Op Ed by Barack Obama

I know the President at the conclusion of his recent Op Ed piece was not specifically referring to Fannie Mae and Freddie Mac, but it appears especially apropos:

“Because we still have work to do. As a country, we have made it through some hard times. But we’ve laid a new foundation. We’ve got a new future to write. And I am eager to get to work.”

A Blueprint for Middle-Class Economics

Barack Obama
44th President of the United States
Posted: 01/29/2015

America’s resurgence is real. With a growing economy, shrinking deficits, bustling industry, and booming energy production, we have risen from recession freer to write our own future than any other nation on Earth.

Now we have to choose what we want that future to look like. Will we accept an economy where only a few of us do spectacularly well? Or will we commit ourselves to an economy that generates rising incomes and rising chances for everyone who makes the effort?

In my State of the Union Address last week, I focused on making sure middle-class economics helps more Americans get ahead in the new economy. As a country, we need to do more to make working families’ paychecks go farther, give Americans of every age the chance to upgrade their skills so they earn higher wages, and build the world’s most competitive economy for our businesses.

On Monday, I will present Congress with my budget, a plan for bringing middle-class economics into the 21st Century. First, I’m proposing we make the kinds of investments we need to continue to grow our economy and enhance our national security. We would establish new advanced manufacturing hubs, rebuild crumbling infrastructure, combat antibiotic-resistant bacteria, and lead a new age of precision medicine that uses cutting-edge science to find new treatments for diseases like diabetes and cancer. We would give working parents a chance to get ahead with guaranteed paid sick leave, and we’d give Americans of all ages a chance to earn new skills by making community college free for responsible students. And we should invest in a 21st century military to confront global challenges with strong and sustained American leadership. These proposals are pragmatic; they’re the types of things both parties should be able to support.

But where Democrats and Republicans often disagree is in how to pay for these kinds of ideas. I’m proud that since I took office, we’ve experienced the fastest period of sustained deficit reduction since the end of World War II. My budget will build on that progress with reforms to health programs, our tax code, and our broken immigration system. It would eliminate the trust fund loophole that allows the wealthiest Americans to avoid paying taxes on their unearned income, and use the savings to cut taxes for middle class families. If Congress passes my budget, our country would meet the key test of fiscal sustainability, with our debt declining as a share of our GDP.

Of course, to make these common-sense investments in our future without adding to our deficits, we need to turn the page on the manufactured crises that have defined the debates over our budget in recent years. Our recovery was held back when Congress shut down the government and risked the full faith and credit of the United States. We can’t afford to do that again. And we have to build on the bipartisan budget agreement I signed in 2013 that helped us end some of the arbitrary, across-the-board budget cuts known as “sequestration.” Last year’s agreement helped boost our economic growth without undermining fiscal responsibility. We were able to invest in key national priorities while cutting our deficits to their lowest level since 2007.

In order to get wages and incomes rising faster, we need to take the next step. That’s why my Budget will fully reverse the sequestration cuts for domestic priorities in 2016. It will match those investments with equal dollar increases for defense funding. If Congress rejects my plan and refuses to undo these arbitrary cuts, it will threaten our economy and our military. Investments in key areas will fall to their lowest level in ten years, adjusted for inflation, putting American research, education, infrastructure, and national security at risk. But if Congress joins me, we can make sure that ending sequestration is fully paid for by cutting inefficient spending and closing tax loopholes.

The Budget I’m sending to Congress is a blueprint for success in the new economy. I know that there are Republicans in Congress who disagree with my approach, and I look forward to hearing their ideas for how we can pay for what the middle class needs to grow. But what we can’t do is simply pretend that things like child care or college aren’t important, or that there’s nothing we can do to help middle class families get ahead.

Because we still have work to do. As a country, we have made it through some hard times. But we’ve laid a new foundation. We’ve got a new future to write. And I am eager to get to work.


Loretta Lynch. Would she follow the Constitution?

“…Congress should exercise their constitutional prerogative to check the power of a president who has demonstrated his contempt for the very concept of checks and balances….firmly demonstrate that they are unwilling to participate in the neutering of their own constitutional powers.”


“The memories of Eric Holder loomed over attorney general nominee Loretta Lynch’s confirmation hearing as Republicans reminded her over and over again that one of her most appealing qualities is that she’s not him.”


