Be Mine: Happy Valentine’s Day!

February 14…

Besides being my birthday (please, no gifts — donate to your favorite anti-corrupt government advocacy group instead), it’s a day best known for Valentine’s Day. We share our love, friendship and general kindness to others in our lives.

Indeed a special day. But for those of us who have followed the Fanniegate saga over all of these years, Valentine’s Day holds a special place in our hearts.

On February 15, 2014 (ok, technically the day after V-day, but stay with me…) Gretchen Morgenson, then with the New York Times, broke the long-held silence from the main stream media regarding the details of the government takeover of Fannie and Freddie. Gretchen wrote, The Untouchable Profits of Fannie Mae and Freddie Mac, stating:

“Siphoning off the entities’ profits is the opposite of conserving their assets and property, the plaintiffs contend.

Do the Treasury’s actions amount to a backdoor nationalization of the companies? A full-fledged takeover would have required Treasury to put all the companies’ obligations — $4.9 trillion at the time — on the government’s balance sheet. A nonstarter.

Furthermore, nationalization would have required the government to provide compensation to shareholders for what it took. Now the government gets the benefits of the companies’ profits while avoiding any compensation payments.”

The MSM generally remained silent for the next year, when Gretchen followed up exactly one year later with another Valentine’s piece.

On February 14, 2015 Gretchen wrote, After the Housing Crisis, a Cash Flood and Silence stating:

“Whatever the case, it is disturbing that the government goes to such lengths to shroud the details of the profit-sweep decision. It reminds me of a comment made by Ferdinand Pecora, the hard-driving prosecutor who investigated Wall Street’s role in the crash of 1929. In his memoir, “Wall Street Under Oath,” he wrote: “Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism.”

I highlighted this Valentine’s Day coincidence in a February 2015 blog post, Fantastic February for Fans of Fannie and Freddie.

So, this year Valentine’s Day is just two days away and we have another great day ahead!

The first events will be simultaneous releases of 4th Quarter, 2018 earnings for both Fannie and Freddie. I believe this will be the first time during conservatorship that both companies are releasing earnings on the same day. Is this just another Valentine’s Day coincidence or is new information contained in the financial statements that require them to be released on the same day?  We’ll find out… As Forrest Gump says, “Life is like a box of chocolate…you never know what you’re gonna get!”

One would assume that if the earnings reports have a material change to retained earnings and/or the net worth sweep, an official announcement from FHFA, Treasury or the White House would precede Fan/Freds’ releases. Therefore, an Admin announcement would likely come out tomorrow or early Thursday.

I try to stay away from predicting events in the Fanniegate saga while reminding myself of another Gumpism, “Stupid is as stupid does…”

Also on Valentine’s Day, Mark Calabria will visit the Senate Committee on Banking, Housing and Urban Affairs for his confirmation hearing which can be viewed live on their website starting at 10:00 AM. Mark is listed last on the witness list, but it’s unknown at this point when Mark’s session will take place.

It will be interesting to learn how much Mark shares about his visions for FHFA. Remember, that agency is designed to be independent from other administrative agencies, to include the US Treasury and even the White House.

However, recall that Joe Otting, acting FHFA Director and Treasury employee, recently advised FHFA staff that the Administration has a plan to deal with the never-ending conservatorships, which according to Joe is due out any day now… Will Mark reveal details of this plan? Will he endorse the greater Administration plan? Or will he do what a lot of officials do during their confirmation hearing — bob, weave, duck and answer in vague, abstract terms?

Equally interesting will be the Senators’ views on the 10+ year conservatorships. At this point it seems obvious Congress needs to rely on the Administration’s leadership to resolve the stalemate. Does anyone expect the Rs and Ds in the R-led Senate to all agree on a Senate plan? AND THEN have the Rs and Ds all agree on a plan from the D-led House… AND THEN reconcile the two plans into one? After waiting for more than 10 years?

There have been calls over the past several years for the Administration to take the lead on resolving the conservatorship impasse. Highlighted in a January 2015 Hill article, “Why the Obama administration should revive Fannie and Freddie on its own:”

“Senator Tim Johnson (D.-S.D.), urged Mel Watt the head of the Federal Housing Finance Agency, which oversees Fannie and Freddie, to work with Treasury to end conservatorship without Congress.   Watt, however, has long said it’s up to his former colleagues in the Senate to resolve the issue. After Johnson’s comments, Treasury let it be known that fixing Fannie and Freddie was a job for our elected representatives. So it’s back to gridlock.”

2019 seems to be the year to finally end the Fan/Fred gridlock!!

