Yesterday marked the start of Kwanzaa which celebrates African American culture and heritage through the 7 principals of Kwanzaa. We would like to wish all of our readers who may be celebrating Kwanzaa with us a joyous experience. We encourage everyone to take a look at the principals as they offer a wealth of wisdom that can be very useful right here in our own cause. Yesterday began with the celebration of unity, this is a topic that we have been examining very closely lately.
Over this holiday break we have been doing quite a bit of thinking and debating as to the best course to take headed into the new year. On conclusion we have drawn is that it would be nice if we could form a more unified coalition amongst many of our allies. There undoubtedly is great power in unity and we intend to address this with some of our allies soon. We also will be making a few key announcements over the coming week that will fundamentally transform and greatly expand our reach. We have reached a point where we feel it will be very productive to expand our operational structure. Till now we have hesitated to do so because we did not feel that it would be especially productive, that has changed and we intend to adapt and assume the role that has been placed in our path. Until now most of us involved have been gifted with the ability to dedicate large amounts of time to our cause without the need for compensation. We do have some very talented folks ready to join our cause but they can not work for free so we will be announcing a series of initiatives that will enable us to bring them aboard.We will be sharing much more details on this soon.
Just as we predicted months ago our opponents are not going to surrender quietly.Just as we warned we see a desperate, intensive last gasp attempt to salvage their goal of eliminating Fannie and Freddie. Staying true to form their arguments are almost entirely comprised of nothing but lies and have absolutely no basis in reality. We saw this in Republican Ed Royces statement which our readers annihilated with the simple truth. (link)
We also saw this upon pre-release of Peter Walisons book to limited sources. We will be addressing Peters distorted vision of reality in a future post soon. I will say that we were rather shocked to see him repeat his tired old lies after they had already been completely disproven. Peter is in the same category as serial liar Stephen Blumenthal (former head of OFHEO) who had the audacity to try and silence us with his threats. We will be addressing Stephens role in this whole scandal in greater detail as well. His attempts to silence us only furthered our resolve to reveal the truth about his crusade to kill Fannie and Freddie.
The WSJ once again put on their propaganda spectacles and cherry-picked portions that back their false narrative. We reviewed the CBO report when it came out but opted not to discuss it because it deals with the fairy tale hope of Congress passing housing finance reform.As we have previously stated we have no intentions of enabling our dysfunctional congress with the delusion that they could possibly accomplish this. However having reviewed the CBO report in greater detail we feel it will be beneficial to share some very key points that the WSJ chose to overlook when crafting yet another Soviet-Style propaganda opinion piece. We must say our disgust continues to rise as the once respected WSJ chooses to again and again present utter works of fiction to the American people cleverly disguised as “journalism”. We also want to make it clear that we are documenting their coverage in detail and intend to use it to completely destroy what may be left of their reputation when this is over.Hopefully one day we will enjoy “life without the WSJ”.
This time they do it in an opinion piece in which they use the recently released CBO analysis to draw the conclusion that the elimination of Fannie and Freddie would be a breeze,that it would barely have any impact on the housing market. Here we will provide our own analysis of the report and point out the glaring defects in the Journals unsurprisingly grossly anti-GSE bias.
It is important to note that this report was commissioned by Republican Jeb Hensnarling chairman of the House Financial Services committee. Jeb you will remember is the author of the house path act, the proposed reform bill that is no longer even mentioned in any serious GSE debate due to the absurdity of its goals. Needless to say the option of keeping Fannie and Freddie was not submitted to be considered as one of the options in the report.
The WSJ ignored several key points beginning with the fact that the report is riddled with warnings concerning the dire consequences that would result in an attempt to abandon a system that has worked extremely well for 80 years in favor one of the new schemes that were under review. Take a look at some of the dire warnings and disclaimers we found in the report:
“However, other observers argue that the problems with the private-label MBS market are more fundamental. Investors’ confidence in that market was shaken by losses experienced during the financial crisis, and they continue to be wary of the market for several reasons, including the lack of transparency about the mortgages underlying private-label securities, unreliable credit ratings, and the fact that the companies servicing mortgages have incentives that conflict with their own when loans are delinquent.”