Perhaps Ms. Lynch’s first act as AG if confirmed would be to restore faith in the US by demanding Secretary Lew reverse the Sweep and put an end to the lawsuits.

Bruce Berkowitz: “Treasury resisting discovery as document trail may implicate President’s senior advisors”



For the Year Ended December 31, 2014

January 28, 2015

To the Shareholders and the Directors of The Fairholme Fund:

When we initiated the Fund’s investments in Fannie Mae (4.5%) and Freddie Mac (3.5%), conventional wisdom was that the companies would be liquidated. We disagreed. Our investment was predicated on a simple thesis: there are no substitutes. Fannie and Freddie provide services that are absolutely essential to the American way of life. They help make the popular 30-year fixed-rate mortgage available and affordable. They provide liquidity and stability to the nation’s housing finance system – during good and, especially, in bad times. No one does it better.

Time is proving our thesis true. Fannie and Freddie have already benefited from post-crisis reform and are returning to simpler, safer business models. Under a range of scenarios, the companies are collectively expected to earn at least $21 billion per year. The United States Treasury has already recouped $36 billion more than it disbursed to Fannie and Freddie during the crisis, rendering this our nation’s most successful equity investment ever. In fact, Treasury’s current profit from Fannie and Freddie is almost three times more than it made from all of its other financial rescue programs combined. These figures do not even account for Treasury’s warrants to acquire 79.9% of each company’s common stock.

Today, Washington bureaucrats are unlawfully holding these profitable companies captive in a perpetual conservatorship. Congress never authorized Treasury to become Fannie and Freddie’s “overlord” – forcing the companies to spend all their capital on executive branch prerogatives and circumventing the legislature’s appropriations process. Indeed, the power of the purse remains vested in Congress under the Constitution. The Housing and Economic Recovery Act of 2008 does not authorize any federal agency to use these two publicly traded, shareholder-owned companies as a piggy bank. Yet, in an unprecedented abuse of executive power, the bureaucrats have illegally expropriated and de facto nationalized two of the most valuable companies in the world with apparent impunity. Worse still, their actions are now endangering our housing market, making it more difficult for lower- and middle-income Americans to access mortgage credit.

By preventing Fannie and Freddie from accumulating any cushion against potential future losses, Treasury is obstructing the ability of the Federal Housing Finance Agency (“FHFA”) to perform its duties as safety and soundness regulator of both companies. Treasury’s actions are also directly impeding the statutory obligations of the FHFA, as conservator, to “preserve and conserve [their] assets and property.” Even Fannie and Freddie’s political foes admit that this situation is untenable.

Given the dim prospects for comprehensive housing finance reform legislation in the foreseeable future, we believe that FHFA will ultimately heed the pragmatic advice offered by Senate Banking Chairman Tim Johnson on November 19 at a congressional hearing and “engage the Treasury Department in talks to end the conservatorship.” Johnson is not alone in his call for such action.

The Leadership Conference on Civil and Human Rights recently voiced concerns about the housing market’s growing inequities: “Any successful policy to promote affordable homeownership must involve strong leadership by Fannie Mae and Freddie Mac… eliminat[ing] the GSEs would be counterproductive; it would negatively impact communities of color and young people, and it would impede our ability to grow our nation’s middle class… in order to ensure the best path forward to increasing homeownership in the communities we represent, we believe it is vital to initiate serious discussions about unwinding the conservatorship and allowing Fannie and Freddie to begin rebuilding their capital… Fannie and Freddie can be fixed; discarding them in entirety would be a colossal mistake.”

In the interim, the Fund continues to pursue litigation against FHFA and Treasury to defend its rights as an owner of the companies. To date, the Fund’s lawyers have received approximately 387,000 pages of documents – most of which have come from Fannie Mae, Freddie Mac, and their respective auditors. Not only has the government insisted on shrouding all documents in a veil of secrecy known as a “protective order,” but FHFA and Treasury have further shielded responsive documents from disclosure by broadly asserting executive privilege. Examples from the recently released Privilege Log are indicative.