Sure, I’ll celebrate Valentine’s Day in the traditional sense with my wife… flowers, chocolate, dinner (no it won’t be at Bubba Gumps!)… I hope everyone else enjoys the special day, too!

But before that celebration, I’ll be tuned into Fanniegate to watch the latest developments unfold. I’m sure most of you will be, as well!

 

I was looking for a sweet Valentine’s song to play here, but I came across this one instead, “Be Mine” by Ofenbach. Eerie similarities to our Fan/Fred situation. Two individuals held captive. The captor uses the two, gets want she wants and then they are finally freed. (warning R rated!) Cool song…

 

 

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WaPo Editorial Board states time is now!

I was excited to see the WaPo Editorial Board weigh in on the current, intensified interest in Fannie and Freddie with an Op Ed piece titled, It’s time for a Fannie-Freddie fix.  

I was cautiously optimistic before reading it given the Editorial Board’s past vitriol toward the current shareholders of Fannie and Freddie seeking a return on their investment.

The Board keeps criticizing “rich hedge funds” trying to cash in big from their investment. It seems hypocritical that a company owned by Jeff Bezos, the richest person in the world, would attack others who seek to make a return on their investments. Many, many shareholders are predominately concerned with taking care of their families and saving for retirement. It’s not in most shareholders’ dreams to get rich off this investment so they can go out and buy a major grocery company and a major newspaper.

If the WaPo stopped being lazy by not repeating the “greedy hedge fund” meme every time they comment on Fannie and Freddie shareholders, they might learn something… and so might their readers. Isn’t that what a newspaper is supposed to do!?

Perhaps one of their reporters could investigate who the shareholders actually are beyond the blood sucking hedge funds. And perhaps they could look into hedge funds in general to see who actually invests in those investment vehicles. At that point they may end their attack against people who invest money in an attempt to make more money…like perhaps Jeff Bezos.

It was good to see many people — including the WaPo Ed Board — jumping on the fast-moving bandwagon to finally deal with the 10+ year old, one-piece-of-unfinished-business from the the 2008 crisis.

The events in January and February 1 were extremely encouraging. Let’s list them here:

  • Mel Watt left office (finally!)
  • Joe Otting was named Acting FHFA Director
  • Mark Calabria was nominated for FHFA Director (great!) [had several posts featuring Mark including these two here and here.]
  • Otting meets with FHFA staff and informs them the Admin is moving toward a plan to address the 10+ year long conservatorships
  • Senator Brown, Ranking Member of the Senate Banking Committee and Maxine Waters, Chair of the House Financial Committee send a letter to Otting asking for details of the Admin’s plan
  • The White House confirmed the Admin is working on a plan. Uses different words than Otting …that’s how Washington works.
  • Otting responds to Brown/Waters thanking them for the interest and asking for recommendations, but doesn’t offer details of Admin plan
  • Senator Crapo, Chair of the Banking Committee, rushes out an “outline” of reform as if it was due by the end of the week, Feb 1. Seems like Crapo did not want to receive an “Incomplete” on the assignment. (obviously final bill that gets through Senate and House will be drastically different than this draft, incomplete outline)
  • Ranking Member Brown releases a statement that came out quickly stating the Democrats would fight for their priorities in Housing Reform (first priority – Affordable Housing, which was not coincidentally the last point on Crapo’s outline. We’re starting to see where the horse-trading will focus …plus the whole ginnie mae thing…!)
  • Treasury Secretary Mnuchin’s office apparently had a prepared remark ready as it came out quickly thanking Crapo for releasing ANYTHING to address the 10 year long quagmire.

I didn’t want to get into the court cases here, but a significant event happened in the Collins case in January. Details of the en banc hearing can be read on Investors Unite site here. Thanks to Tim Pagliara and Investors Unite for their tireless efforts!

And how can I resist adding this tweet exchange!? No blue checkmark on Phillips account but reported to be authentic. Good one, Glen!

Screen Shot 2019-02-02 at 6.50.12 AM

The pace of events this past month — especially everything that happened yesterday — appears quite obvious that these events are coordinated in advance. We perhaps only see 5% of what’s happening in Washington. But what we do know is the Fan/Fred debacle is finally being addressed…and unfolding quickly!

The media and pundits weighed in all day yesterday, most repeating in zombie-like fashion – “Fan/Fred caused the 2008 crisis” (they didn’t) and with the aforementioned greedy hedge fund meme.

There are many excellent reporters in the industry who have been reporting the actual facts and revealing the truth about the situation many whose articles are posted on this blog.

