco adds “… while competing securitization platforms may emerge in the future, back-office operations arguably lend themselves to a public utility construct…”

That comment is a further elaboration on the ulterior motive. Mr. DeMarco, while serving as the seemingly conflicting dual role of regulator AND conservator, states his belief that the new securitization platform should be considered “a public utility.”

It’s hard for a company to survive when the pretext for conservatorship was contrived in the first place.  Then, combine that fact considering the Conservator’s self-admitted goal is to eliminate the companies and replace them with a public utility platform where Big Banks will dominate the landscape, it’s easy to see the conflict of interest.

“…by creating a path by which the Enterprises’ role in the mortgage market is gradually reduced while maintaining market stability and liquidity…this next chapter will also see a gradual reduction in the Enterprises’ dominant position in holding mortgage credit risk as private capital is encouraged back into that role.”

The February 2012 Strategy outlined three strategic goals…”for the next phase of conservatorship:

  1. Build. Build a new infrastructure for the secondary mortgage market.
  2. Contract. Gradually contract the Enterprises’ dominant presence in the marketplace while simplifying and shrinking their operations.
  3. Maintain. Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages”

So, the $200 Billion question is where are we with conservatorship?

“The final chapter, though, remains the province of lawmakers. Fannie Mae and Freddie Mac were chartered by Congress and by law, only Congress can abolish or modify those charters and set forth a vision for a new secondary market structure.

As with the securitization platform, the goal is not to rebuild Fannie Mae and Freddie Mac but rather to… build a new infrastructure for the future. The goal is not a proprietary system but rather an open system that promotes competition and transparency while forming a basis for a stable, liquid, and efficient secondary mortgage market.

Although that future may not include Fannie Mae and Freddie Mac, at least as they are known today, this important work in conservatorship can be a lasting, positive legacy for the country and its housing system.”

Did you catch that!?  Another goal for Mr. DeMarco was to create “a lasting, positive legacy” of his work. I guess the ends justify the means…

Perhaps Mr. DeMarco felt the same as Jonathan Gruber (Obamacare) that Americans are just plain stupid and that we would never figure out this scheme. Further, Mr. DeMarco probably also realized that if Americans did figure out the scheme, who would do anything about it?

Congress? (I chuckled to myself as I typed that)

The Administration? (they’re the perpetrators…!)

Courts!? (we’re trying…but these lawyer games are tricky!)

Seems like it might be a perfect multi-billion dollar crime!

Mr. DeMarco also said… “It is also worth noting that shareholders of each Enterprise effectively have already lost their entire investment.” This assessment is based on the original assessment that FnF ‘could not repay Treasury under any foreseeable scenario.’

How did Mr. DeMarco get that job!? And he was only an Acting Director! How Congress allowed an un-confirmed acting director to wield this much enormous power is baffling…

“FHFA has since overseen the largest, most complex conservatorships in history.”

…to be continued…


FHFA General Council Alfred Pollard Seeking Comments

Mr. Pollard is asking for your thoughts on funding the Housing Trust Fund and the Capital Magnet Fund.

Comments can be sent through this site: https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Housing-Trust-Fund.aspx


FHFA Statement on the Housing Trust Fund and Capital Magnet Fund



​​​The Federal Housing Finance Agency (FHFA) today directed Fannie Mae and Freddie Mac to begin setting aside and allocating funds to the Housing Trust Fund and the Capital Magnet Fund pursuant to the Housing and Economic Recovery Act of 2008 (HERA).   HERA authorized FHFA to temporarily suspend these allocations, and FHFA informed Fannie Mae and Freddie Mac of a temporary suspension on November 13, 2008. In letters sent today (links below), FHFA notified Fannie Mae and Freddie Mac of the agency’s decision to reverse the temporary suspension.

Separately, FHFA sent to the Federal Register an Interim Final Rule to address the statutory requirement that the allocations may not result in transferring their expense to originators or other Enterprise counterparties. The Interim Final rule is effective upon publication and has a 30-day comment period.