One of the documents cited above is a news summary containing public information prepared by a third-party aggregator after the Net Worth Sweep was announced in August 2012 that is being withheld from discovery due to “Presidential Privilege.” Why are FHFA and, particularly, Treasury resisting discovery so fiercely? Is it because the document trail directly implicates some of the President’s most senior advisors in the White House?

FHFA and Treasury have argued that courts have no jurisdiction to review their administrative actions in this matter. However, recent comments by several Supreme Court justices in Mach Mining v. EEOC challenge the government’s similar attempt to evade judicial scrutiny in a separate case. The government’s claim – “We think this is a matter that is entrusted to the agency that is not for court review”– was met with skepticism by the highest court in the land. Chief Justice Roberts swiftly responded: “Trust you? Just trust you? I am very troubled by the idea that the government can do something and we can’t even look at whether they’ve complied with the law.” Justice Scalia echoed those concerns, noting how he found it “extraordinary” that the government wanted to be exempted from litigation. Justice Breyer weighed in: “In my mind, of course, there should be judicial review.” Sunlight is indeed the best disinfectant.

More than just patience, this investment requires persistence. Every major financial institution relied upon federal government assistance during the 2008 crisis. Each institution repaid the Treasury in full, plus interest. The same is true of Fannie and Freddie, yet only they remain under the day-to-day control of a federal agency. Government cannot pick private market winners and losers. We forge ahead with the facts squarely on our side, and the assurance that no one is above the law.


Here’s what a GOP Senate means for Fannie and Freddie

I came across this blog that was offering a prediction back in November. I thought I would post it here, about 90 days later…. There were four comments on the article which are posted here, too.

Here’s what a GOP Senate means for Fannie and Freddie: And why we’ll all be watching

November 5, 2014

Trey Garrison

With Tuesday’s WWE beat down and Republicans now in in control of the Senate, the question becomes what will happen with housing and the reform of the government-sponsored enterprises.

Unfortunately, not a lot.

The White House is congenitally incapable of giving ground. Housing reform is an incredibly important issue, but “housing reform is a hot button issue” is something often said by absolutely no one.

Further, GSE reform doesn’t divide along neat party lines in the way that health care, taxes or gun control does.

Johnson-Crapo and the PATH Act are two very different animals. The House PATH Act is a very smart but very fiscally conservative agenda that is not going to get past the White House even if it got through the Senate.

Johnson-Crapo is dead in the water – conservatives think it’s too much with the creation of yet another government agency in the form of the proposed Federal Mortgage Insurance Corp., while liberals in the Senate think Johnson-Crapo is too little in terms of affordable housing.

Further, one of the Johnson-Crapo authors, Sen. Mike Crapo, R-Idaho, won’t be rising from his place as second in charge of the Senate Banking, Housing and Urban Affairs Committee, because of Senate GOP rules.

Instead, Sen. Richard Shelby, R-Alabama, is likely going to take over Senate Banking, and he’s no moderate in senate terms.

Shelby’s rise may, however, be a boon for shareholders of Fannie Mae and Freddie Mac. He’s a big advocate of privatization, and even if a PATH Act of sorts is blocked in the full Senate (or if it passes and gets a White House veto), shareholders have a friend in Shelby.

If some sort of middle-ground, far short of full reform measure does arise in this new Republican Congress, it will favor shareholders.

Some say that congress may also look to scale down the Federal Housing Finance Agency’s role in mortgage insurance, but it’s hard to see this early what that might look like.

Also considering that the whole application of – come one, let’s be honest – the shady legal theory of “disparate impact” in housing is getting the cross check in the Supreme Court – the most progressive of housing initiative and the affordable housing mandate may be taking a backseat going forward.

Pushing the PATH Act through the House will be a breeze, should Republicans choose to go that route. Getting it through the Senate won’t be impossible, but it will be an uphill battle. Getting it past the Oval Office? No chance. And the chance of getting the votes necessary to override the veto? May as well pan for gold in your bathtub.

It’s going to be at least 2017 before we get comprehensive GSE reform. This needs a president and Congress on the same page. Divided government is usually the best, in my humble opinion, because it limits the damage either side can do.

Gridlock is a feature, not a bug.

Conservatorship and everything bad that happened in housing policy only made it through because the extraordinary circumstances of the post-crisis fallout and a rare moment of one party controlling everything and pushing through the mess that is Dodd-Frank. It may take another pendulum swing – and it will have to be to the right side – to get housing policy back on track.

