to some heavy hitters in Washington. Sen. Dodd-Banking, Sen.
Shelby-Banking, Congressman Frank-Financial Services and
Bachus-Financial Services. The letter was a cry for help. I sincerely
hope that these important legislators do not ignore this SOS. If they
do, some irreversible damage will have been done. Hundreds of billions
of dollars are at stake. Even more significant, the direction of the
government's future role in the mortgage market is going to be shaped
by the corporate Exec’s at Fannie and Freddie. There could not be a
worse outcome.
DeMarco laid it all on the line. He described the terrible mess that Fannie and Freddie are in. His words: “These calls on taxpayer funds are troubling to all of us.”
There was a significant amount of information provided regarding all of
the new management at F/F. Those that are dirty from the past are all
gone. Both Fannie and Freddie have new private sector Boards of
Directors that meet regularly. There was a discussion that it had been
agreed that both F/F would not do anything “new”.
As I was reading this I was getting the sense that in some ways DeMarco
was mocking the charade that is happening. We have two ‘private sector’
entities with all of the trappings of Boards and high priced corporate
talent. And at the same time these two dogs are sucking down taxpayer
money at the rate of $10B a month. Losses are now expected to exceed a
half a trillion. Why do we need fancy Boards and big buck talent to
accomplish that?
The important sentence comes in the summary:
“The only (alternative) FHFA may implement today under existing law is to reconstitute the two companies under their current law”
That is polite Washington speak. What Mr. DeMarco said between these lines was”
“If you guys don’t get off your ass and pass some new legislation
I am going to be forced to take us down a road that we should not go
down. I don’t have a choice in this. I think this is a big mistake.
Please do something to stop this. I don’t want to be the guy that puts
the mortgage giants on a path that will end very badly. We have made
this mistake before with the GSEs. I don’t want to make it again.
Please help, before it is too late”
Mr. DeMarco should have addressed this letter to Tim Geithner. Nothing
can happen with the GSE’s without strong leadership from Treasury. And
we have a nincompoop running the shop. On the urgent need to address
the problems with the D.C. lenders Weak Tim said on NPR recently:
"I don't think we're going to be able to legislate that until
that process can start, until next year, because it's just a
complicated thing to get right."
This problem is too complicated for the current Treasury Secretary? The
head of the FHFA is urgently calling for help; Congress is frozen over
health care and the changing political reality. Where is the leadership
that is needed? There is none. There is a reason for that and that
reason needs to be addressed. This letter points to one of a dozen
issues that need attention from an effective T.Sec.
Here’s a plan for Tim, Chris, Barney, Rich and Spence. Finish the job.
The conservatorship is a joke and a private sector GSE approach has
already proved a disaster. Privatize these dogs. Get it over with. Then
merge the two of them. Create a good bank and a bad bank. Do what you
have to with the bad bank and don’t ever, ever make the mistakes of the
past with the good bank. Get rid of that high priced talent that is
costing so much and doing so little. De-list these deadbeats. That
would save $20mm a year. Get rid of those big Boards and their “do
nothing new” meetings. And if you’re looking for someone to run this
mess, consider Edward DeMarco. He’s the only one who has spoken the
truth about the Agencies for years. Listen to him.
Mr De Marco will be pecked to death like a painted bird.
"Sure, privatizing Freddie and Fannie should be done."
And the mortgage interest deduction should be eliminate while they're at it.
Until there is shooting there is not going to be healing.
Entrenched money-mafia owns you -- and your next two generations.
Government help -- HA! Help put you into slavery!
Great post!
Tyler, you should continue to pound this issue as I am unaware of any other financial blog/service/publication up to the task.
Dodd, Frank and Obama, (there is no need to mention little Timmie,) will NOT address this issue as it requires a level of accountability they are not willing to broach. However, unless and until the root cause of the credit crisis is addressed, which is Fannie, Freddie and the FHL Banks, we will remain in residential real estate hell.
i read in the local paper that Fannie & Fannie are the new proud majority owners of Stuy Town.
anyone know which bank sold it to them through which program?
Stuy Town was brought to you by Black Rock and Merrill Lynch. They suckered Fannie and Freddie to put up $1.5B ($750mm each). They also suckered Wachovia (now Wells Fargo, thank you) to put up another $1.5B. That mega loan was packaged is a $5B CDO. That repackaged crap was sold by Goldman and Barclays.
Basically, every one in Wall Street was involved........
Bruce,
Is this the same guy that was recently hired for $3.1 million salary/bonuses?
Signed,
Troubled Taxpayer
GF Investor is correct. DeMarco is on a government check. I hope for his sake it is a good one. It bears no resemblance to the big shots at Fannie and Freddie. They are the ones making millions and going to "do nothing" meetings. DeMarco gets a paycheck and no bonus and I am sure he works his ass off.
+1
No, that is the sad irony in this, DeMarco as a regulator gets government wages, while Fannie and Freddie employees get private sector wages, they guy you are thinking of is Freddie's new CFO.