Letter to Fannie Mae:  http://www.fhfa.gov/Media/PublicAffairs/Documents/FNM_HTFCMF12112014.pdf

Letter to Freddie Mac:  http://www.fhfa.gov/Media/PublicAffairs/Documents/FRE_HTFCMF12112014.pdf


Housing Trust Fund

AGENCY: Federal Housing Finance Agency.

ACTION: Interim final rule; request for comments.

SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing an interim final rule setting forth requirements related to allocations by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the Enterprises) to the Housing Trust and Capital Magnet Funds created by the Housing and Economic Recovery Act of 2008. The rule implements a statutory prohibition against the Enterprises passing the cost of such allocations through to the originators of loans they purchase or securitize.

DATES: This interim final rule is effective on December 16, 2014. FHFA will accept written comments on this interim final rule on or before January 15, 2015.


Alfred M. Pollard, General Counsel, (202) 649–3050 (not a toll-free number), Federal Housing Finance Agency,

Eighth Floor, 400 Seventh Street SW.,

Washington, DC 20024.

Comments can be sent through this site: https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Housing-Trust-Fund.aspx


“FHFA’s Permanent Conservatorship Ignores the Law”


DEC 17, 2014
Michael H. Krimminger is a partner at Cleary Gottlieb in Washington, D.C. and a former general counsel to the FDIC.

Reform of U.S. housing finance is essential to avoiding another financial crisis. Since the U.S. placed Freddie Mac and Fannie Mae into conservatorships in 2008 under the Housing and Economic Recovery Act, the contours of this reform have been much debated but repeatedly deferred. Today, these companies remain wards of the state.

Most parties should be able to agree that the government-sponsored entities’ current state of limbo is untenable. At best, the arrangement reinforces continued government dominance of the housing market. At worst, it distorts our housing finance system, preserves incentives to misprice mortgages and creates the potential for a future housing crisis.

Unfortunately, real reform seems more unlikely by the day. Policy views remain divided. And the government may see limited benefits to changing the status quo. In 2012, the Treasury Department unilaterally decided to change the terms of the agencies’ conservatorships and sweep 100% of Fannie and Freddie’s profits to Treasury as dividends in perpetuity. This sweep continues to this day, despite the fact that Fannie and Freddie have nowpaid back almost $40 billion more than they were originally loaned. This prevents Fannie and Freddie from accumulating any cushion against future losses — potentially putting the taxpayers at further risk.

Investors in Fannie and Freddie have sued Treasury and the Federal Housing Finance Agency to challenge the continued conservatorships and profit sweeps. In September, the D.C. federal trial courtrejected those challenges. While that decision is on appeal, there are even more fundamental problems with Treasury’s actions.

The perpetual conservatorships and Treasury sweeps are a violation of every principle of insolvency law. I do not make this statement lightly. After more than twenty years at the Federal Deposit Insurance Corp., and frequent participation in domestic and international efforts to improve insolvency laws, I provided technical advice to Congress on HERA.

My primary model — and an internationally recognized standard — was the Federal Deposit Insurance Act. It has served this country well for more than 80 years by closing insolvent banks, protecting insured depositors, and recycling the failed bank’s loans back to sound banks. In fact, HERA parallels the FDIA in virtually all of its provisions.

HERA was never meant to authorize permanent government control over the housing sector. Under HERA, the FHFA and Treasury have the clear statutory authority to begin reform by ending the conservatorships of Fannie and Freddie. FHFA director Mel Watt recently acknowledged this authority in a hearing before the Senate Banking Committee. Many, including Senate Banking Committee chairman Tim Johnson, have called on Watt to exercise that power.

The FHFA’s statutory authority to end the conservatorship isn’t a question of interpretation or policy debate. Like the FDIA, the law provides for conservatorships and receiverships to give the FHFA some flexibility to decide how best to resolve a failing Freddie or Fannie. However, this discretion is limited. In fact, HERA requires termination of the conservatorships and appointment of the FHFA as receiver if Freddie and Fannie remain insolvent. The FHFA director is required to make periodic findings on this point precisely to provide discipline to the process.

Not only does HERA provide this discipline, it also imposes duties on the FHFA as conservator. In this role, the FHFA is instructed to return Freddie and Fannie to “a sound and solvent condition” and to “preserve and conserve the assets and property” of the companies. The FDIA includes the same instructions. The FDIC has always treated conservatorships as short-term solutions leading to the recapitalization and return of the failing bank to full private control, or to a receivership and payment of creditors and stockholders.