That’s not happening before 2017, and maybe not even then.

Compass Point Research & Trading may have put it the most realistically.

“We expect the GSE reform conversation to return to Capitol Hill in the next Congress but doubt that there will be substantive progress. Our sense is that the Senate Banking Committee will focus on other legislative priorities and the House Financial Services Committee remains unlikely to compromise,” they wrote in a client note.

That said, there’s no reason smaller steps in fixing housing policy can’t be taken, because this is something both sides have a stake in, and not everything that needs to be done is about red or blue armbands. You can win a game hitting solid singles just as well as you can knocking it out of the park.

Meanwhile, to the Republicans – yes, good job, blah blah, don’t blow it. I don’t think voters embraced you so much as rejected the other side. Remember that.

And Democrats – better put some ice on that and take a lap. You’ll get a chance again in two years, if you learn the right lessons.

We’ll be watching.


sandyjean412 • 3 months ago
Have to agree with you. Ain’t nothin gonna happen with regard to housing. Republicans couldn’t care less — a lot less than the Democrats. The middle class will continue to shrink, and the new legislative majority will try to enrich their cohorts even more.

Richard Thompson • 3 months ago
Stop the sweep. Home loans on a 3% down payment is a fools game if Fannie and Freddie are prohibited from building capital

Sandra Thompson • 3 months ago
Wake up people! Get a second cup of coffee! Housing Finance Reform is taking place as you wipe the sleep from you eyes. The Obama Administration created the White Papers of Feb 2011 and they are the blueprint for housing finance reform! The FHFA’s Strategic Plan for the Conservatorship of FnF dated 2/21/2012 says within it’s contents that actions are being taken based on commitment to the mentioned White Papers. The Treasury’s own announcement of the 3rd Amendment to the PSPA’s , the Sweep Amendment” clearly says it is taking actions based on a “commitment to the White Papers”. The choice to have your voice heard, the choice for transparency in government, the choice to make changes and achieve consensus has been stripped from you, as Obama dictates new housing finance reform. We should not let dictators take over our government!

Phil Hall • 3 months ago
Housing won’t be on the congressional backburner – hell, it won’t get out of the refrigerator.


Affordable Housing Can’t Be Held Hostage to GSE Stalemate

JAN 30, 2015 10:00am ET

Americans in search of affordable rental housing received a glimmer of hope this month when Fannie Mae and Freddie Mac began dedicating a portion of their revenue to the National Housing Trust Fund — years after Congress first authorized the action. Now two leading Republican legislators want to take away that much-needed assistance.

The lawmakers in question are House Financial Services Committee Chairman Jeb Hensarling and Sen. Bob Corker, a member of the Senate Committee on Banking, Housing and Urban Affairs. Both object to the idea that a small percentage of the revenue generated by Fannie Mae and Freddie Mac is to be used to help low-income families put a roof over their heads, rather than going to the Treasury for general use.

The plan to use the mortgage companies to finance the trust fund was approved by Congress in 2008 and signed by George W. Bush. But it was suspended when the government-sponsored entities got into trouble because of bad loans. In December, Federal Housing Finance Agency head Mel Watt reinstated the suspended requirement.

Most of the mandated contributions from Fannie and Freddie go to the NHTF, which provides funding to state housing finance agencies based on a formula reflecting their housing needs. Ninety percent of the money must be used to help provide or preserve rental housing; of that assistance, 75% must be used for housing that’s affordable for very low-income people. The remaining 35% of contributions go to the Capital Magnet Fund, a Treasury Department program that provides funding to community development financial institutions.

Hensarling called Watt’s action “a grave mistake.” “Director Watt’s decision to activate the Fannie and Freddie slush fund may be an early Christmas present for Acorn-like, liberal housing activists, but it’s a lump of coal in the stocking of every American taxpayer,” he wrote in December.

Corker issued a much more sober statement, saying it was “beyond irresponsible” to allow Fannie and Freddie to send money to help people gain access to affordable housing.

Both men would like to see the affordable housing funding put on hold until Congress finally decides what to do about Fannie and Freddie and settles the question of what role federal financial guarantees should play in the secondary mortgage market.

