WILY WILLIAM I$AAC

Seems like “expert opinion” can be swayed by the highest bidder.

Yesterday, William Isaac, former chairman of the Federal Deposit Insurance Corporation, teamed with Richard Kovacevich, a retired chairman and CEO of Wells Fargo & Co.

The two penned an OpEd that ran in the Wall Street Journal: Winding Down Fannie and Freddie Is Easier Than It Seems.

In the piece, the former bank regulator and former banker state:

“No other country has the equivalent of the private-public model of Fannie Mae and Freddie Mac—crony capitalism at its best.

The solution is straightforward: The public-private hybrid of Fannie and Freddie—“government-sponsored entities”—should be abolished, their existing business sold or liquidated, and the mortgage market privatized. This can be done in a few easy steps.

The current $686,000 cap on new mortgages guaranteed by Fannie and Freddie should be reduced by $100,000 a year. This would put the companies out of originating new mortgages within seven years.”

Messrs. Isaac and Kovacevich are evidently calling for the elimination of Fannie Mae and Freddie Mac. This recommendation from Mr. K is not at all surprising because the TBTF banks have been circling Fan/Fred like crazed vultures ever since the US Government seized the two companies.

However, Mr. Isaac seems to have a new — and completely different — outlook on Fannie and Freddie. Perhaps, FTI Consulting (Isaac’s employer) has a new client that wants to see the demise of Fan/Fred.

What’s odd is the 180 degree, about-face…

In April 2015, Mr. Isaac co-wrote with former senator Bob Kerrey, How The Fannie Mae, Freddie Mac Conservatorship Has Undermined The Resolution Process.

In this article they state:

“By diverting all profits away from the GSEs, FHFA effectively precluded any ability of the companies to boost their capital levels and over time “earn” their way out of conservatorship. Moreover, the profit sweep contradicts FHFA’s mandate to “preserve and protect” enterprise assets and property.

Such public-private partnerships at times of crisis require consistency in the federal government’s respect for, and protection of, private property rights. No private party will put capital at risk if they think the government can take it away from them in conservatorship or bankruptcy, however noble the underlying policy goals or inspiring the associated political rhetoric.

But the conservatorships have left the enterprises in a state of suspended animation; neither private nor public entity and yet their business must continue. The government’s decision to violate HERA in 2012 by invoking the so-called “profit sweep” has deprived the GSEs of their ability to rebuild capital and has put taxpayers at greater risk. It also undermines the government’s role in times of future crisis. If private capital can’t count on the rule of law, it won’t participate in the future and taxpayers will have to pick up the pieces of what’s left of the financial system.”

Earlier this year in February, Mr. Isaac wrote, U.S. Government Must Make a Decision on Freddie, Fannie.

Comments include:

“This action by the Administration created the worst of all worlds. Instead of trying to restore the companies to health, as HERA requires, the government’s actions stripped Fannie and Freddie of all their capital. The result: They again pose a substantial risk to taxpayers.

When faced with litigation and demands from the public to know why it took this action, the government initially told the courts that the profit giveaway was intended to save the companies and avoid an upcoming “death spiral.” But documents released in litigation have proven that assertion to be false. The truth, it seems, is that the profit giveaway was intended to facilitate the companies’ demise while providing windfall profits for the Treasury. As former Treasury Secretary Geithner colorfully testified, the government actually wanted to dismember the companies.

Even to a layperson, dismemberment does not heed the mandate of a conservator to restore the companies to sound condition and preserve their assets.

By the FHFA’s own admission and the government’s newly concocted litigation rationale, the government’s goal in stripping the companies of future profits was to fill the government’s coffers while ushering in the demise of Fannie and Freddie. But despite its supposed intent to wind the companies down, the government is keeping them alive and stripping them of all of their capital. This is incompatible with both current law and millennia of conservatorship history.

While taxpayer protection may sound good, it does not relieve the FHFA of its legal obligations to place the companies in sound condition, preserve their assets, and restore them to normal operations.”

$omething must have happened between February and December that Mr. I$aac would go from saying, “restore them to normal operations” to “should be abolished.”

One wonder$ what motivate$ $omeone to change their “expert opinion” so dra$tically, so $wiftly…