The continued diversion of Freddie and Fannie’s profits to Treasury misuses HERA as well as ignores the international standards underpinning all insolvency frameworks. This is important because one foundation of corporate finance, and our system of commercial laws, is that insolvency law assures creditors that the remaining value of the company will be paid out under defined priorities. If this standard is ignored, as it has been through the Treasury sweeps, it will undoubtedly affect future investment in housing finance and the financing costs for businesses.

The FHFA is ignoring the basic duty of a trustee: to protect the interests of all creditors. By keeping the companies in conservatorships and diverting their cash to Treasury, the FHFA effectively prefers one creditor over all others. While Treasury provided critical up-front funding to the GSEs, it has now been well-compensated under the original agreements. It cannot simply strip the companies of cash in perpetuity.

Every sound insolvency process, including HERA and the FDIA, repays the funding provided but then pays all creditors the remaining value. In bank resolutions, once the FDIC’s cash outlay is repaid, the FDIC receives no more money. The continuation of the sweeps through the conservatorships is a violation of every principle established in bankruptcy and in the more than 80 years of FDIC bank resolutions. And it has no support in HERA.


Reading the Tea Leaves

Regarding the fate of the Enterprises:

Congress, “It’s up to FHFA and the Treasury.”

FHFA, “It’s up to Treasury.”

Treasury, “It’s up to Congress”

Got that!? No? Many people don’t…

By now what is clear is that the Bush Administration intended to eliminate Fannie Mae and Freddie Mac by manufacturing the need to take over these companies under the guise of conservatorship.

Then, after the false pretense of C-ship, the Obama Administration took the scheme even further by implementing the Sweep Agreement (making Social Security, VA, Secret Service, Obama-Careless, etc. seem like child’s play). I am not anti-Mr. Obama…though I am against corruption, lies and mismanagement.

The Obama Administration has not waivered from their intent to eliminate the GSEs.

In my previous post we saw Senator Warren redirect the much-needed focus on the power that Wall Street has over Washington. Everyone knows about the revolving door, though not many take it head-on like Mrs. Warren.

So, should there be any doubt who is behind the plan to eliminate Fannie and Freddie? Consider who would benefit the most by the demise of Fannie and Freddie. Big Banks, right? Who seems to have a control over Washington? Big Banks, right?  It is clear Big Banks are controlling the agenda.

The plan to eliminate the GSEs went sideways as the stalemated Congress could not pass legislation. They tried…Warner-Corker, Johnson-Crapo… Now, with one political party on the verge of taking control of both the House and Senate we await to learn what direction they will collectively take on the issue…

I write this post as a response to many that believe that recent events – particularly from these last few weeks – point to the release of Fannie and Freddie from conservatorship. Many in the blogosphere are of the opinion that this fight is a foregone conclusion and it is all but over…and that we, as owners of Fannie and Freddie, have won…!!

I am skeptical… I do not share in the recently developed belief that the inevitable is before us…that the only conclusion is a release of Fannie and Freddie.   I believe we need to fight ever so harder at this point…!!

Big Banks should not have been allowed to create the circumstances that lead to the financial crisis, but they did.

And Big Banks should not be allowed to control Washington to the point that they may be able to eliminate major competitions – Fannie and Freddie. But that’s what is in play here.

Many people have worked hard to expose the truth.

However, Big Banks know full well that they caused the crisis… and they know they got away with it. No prosecutions… Sure, settlements… but those payments didn’t have an affect on any Big Bank executive. And the most influential banks benefited from the crisis as they saw some of their competitors forced out of business or were taken over by the victors. Big Banks got away with lying about the need for conservatorship and if we don’t stop them, they will get away with decimating Fannie and Freddie!

This fight is far, far from over. Don’t believe that our effort is a forgone conclusion…

What caused this newfound feeling of near-victory among shareholders?