This position ignores three very important facts. First, we have a growing problem with housing affordability. Watt’s decision is the first positive step that’s come out of Washington to address it in years.

Second, Congress has already had six years to figure out what to do with Fannie and Freddie and is nowhere near finding a solution. Why should affordable housing be held hostage to this legislative impasse?

Lastly, the federal government has already been repaid for bailing out Fannie Mae and Freddie Mac. The Treasury no longer has a legitimate claim on all excess revenue.

Hensarling was also misleading when he called the funding “a gift for Acorn-like, liberal housing activists.” The majority of the funding will be handled by state housing finance agencies, which have an excellent record of fiscal responsibility. This includes agencies in the states governed by Republicans as well as Democrats.

But most disturbing is how little these powerful men appear to care about the housing problem that’s eating away at families and communities throughout the United States.

Of the 42.4 million renter households in America in 2013, roughly a quarter put more than 50% of their income toward rent, according to the American Community Survey. The percentage of low-income people paying too much of their income for rent is even higher. More than two-thirds of households with incomes below $15,000 dedicated more than 50% of their income for housing in 2012, according to The State of the Nation’s Housing by Harvard University’s Joint Center on Housing studies.

Some families eventually find they cannot afford to keep a place of their own at all. The number of school children in America who are homeless reached 1.3 million in the 2012-2013 school year, according to the most recent available data from the U.S. Department of Education.

There’s no reason to give Congress another six years to fiddle around with housing finance while the poor and homeless face a declining level of government housing assistance each year. The only feasible path is to end the government’s federal conservatorship of the GSEs and return Fannie and Freddie to their stockholders, with an ongoing mandate to fund affordable housing.

If Congress ever gets around to creating a better system that provides equal benefits with less risk, they can let us know.

Andre Shashaty is president of the nonprofit Partnership for Sustainable Communities and author of the book Rebuilding a Dream: America’s new urban crisis, the housing cost explosion, and how we can reinvent the American dream for all. Follow him on Twitter at @p4sc.


How Obama’s 529 College Tax Plan Debacle Proves the Welfare State is Doomed

Another stumble for the White House.  Just who is running things with this Administration?

Here is a quote from the article posted below:

“One possible answer is that it’s just an inevitable symptom of an isolated second-term administration that is openly bored with Congress and out of touch with everyone outside its inner circle of supporters.”

Before we get to the article noted, I wanted you to review this section from a different article:

“The devastating financial crisis of 2007-08 was an opportunity for a transformative leader to take on the out-of-control banking industry, which has become a dangerous oligopoly that threatens the economy and preys upon American citizens. FDR did this during the Great Depression, ensuring a thorough investigation of wrongdoing and setting up rules and regulations that kept banks in line for many decades until the deregulatory fever of the 1980s once again unleashed them.

Unfortunately, rather than bringing change, Obama has consistently surrounded himself with bank-friendly policy advisors who tend to believe that what is good for the banks is good for everyone. He has not made bringing criminal bankers to justice a priority, and his administration is clearly a revolving door for Wall Street. The biggest and most dangerous banks—JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo—are even bigger than they were before the crisis. Scarcely a week passes without news of some new abuse committed by these institutions. Obama has failed to support obvious measures to rein in Wall Street, such as the financial transaction tax, and Dodd-Frank has been mostly defanged. Banks have enjoyed special treatment and record-breaking profits during Obama’s tenure, while ordinary Americans have struggled.”


Earlier this month, President Obama’s Administration proposed a free community college plan that appears ill-conceived.

What does this have to do with Fannie and Freddie?  Many people think the President’s Administration has a yet-to-be revealed master plan to solve the 6+ year conservatorship of Fan and Fred and the role they play in housing and the greater economy. However, it is clear there is no plan. …no leadership from the White House.  …no proposal from FHFA.  And not even an acknowledgement of the issue from Treasury.

It appears that the the President is weak at choosing Administration officials and advisors (think Kathleen Sebelius for one).