February seems like it will provide even greater thrills than last month in the Fannie/Freddie realm. Congress has been stalemated for years on the issue largely due to lack of leadership from the Administration. That all changed in 2009…!

Back to the WaPo editorial… I’ll post the editorial here (until I’m threatened to take it down), but I will first post the first comment the WaPo Ed Board received on its editorial:

JLW72764
8 hours ago

“It would hand a windfall to speculators while resurrecting the old, failed business model that enabled Fannie and Freddie to gamble for maximum private profits, with taxpayers on the hook for losses.” So what? All stock ownership is speculation. If me, a private investor, or a hedge fund, or anyone else buys stock anticipating a windfall, what difference does that make to anyone else?

Fannie and Freddie did not “gamble.” They were not even bankrupt. Shareholders were wiped out, and taxpayers have made more than $100 billion off of Fannie and Freddie, two public, shareholder-owned companies.

The GSEs’ regulator, James Lockhart, claimed the GSEs were adequately capitalized three weeks before Paulson nationalized them (nationalized being Paulson’s own words). Paulson changed the accounting rules regarding capitalization, then declared them undercapitalized. He ordered them to borrow enough money from the government to “restore” an adequate capital cushion.

But the numbers were bogus. There was never a serious capitalization problem until Paulson changed the rules to require more capital. If the GSEs had been given a line of credit, instead of a forced “bailout” they would never have had to borrow a single dollar. In the 2008 third quarter, when the companies were taken over by the government, Fannie Mae reported $1.1 BILLION IN POSITIVE EARNINGS.

At the absolute peak of the financial crisis, the GSEs were generating positive earnings. Their losses were all “paper” losses due to unnecessary write-downs and new capitalization requirements. None of this was “real” losses, as became clear when all of these losses were “reversed” in 2013.

The government stole these private, shareholder-owned companies from their shareholders. It was the greatest financial heist in the history of our country, and the first steps on the road to socialism. Hopefully the courts will prevent that and return Fannie and Freddie to their shareholders.

And the editorial:
It’s time for a Fannie-Freddie fix

February 1 at 7:04 PM

HAVING FULLY recovered from the crash of 2007-2008, the U.S. housing market is cooling a bit. Prices rose at a 5.2 percent annual rate in November, down from 5.3 percent in October. Economists generally expect further deceleration this year, and a recent Goldman Sachs report identifies three main causes: an uptick in mortgage rates, the failure of wage growth to keep pace with housing price growth and the 2017 tax law, which reduced the mortgage interest deduction.

Is this good or bad news? A lot depends on whether you’re buying or selling. For the U.S. economy as a whole, the prospect of a smoothing out in the boom-bust cycle could be a positive sign — evidence that the various regulatory reforms enacted after the Great Recession are working. The last piece of unfinished business is, however, housing-related: resolving the status of Fannie Mae and Freddie Mac, the two giant entities that provide mortgage liquidity by packaging home loans into securities and selling them to investors. Taken over by the federal government in 2008, they remain there still, despite repeated legislative attempts at reform. The lack of a Fannie-Freddie fix creates nagging uncertainty for would-be investors in all aspects of the housing business.

The politics of reform have proved intractable, however, with discord among affected interest groups so sharp that they have prevented even a unified Republican government from pushing through a bill over the past two years. The latest stir was caused by leaked remarks last month from Joseph Otting, Fannie and Freddie’s acting regulator, who suggested at an internal agency meeting that the Trump administration was about to propose a plan to end government control. Some on Wall Street interpreted that to mean the administration would return Fannie and Freddie to their existing shareholders, who are now mostly hedge funds that purchased the entities’ beaten-down stock after the crash and have been agitating for this form of “privatization” ever since. This is the one proposal that policymakers should rule out once and for all: It would hand a windfall to speculators while resurrecting the old, failed business model that enabled Fannie and Freddie to gamble for maximum private profits, with taxpayers on the hook for losses.

The White House quickly denied that “decisions have been made on any reform plan” and promised to work with Congress — which now means working with a Democratic House, and its financial services committee chair, Rep. Maxine Waters (D-Calif.). Perhaps the liberal Ms. Waters and the Trump administration’s proposed point man for housing, Mark A. Calabria, can have a Nixon-goes-to-China moment. Sen. Mike Crapo (R-Idaho) weighed in Friday with a revised version of a compromise plan he offered previously that would assign more responsibility for funding 30-year mortgages to the private sector, while preserving a government backstop for truly catastrophic losses. The sooner the politicians get to yes, the sooner the housing market can complete its healing process.