FHFA Director Mel Watt recently directed FNMA and FMCC to fund two programs. In letters to the CEOs of Fannie and Freddie, Director Watt wrote:

“The…decision is based on the following: The Director of FHFA had the authority to temporarily suspend the…allocations… However, circumstances have changed and the temporary suspension is no longer justified… financial operations of Fannie Mae (and Freddie Mac) have stabilized to a sufficient level. This determination relates solely to whether contributions to these Funds would cause financial instability and is not a finding for any other purpose…

Further, Fannie Mae (and Freddie Mac) is not attempting to complete a capital restoration plan…”

The two programs mentioned are the Housing Trust Fund and the Capital Magnet Fund. Both programs are noble initiatives. However, consider that the Housing Trust Fund sends money from Fannie and Freddie to the Department of Housing and Urban Development (HUD) and the Capital Magnet Fund sends money from Fannie and Freddie to the US Department of the Treasury (yes, that Treasury!). So, the US Government decided to reallocate some of the profits of these two private companies from all profits going to the Treasury, to some profits now going to HUD and some profits going to a specific program within the Treasury.

Also consider that HUD operates the Federal Housing Administration (FHA), which some view as a competitor of Fannie and Freddie.

There are three ways to view this recent development as it relates to freeing the Enterprises from conservatorship – positive, negative or a non-event. I may be missing something, but it’s hard to see the positive ramification here.

Many viewed the directive by Director Watt as finally acting independent from the Treasury!

Or perhaps it showed that Director Watt and the Treasury are now working in concert and moving toward a release!

I am not convinced on either of those possibilities.

However, it does appear likely that Treasury approved the funding of the HUD and Treasury-run programs (why wouldn’t they…they’re keeping all the GSE profits in-house…), but it is difficult to connect the dots to ending conservatorship as many bloggers did recently.

The Creation of Common Securitization Solutions, LLC

CSS is a company jointly owned by FnF which features the Common Securities Platform, that serves two purposes: a) an improved information technology systems infrastructure and b) to create a common security for use by both Fan and Fred.

“This harmonization can be achieved by FHFA directing Freddie Mac to modify its Participation Certificate (PC) to match exactly the structure of a Fannie Mae mortgage‐backed security (MBS), and advocating that these securities be considered fungible in the TBA market…

Any secondary mortgage market reform will require a common security.” http://www.mbaa.org/files/SingleSecurityforGSEs.pdf

So, perhaps I am being cynical, but we see that the US Government, who operates FHA, just moved to make Freddie more competitive with Fannie.   Our FHA competitor reached into our private companies and moved to level the playing field…!

Many Fan and Fred shareholders believed the creation of this new company to be good news. “We own a new company!” many bloggers wrote… True, CSS is owned by FnF. However, the US Government created CSS, they currently completely control FnF and the US Government could easily sell off CSS to a consortium of bankers which would likely be lead by Citi and Goldman…

Further, the common platform would be necessary for… “serving as a market utility that could be used even if the Enterprises were terminated.” http://www.treasury.gov/initiatives/documents/reforming%20america%27s%20housing%20finance%20market.pdf

“As of December 31, 2013, the Enterprises spent a combined total of approximately $65 million to build the CSP. This year the Enterprises are spending between $5 million and $7 million per month to continue that effort. In addition, Fannie Mae budgeted $42 million for integration-related projects47 for the first three months of 2014; and Freddie Mac budgeted $14 million for integration for the period January 1, 2014 to May 31, 2014. According to Fannie Mae documents, in 2013 FHFA told Fannie Mae that it should not feel constrained by a budget. In fact, FHFA and the Enterprises have yet to develop a total estimated cost for the CSP.” http://fhfaoig.gov/Content/Files/EVL-2014-008.pdf

So, at the expense of FnF shareholders, the US Government directed the GSEs to create and fund a platform where ‘money is no issue’ (because it’s not their money) that could eventually be used to help facilitate the demise of FnF.

Maybe this new company isn’t such great news after all…

Why am I so doubtful and pessimistic? …perhaps because this entire fiasco is built on one lie after another.   Are we supposed to believe anything coming from Washington/Wall Street regarding Fannie and Freddie?

We cannot let anyone convince us that the fight is nearly complete. Far from it… we need to keep pursuing our rights. We need to fight even harder!