Is Mel Watt right for the job?  Not sure.  But the guy who has been running the show for 15 years at FHFA and it’s predecessor agency is Alfred Pollard, general council.  Mr. Pollard was general council to Edward DeMarco.  Mr. Pollard was general council when FHFA signed the 3rd Amendment to the PSPA and evidently provided the legal advice in support of transferring private property to the Treasury.  Alfred Pollard is chief legal counsel to Director Watt.  Mr. Pollard is the one that loomed over Mr. Watt during the House hearing this week and can be seem looming over Mr. DeMarco in past congressional hearings.

Again, Alfred Pollard has been chief legal counsel at FHFA and OFHEO for 15 years — before, during and after the financial crisis. OFHEO’s job was to prevent such crisis.  So, why is Alfred Pollard still general council at FHFA?  Do we want the attorney that helped cause the crisis to be the one to advise on the fate of Fannie and Freddie?

Do we think that Alfred Pollard would allow Mel Watt to criticize the Sweep Agreement or do anything to try to reverse it? No.

Anyway, instead of the Administration spending time on solving the nation’s housing infrastructure they delivered to us the free college program.  Here is the article mentioned in the title of the blog:

How Obama’s 529 College Tax Plan Debacle Proves the Welfare State is Doomed
Someone has to pay for it—but no one wants to foot the bill.
Peter Suderman Jan. 28, 2015 12:16 pm

To understand just how bad the politics of Obama’s now-withdrawn plan to tax 529 college savings were, think about it this way: Obama, under heavy pressure from both Democrats and Republicans, made a public show of pulling a proposal that already had no chance of passing.

Even as an inert fantasy proposal, it was so widely disliked that the White House had to back down.

It’s a minor but revealing political fiasco—one that shows how distant the White House is even from the interests of its own party while offering a preview of economic policy debates and welfare-state fiscal challenges for decades to come.

The political optics of the plan were flat-out terrible for Obama, who put forth the proposal in the context of a State of the Union address built around the theme of Middle Class Economics. The gist was that Obama proposed taxing the wealthy in order to pay for new middle class benefits, like free community college tuition.

But, somewhat awkwardly, given the president’s chosen theme, 529 plans are tax-advantaged savings vehicles that currently benefit an awful lot of middle class people. In particular, they benefit middle and upper-middle class families in high-tax blue states.

So it is not exactly surprising to find that, in addition to the entirely predictable GOP pushback against the proposal, Rep. Nancy Pelosi, a Democrat from California, and Rep. Chris Van Hollen, a Democrat from Maryland, lead a seperate Democratic push for the White House to drop the plan. This is an administration that is now so isolated and out of touch that it does not grasp the obvious interests of its own party.

The plan was also tremendously awkward for Obama himself. As the folks at Americans for Tax Reform have noted, Obama was not only a public booster of 529s, someone who as a Senator voted to make them permanent and praised them as tools to help families with college expenses in his book, he was also someone who had relied on a 529 himself, contributing $240,000 to a 529 college fund for his own children back in 2007. Obama took advantage of the plan’s tax benefits—then proposed closing the door behind him.

As political miscalculations go, this was a minor epic. This was a major component of Obama’s slate of State of the Union proposals, previewed and highlighted in a white paper released several days earlier. And yet somehow the White House seems to have managed not to solicit input from members of its own party in Congress, and to ignore Obama’s personal history on the issue. The backlash to this proposal was entirely predictable, and yet the White House seems to have been caught by surprise.

How does a political miscalculation like this happen?

One possible answer is that it’s just an inevitable symptom of an isolated second-term administration that is openly bored with Congress and out of touch with everyone outside its inner circle of supporters.

But another possibility is that this is the sort of plan than inevitably follows from the long-term fiscal logic of the welfare state.

Yes, the budget wars have calmed recently as annual deficits have fallen and the economy has improved. But total national debt remains at historic highs, and medium to long-term budget prognosis is still rather grim.

The core of the problem is clear: the growing cost of the entitlement state. As the Congressional Budget Office warned earlier this week, over the next decade, “spending will grow faster than the economy for Social Security; the major health care programs, including Medicare, Medicaid, and subsidies offered through insurance exchanges; and net interest costs.” Tax revenues will stay essentially flat at around 18 percent of GDP, while spending, driven by entitlements, will rise to more than 22 percent of GDP. Longer-term projections indicate the cost of entitlements and interest on the debt will continue to rise in the decades after that.