Personally I wouldn't privatize them and//or merge them, I would just run them off. As much as I hate the FHA, they could easily step into the role Fannie and Freddie are playing; move Fannie and Freddie's programs and pricing over to the FHA, and offer their employees jobs at FHA at government wages, you would get enough people. And then let Fannie/Freddie run off with a reduced staff.
Why can't they just allow people to take a tax loss on their RE losses - against ordinary income - and be done with it? It wouldn't cause the markets to come roaring back but it would help prevent bankruptcies and foreclosures from going parabolic.
Or why not adjust the AMT to allow people to write off more of their bank interest - or accelerate tax write-offs along the lines of a depletion curve? That would work too.
There are some VERY simple accounting rule changes that would fix the problem instantly. Why isn't anyone talking seriously about debt and tax relief??
In a deflationary collapse, I would expect the USG and Administration to try to figure out how to put MORE money in the hands of people who constitute the economy. Instead, they're looking at increased taxes - now and in the future - which can have no other impact than putting LESS money in the hands of people who constitute the economy.
I don't get it. If there were hard and fast rules against softening accounting rule changes - based on principle - then i might understand. But clearly, that's not the issue.
"Why isn't anyone talking seriously about debt and tax relief??"
Because--apart from being a sane and decent thing to do-- it would mean that a parasitic sector of society would not be forcing the rest into a lifetime of debt peonage. This has been long sought and will probably only be given up with a rifle barrel crammed in the parasites' faces. The fat cats will not do anything that makes them look insolvent (they already are insolvent, but if you don't admit it, it doesn't count). By definition, fat cats cannot be insolvent, so stop trying to mess with that.
Me speculates the TRUE ISSUE with the growing RE losses is that they are embedded........pension funds, insurance companies, endowments and God knows what else. MBS and derivatives were sold to high value targets greedy for max yields and " little risk ". Like a virus, it spread all over the world.
Personally, I am not confident governments and central bankers have the functional capacity to mitigate these gargantuan losses in any way near their totality. But the Boyz are now committed. They will stick to the Plan and shake off the public bitching til the bitter end.
Such are the ways of governments gone mad by ongoing Failure and Miscalculation.
RTC and LTCM were the incorrect playbooks for this particular bailout game.
Sure, privatizing Freddie and Fannie should be done. It's just not going to be, until things collapse.
The current name of the game is to prop up Real Estate at all costs (literally). When Housing goes, you've got tens of Trillions of dollars in credit/debt that's going to collapse as well. And that will lead to massive deflation as the credit markets seize up and are destroyed.
F&F are doing over 90% of the home loans these days, so if you interfere with that, you're looking at bringing down the whole House of Cards. This is what happens when you Nationalize the Mortgage Industry. And the Banks aren't interested in helping out, as they've got their own problems, and are more interested in making money elsewhere, such as gambling.
I salute Mr. DeMarco. But this problem is much bigger than what he can solve. And no one else is interested in doing what needs to be done.
BULLSEYE!!!
Thank you. It's good to know that someone else understands the problem. One sees so little of it in the Press these days. For profitable reasons, of course.
"Mr. DeMarco should have addressed this letter to Tim Geithner. Nothing can happen with the GSE’s without strong leadership from Treasury"
Bruce,
Unfortunately nobody at Treasury will pay attention to Mr. DeMarco's plea for help. Prepare for more bailouts down the road.
"I don't think we're going to be able to legislate that until that process can start, until next year, because it's just a complicated thing to get right."
When anybody offers up the explanation "it's complicated" for why they can't explain/do something, they are, most likely, lying to you and attempting to rip you off. This applies to more than the government (see complex financial instruments and their contributions to our current state of affairs for starters).
+100. Timmy the Lagomorph is there to take F/F "for a one-way ride in the woods" because his handlers have told him to do so. Looking at this guy's responsibility level, ability to lie blatantly and his past 'solutions', I wouldn't let him be in charge of saving a tin of beans.
Anyone else notice the unfortunate coincidence that there are now $23T in pension funds and that the total bailout is also $23T (give or take a few billion)? I would not be betting ye olde farm on that pension being there (in an accessible form) in another few years.
Bingo! Pension funds, IRAs and 401Ks rolled into Treasuries as a forced requirement or into Social Security as a forced annuity. And the only way to get your money out will be a monthly allocation, at their discretion. The greatest theft of all still awaits. Get your money out NOW!
There could not be a clearer example of how government interference in pricing in a supposed free market of prices ....WILL NOT WORK....
How many times does this have to be proven over and over....
This is also true in US agriculture ....
It is time for the US to excuse itself from the free market price mechanisms....
The simple truth is that Fannie and Freddie are proof of how expensive government interference in the markets really is ....
There is never going to be FREE ICE CREAM.....
NEVER
unless of course, i drink your milkshake
10 billion a month
Wish someone from gov't help out.
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