On Eddie D. - the NFP, and China Too
Edward De Marco is the acting head of the FHFA. He is responsible for what happens at Fannie and Freddie. A lot of people hate this guy and want to see him sacked. I like him. I think he is one a few people in D.C. who actually gives a damn about taxpayer losses at the mortgage agencies.
As per usual in America, this is a matter between left and right. Democrats hate De Marco. The Republicans are standing behind him.
The latest saga in this love-hate story is a letter that De Marco wrote to Senators Richard Shelby (R -AL) and Tim Johnson (D - SD). (Link) The issue is whether Fan and Fred should write down the principal on mortgages they own. De Marco said flat, “no”. The following is the critical sentence. Note that De Marco uses “I” when he says who made the decision. I give him an “A” for putting his head on the line.
I have concluded that Fannie Mae and Freddie Mac’s adoption of HAM PPRA would not make a meaningful improvement in reducing foreclosures in a cost effective way for taxpayers.
I think this is a pretty simple issue. What is De Marco’s Congressional mandate?
conserve the assets and property of the regulated entity
There is more to the FHFA mandate, but it was the objective of the original legislation to minimize the risks to taxpayers. There is nothing in the laws that created FHFA after Fan and Fred blew up, that allows De Marco to use the former agencies as a tool of national economic policy.
There are valid arguments on both sides of the debt forgiveness debate. It there was a magic wand that could be waved, and all underwater mortgages were eliminated, it would have significant economic benefits. Unfortunately there are no magic wands, and there is no free money available to accomplish the write-downs.
Everyone in D.C. (including Obama) knows that there is no way in hell that Congress is going to come up with the loot necessary to achieve the mortgage forgiveness. But, as the law stands now, Congress/Treasury are forced to make up any losses at Fan and Fred.
So, in theory, if the Agencies went on a tear, and wrote down principle, they would suffer huge losses, and Congress would be obligated to cover those losses. No additional legislation would be required. Of course this would violate the terms of the 2008 laws that set up FHFA. Ed De Marco is standing in the way of the Administration's desires.
Who are the folks who are pushing De Marco to provide debt relief? One group that is been particularly vocal on this issue is Rebuild The Dream.
This outfit is run by a fellow named Van Jones, who just happens to have worked for Obama as a Green jobs czar. I find it it interesting that Mr. Jones has gone from Green, to mortgages. Possibly he’s just a political hack, who does what he is told (and paid for).
Speaking of hacks, Paul Krugman has weighed in on this (Link). PK is desperate to spend some more government money. He would love to see another $400Bn go out the door, and just put the bill on the next few generations. His thoughts (Link) on De Marco’s career path:
Because De Marco is civil service, he can’t be kicked into the street, but that’s irrelevant — he can be put into an equivalent-salary job at the Small Animals Administration, or something.
Democrats in Congress have been calling for De Marco’s head for some time. Elija Cummings and Maxine Waters have been making poor Ed’s life miserable.
Other Democrats have chimed in on the recent decision (The Hill – Link)
Senate Majority Whip Dick Durbin (D-Ill.) blasted De Marco's decision as "short-sighted" and an “abdication of his responsibility.”
Elijah Cummings and fellow Oversight member John Tierney (D-Mass.) have accused De Marco of withholding documents that would reveal the benefits of principal reductions.
The Administration is doing everything they can to lean on Eddie. Timmy Geithner was quick to respond:
“I do not believe it is the best decision for the country,” Treasury Secretary Timothy Geithner wrote in a letter to De Marco.
There are some Republicans who have stood behind De Marco. House Financial Services Committee Chairman Spencer Bachus (R-Ala.) said De Marco made the right call.
“The administration put incredible political pressure on Director De Marco, and he deserves praise for standing up for the best interests of the American people,"
In the end, De Marco has one very solid supporter, Senator Richard Shelby (R -AL). With Shelby backing De Marco, his job is safe for a few more months.
Mr. De Marco's career as the head of the FHFA will come to an end with a week or so after the next election. If Obama is re-elected, he will fire De Marco and appoint someone who is friendly to a mortgage write-off, paid for with tax payer funded losses at the Agencies. Obama will do this in a recess appointment, and Congress will not have a say in the outcome.
There is so much riding on this election.
On Those Payroll Numbers
A fellow sent me this summary of the July Non-Farms payroll report. Will someone please tell me what the "good news" is in this? I don’t see it. What am I missing?
This morning, Barrons chimed in on the NFP report. I thought it was interesting that it quoted Zero Hedge when it pooh-poohed all the hype from the MSM (and the White House).
Here, courtesy of Zero Hedge, we might be able to provide a clue as to how the BLS managed that little trick: It added 377,000 jobs for seasonal adjustment. That just happened to be the largest such adjustment in July for the past 10 years.
Moreover, the always interesting but not particularly reliable birth/death model chipped in 52,000 additions. Together, these happy statistical enhancements added up to something like 429,000, which even by our rudimentary math dwarfs 163,000.
The link to the ZH analysis (Here).
A Big Change in China
I urge any of my readers who have not yet read John Hempton’s latest missive on China to do so. (LINK)
The first part of the article reads like a stock report on luxury goods manufactures. (Hempton is short). But read to the end of this piece to understand how the Bo Xilai murder scandal (and the soon to be executed wife) has changed the lay of the land in China.
Quite frankly, this article scared the crap out of me.
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