In the bigger picture, the existing welfare state is unaffordable. Either it will have to be cut, or reformed, or paid for—by someone, somehow. The administration and its allies would like to reassure you that the someones who will pay for all of this will be limited to the richest of the rich, but in practice there’s only so much money that can be squeezed out of the extremely wealthy.

Which means that eventually, anyone looking for ways to keep the welfare state afloat will have to go after after the middle class—and, in particular, middle class savers. That’s where the money is. Sure, you can imagine alternatives, like a Value Added Tax (VAT), which might raise enough tax revenue to keep the budget in the clear. But it’s hard to imagine a popular political coalition forming around a regressive consumption tax that gives the government a major new revenue stream.

If anything, it’s far easier to imagine a popular coalition forming in opposition to such a plan. That’s more or less exactly what happened with Obama’s 529 proposal.

And it’s why this episode and the swift bipartisan opposition it generated is so revealing, not only about the short term political instincts of the Obama administration, but about the longer term political and policy dynamics of sustaining the welfare state. If this is the reaction to a policy that was never going to pass, and, indeed, never really designed to pass, imagine the backlash to a middle class tax hike that was actually intended to go into effect. The White House may not want to acknowledge this problem, but that’s the reality of, well, middle class economics.


Response to Joe Light’s 01/27/2015 WSJ Article

Reposting from TH717 from blogger “Anonymous”:

“From YMB today My Response to Joe Light’s WSJ Article
Mr. Light,

I am as conservative as it gets. I believe in less government, lower taxes, social conservatism, and on. I disagree that liberals only have been pushing for FNMA’s recapitalization. I support this, because I believe that Fannie Mae performs an important function in the affordability of homes.

Even if one believes that FNMA and Freddie Mac are agents of the government (and I get that argument), I cannot believe that conservative politicians and writers are not demanding the release of the GSEs from GOVT control. Since when do conservatives believe that a publicly owned company can be held in perpetual conservatorship and that the profits of the company can go to the GOVT via the Treasury? The company is healthy and should be released from conservatorship. The Takings clause of the US Constitution should not be violated via the sweep. Even the FHFA states in their arguments that the GSEs are publicly traded companies. Do you want other publicly traded companies to be taken over by the GOVT and their profits seized? Now, you would argue that the companies were in need of the bailout. Yet, authors have argued well that the companies were NOT in distress at the time of the bailout. Also, the argument that the companies were doing wrong and were corrupt vice the banks is not even arguable, since the banks that sold their loans to FNMA are now paying MILLIONS of dollars back to the GSEs due to federal lawsuits.

Frankly, I find the silence of conservative politicians and writers appalling. To let a company stay in the control of the government just because one believes that their release will continue their existence instead of fighting for their release and then working to support and build up a strong private mortgage industry is anti-business and anti-conservative.

I am a shareholder of FNMA and I am conservative. I believe in the value of the GSEs and I believe that government takeover of companies is wrong and that the Taking of a company’s profits to benefit the government is wrong.

I wish you well.



Teleconference: New Paper Shows Conservatorship of Fannie Mae and Freddie Mac Does Not Comply with the Law

New Paper Shows Conservatorship of Fannie Mae and Freddie Mac Does Not Comply with the Law

Michael Krimminger and Mark Calabria, who advised on the drafting of HERA in 2008, to Present White Paper Findings on Investors Unite Teleconference on Thurs, Jan 29 at 9:15am EST

WASHINGTON, D.C.—On Thursday, January 29th at 9:15am EST, Mark A. Calabria of the Cato Institute and Michael Krimminger, Partner at Cleary Gottlieb, will release a new paper which explains how the U.S. Treasury Department and the Federal Housing Finance Agency (FHFA) have breached both the spirit and the letter of the law in their administration of the conservatorship of Fannie Mae and Freddie Mac.

Read more:


WSJ: “Fannie, Freddie Regulator Defends Actions”

Wall Street Journal

FHFA Director Says Access to Housing Will Be Improved


Updated Jan. 27, 2015 5:19 p.m. ET

A top housing regulator, in a tense four-hour hearing before Congress on Tuesday, defended a series of controversial decisions made in his first year on the job that the regulator believes will improve access to housing but critics say could increase taxpayer risk.