GSEs Increase Guarantee Fees and Purchase Securities Insurance

Consider increased fees boosts the profit of FnF, which go directly to the Treasury. And, because the US Government controls the GSEs, the Government is on the hook for all of the MBS. Having the GSEs purchase insurance serves to protect the US Government.

“Fannie Mae bought insurance to cover a portion of losses on $6.4 billion of home loans in the mortgage giant’s latest effort to share risks with private investors.” http://www.businessweek.com/news/2014-12-10/fannie-mae-taps-reinsurers-in-mortgage-risk-sharing-deal?sf6264954=1

Some believed this development is an indication of an imminent end to conservatorship.

“The (Obama) Administration will work with the Federal Housing Finance Agency (“FHFA”) to develop a plan to responsibly reduce the role of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) in the mortgage market and, ultimately, wind down both institutions. We recommend FHFA employ a number of policy levers – including increased guarantee fee pricing, increased down payment requirements, …”


However… “In addition to increasing guarantee pricing, we will encourage Fannie Mae and Freddie Mac to pursue additional credit-loss protection from private insurers and other capital providers.


So, it was the US Treasury that recommended the increased guarantee fees and the purchase of insurance for their increased profit and protection! Perhaps not such good news either…

The one development I do agree is good news is the new 97% LTV loan program.

The magic moment of the last week or so is when Mr. Watt announced the 3% down payment loan. That’s the nugget…the gem!

Prior the Treasury stated…”Going forward, we support gradually increasing the level of required down payment so that any mortgages insured by Fannie Mae or Freddie Mac eventually have at least a ten percent down payment.”


The previous lowest down payment loan was 5%. So, here you had the Treasury stating they wanted to move to the lowest down payment loan at 10%, and Director Watt does the exact opposite by initiating a 3% loan.

That is news! That is something to be excited about!!

This development does either signal that Director Watt is now working independent of Treasury or that they are now working in harmony and moving in a new direction. Either option is positive news.

So, though I may be a cynic, I do look for good news. Though I may be encouraged, I am not going to let any one convince me that this fight is all but won.

We must keep fighting the corrupt establishment and we must keep fighting for our shareholder rights. We must keep pursuing the truth! We must keep fighting for the foundations of the American Dream!

Don’t be lulled into a false sense of security! Fight even harder than ever before!!

And May God Bless America!


“The Speech That Could Make Elizabeth Warren the Next President of the United States”


By Miles Mogulescu 12/13/2014

“Early Friday evening Sen. Elizabeth Warren took to the Senate floor and gave a plain-spoken, barn-burning speech that could make history and put her into serious contention to be the next President of the United States.

There are only a handful of political speeches that have such historic impact. Barack Obama’s keynote speech at the 2004 Democratic Convention comes readily to mind. It’s what catapulted an obscure Illinois state Senator into the national limelight and put him on the path to becoming President.

Warren’s Senate speech was different, but just as electrifying.

Obama’s rhetoric was lofty, high-minded, and general, with a feel-good unifying message that there’s no blue America or red America but only the United States of America.

Warren’s rhetoric is more down to earth, substantive, and frankly, angrier, unafraid of calling out by name the institutions–the big banks and Citigroup in particular–which tanked the economy, cost millions of Americans their jobs and homes, were bailed out with half a trillion dollars of taxpayer money, and then used their fortunes to buy Congress and make it more likely they’ll be bailed out again. Moreover, she was unafraid to take on the President of her own party, and the numerous members of his administration drawn from Citigroup and other big banks through the endless revolving door between Washington and Wall Street.

Here’s the heart of Warren’s speech:

Democrats don’t like Wall Street bailouts. Republicans don’t like Wall Street bailouts. The American people are disgusted by Wall Street bailouts

And yet here we are, five years after Dodd-Frank with Congress on the verge of ramming through a provision that would do nothing for the middle class, do nothing for community banks, do nothing but raise the risk that taxpayers will have to bail out the biggest banks once again…

So let me say this to anyone who is listening at Citi[group]. I agree with you Dodd-Frank
isn’t perfect. It should have broken you into pieces!