Mel Watt, director of the Federal Housing Finance Agency, Fannie Mae and Freddie Mac ’s regulator, was called to the hearing after he directed the mortgage giants in December to begin sending a portion of their profits to the affordable housing trust funds.

The two funds, one administered by the Treasury Department and one by the Department of Housing and Urban Development, allow states and other bodies to get funds to build low-income rental housing and rehabilitate existing housing.

The provision to send the funds was created as part of a larger bill meant to stem the housing crisis in 2008, but payments were suspended almost immediately after it was passed.

Jeb Hensarling (R., Texas), chairman of the House Financial Services Committee, said that by restoring the payments to the trust funds, along with other decisions Mr. Watt has made in the past year, “Washington appears to be rolling the dice again.”

At the hearing, Mr. Watt said he believed he was following his legal mandate by allowing contributions to the funds as the health of Fannie and Freddie has recovered.

But some Republican congressmen expressed consternation that the funding was happening even as Fannie and Freddie face restrictions on their abilities to build up a capital reserve.

Democrats generally said they supported sending money to the funds and many other moves Mr. Watt has made. “You have taken important steps to ensure that our housing market remains affordable and works for everyone,” said Rep. Maxine Waters (D., Calif.) to Mr. Watt, saying that the decision to send money would help housing affordability.

At the hearing, Mr. Watt also was asked about the FHFA’s decision on whether or not to change the fees that Fannie and Freddie charge by the end of March, a decision that would directly affect borrowers’ mortgage costs. The decision is widely expected to be made in conjunction with setting capital requirements for private-mortgage insurers.

He said that the FHFA hasn’t yet decided whether or how to change the fees.

Mr. Watt did give some indication that the FHFA is considering allowing the reduction of the principal balance of some loans that Fannie and Freddie back. Principal reduction is seen as a powerful tool to help some homeowners stay in their homes, but raises alarm among some who fear that it could result in taxpayer losses.

“What we’re trying to do with principal reduction is find a place where it is beneficial to borrowers” but doesn’t hurt Fannie and Freddie, said Mr. Watt. “There are some instances where that is the case,” he said at the hearing. “When we find that niche, that is when we’re going to make a decision about this.”

Some congress members also questioned a decision by Mr. Watt last year to allow Fannie and Freddie to back loans with down payments of as little as 3%, down from the prior 5% minimum.

The questioning of Mr. Watt came against the backdrop of a legislative housing-finance overhaul effort that has largely stalled. Now, lawmakers and regulators grapple with the possibility that the uncertainty surrounding the companies’ futures could persist for years.

Several Republican congressmen said that they were concerned about Fannie’s and Freddie’s low levels of capital, though an agreement between the companies and the U.S. Treasury Department in recent years has effectively prevented them from building a buffer. In the last couple months, a growing drumbeat of mostly liberal advocates has called for the recapitalization of the companies.

Mr. Hensarling in recent days has said that he will lead a renewed push to pass broad housing-finance overhaul legislation. In 2013, Mr. Hensarling sponsored a plan to wind down Fannie and Freddie and largely privatize the housing-finance system, though the bill never received broad enough support to move forward.

A separate, more modest bipartisan plan was passed by the Senate banking committee last May, but never achieved enough backing to earn a vote on the Senate floor.

Even though overhauling the housing finance system has Mr. Hensarling’s attention and that of the White House, incoming Senate banking committee chairman Richard Shelby (R., Ala.) hasn’t yet expressed interest in re-tackling the issue in 2015, and progress this year remains a long shot, according to most analysts.

At the hearing, Rep. Ed Royce (R., Calif.) said he would introduce a bill to prevent Fannie and Freddie from sending money to the affordable housing trust funds.

Barring the passage of that or another bill, Fannie and Freddie will make payments equal to 0.042% of the unpaid principal balance of mortgages they purchase in the previous year.

If not for the suspension, the companies would have paid about $500 million into the funds in 2014. With Mr. Watt’s decision, the companies aren’t expected to make their first payments until early 2016.

Some Republicans see the funds as loosely administered “slush” funds that benefit left-leaning affordable housing groups.

On the other hand, advocates especially value the funds because they aren’t subject to annual appropriations by Congress. Other sources of affordable housing money, such as the Department of Housing and Urban Development, have come under pressure in recent years.