If this Congress is going to open up Dodd-Frank in the months ahead, then let’s open it up
to get tougher, not to create more bailout opportunities. If we’re going to open up Dodd-Frank, let’s open it up so that once and for all we end too big to fail and I mean really end it, not just say that we did.

Instead of passing laws that create new bailout opportunities for too big to fail banks, let’s pass…something…that would help break up these giant banks.

A century ago Teddy Roosevelt was America’s Trust-Buster. He went after the giant trusts
and monopolies in this country, and a lot of people talk about how those trust deserved to be broken up because they had too much economic power. But Teddy Roosevelt said we should break them up because they had too much political power. Teddy Roosevelt said break them up because all that concentrated power threatens the very foundations up our democratic system.

And now we’re watching as Congress passes yet another provision that was written by lobbyists for the biggest recipient of bailout money in the history of this country. And its attached to a bill that needs to pass or else we entire federal government will grind to a halt.

Think about that kind of power. If a financial institution has become so big and so powerful
that it can hold the entire country hostage. That alone is reason enough to break them up.

Enough is enough.

Enough is enough with Wall Street insiders getting key position after key position and the kind
of cronyism that we have seen in the executive branch. Enough is enough with Citigroup passing 11th hour deregulatory provisions that nobody takes ownership over but everybody will come to regret. Enough is enough

Washington already works really well for the billionaires and the big corporations and the lawyers and the lobbyists.

But what about the families who lost their homes or their jobs or their retirement savings the last time Citigroup bet big on derivatives and lost? What about the families who are living paycheck to paycheck and saw their tax dollars go to bail out Citi just 6 years ago?

We were sent here to fight for those families. It is time, it is past time, for Washington to start working for them!

Please take less than 10 minutes of your time to watch the speech below. Like Obama’s 2004 Convention speech, it was an historic speech, a potentially game changing speech. It catapulted Warren from a potential nuisance to Hillary Clinton’s coronation as the Democratic nominee to someone who could foreseeably win the nomination and even the Presidency.

It transformed the conventional wisdom about American politics that the main divide is between left, right, and center, when it is really between pro-corporate and anti-corporate. Her declaration that neither Democrats nor Republicans (meaning the voters, not the Washington politicians) don’t like bank bailouts rings loud and true. Tea party supporters don’t like bailouts and crony capitalism any more that progressives do.

The conventional wisdom is that to win white working and middle class voters, politicians need to move towards the center, meaning towards a more corporate approach. But in a world of growing inequality, stagnating wages, and a fading belief that with hard work your children can have a better life than you had, that may no longer be true.

Hillary Clinton represents the old politics of the status quo and accommodation to Wall Street’s power. Her husband’s Treasury Secretary was former Goldman Sachs exec Robert Rubin. After leading Pres. Clinton’s effort to dismantle the half-century old Glass-Steagel prohibition on government-insured commercial banks engaging in risky speculative bets which enabled the creation of financial megaliths like Citigroup, he went on to earn $126 million as a senior executive for Citigroup and brokered Citigroup’s ½ Trillion Dollar bailout. His protégé, Timothy Geithner became Barack Obama’s Treasury Secretary where he opposed breaking up the big banks who had cratered the economy.

Elizabeth Warren represents a new politics in which, by challenging the power of the oligarchy, she has the potential of reclaiming the white working class for Democrats and uniting them with the coalition of professionals, single women, gays and minorities who elected Obama. She is the first major national politician in decades who is willing to openly challenge the power of the Wall Street oligarchy, in the manner of Franklin Delano Roosevelt who declared, “They are unanimous in their hate for me — and I welcome their hatred.”

With the increasingly dominant power of big money in politics, could Warren defeat Clinton, Inc. and then go on to defeat what is likely to be the near unanimous support of the Wall Street and corporate elite for her Republican opponent? It’s hard to say. But the nation is in too much trouble to settle for a Democratic or Republican candidate of the corporatist status quo. If there’s any hope, it’s that once in a while the power of organized people can defeat the power of organized money. Elizabeth Warren represents that hope and it’s the only thing worth hoping for.

Watch Warren’s 9:43 second speech below. If you’re fed up with the power of Wall Street and the big banks, it will inspire you. And even if you aren’t, watch it for its importance as a model of historically transformative political rhetoric.”