“If a transition to a new structure for mortgage finance led to an unexpected contraction of mortgage availability or to a sharp spike in mortgage rates, the economic costs could be high. A key concern about transitioning to a largely private secondary market is that it might fail to ensure a stable supply of mortgage credit during periods of financial stress. During such occasions, uncertainty about the solvency of private guarantors could erode confidence in private credit guarantees, causing mortgage interest rates to rise sharply. The adverse effects of such a rise on the housing market would deepen economic distress.”
“Some other analysts expect that a transition to a largely private market could cause mortgage interest rates for the average borrower to rise by 100 basis points or more, which is a significantly larger increase than CBO proj- ects.5 Those analysts argue that attracting more private capital to mortgage markets would require significantly higher rates of return on MBSs and mortgages than pri- vate investors or banks currently receive, and that to improve those returns, banks would incorporate higher risk premiums into the interest rates they charged borrowers.”
“(On the other hand, the enormous losses that have occurred in recent years on private-label subprime mortgages, which are not federally guaranteed, offer a clear reminder that private markets are not immune to aggressive risk taking.)”
“Less creditworthy borrowers who lost access to GSE- backed financing during a transition would probably fare significantly worse than they would under current policy because the GSEs’ guarantees currently provide them with significant subsidies.
Those high-risk borrowers would probably also see a decrease in the availability of mortgages as private firms would have somewhat tighter lending standards than the two GSEs—requiring higher down payments.”
“Encouraging the private sector to play a larger role in the secondary mortgage market would reduce taxpayers’ exposure to risk from Fannie Mae’s and Freddie Mac’s activities. Taxpayers would still face some risk, however,from the federal safety net that covers banks and other large financial institutions. That safety net includes federal deposit insurance and any implicit guarantees that the federal government will come to the aid of major financial institutions—as it did during the most recent financial crisis. That aid protected many uninsured creditors of large financial institutions from losses and supported the continued availability of credit to households and businesses, though at great potential costs to taxpayers.”
“CBO cannot confidently predict the extent to which higher interest rates might push down house prices under any of the options discussed in this chapter because estimates of how sensitive such prices are to changes in interest rates are uncertain and vary with financial conditions.”
“CBO’s projections of budgetary costs and the size of the federal role in the mortgage market involve considerable uncertainty. In particular, because the market for mortgages is now dominated by large government-backed entities, the price that private investors would charge to bear the risks of mortgage guarantees and how that price might evolve over time are highly uncertain.”
“If investors’ confidence is slower to return than CBO expects, the agency’s projections may overestimate the recovery of the private market and the accompanying drop in federal activity (as well as the decline in the price of market risk).”
“However, in a market in which the government acted only as guarantor of last resort or in one that was largely private, the availability of long-term fixed rate mortgages would depend on the state of private securitization markets. In the past, when the liquidity of private-label MBSs was strong, 30-year fixed rate mortgages were widely available in the jumbo market. But when private securitization froze during the financial crisis, originations of fixed rate jumbo mortgages dropped disproportionately.”
The only conclusion any sane reader could draw from the report is that it would be beyond reckless to abandon a system that has worked so well for over 80 years in exchange for on of the untested schemes in the report.
The reality is that private capital has a long sordid disastrous history in the secondary mortgage market,they have never been successful at it. Their involvement always leads to predatory style lending, high risk business practices and always has ended in complete collapse. Its breath taking to see folks ignore the simple truth that the big banks/PLMBS caused the financial crisis.To suggest that the solution is to turn the entire secondary mortgage market to the very people that caused the collapse is surrealistic. To think they almost pulled this off is terrifying. Some of the simple truths which our opponents insist on ignoring can be found here: (https://timhoward717.com/summary-of-the-truth/) Thankfully many of our key allies have realized these truths and are now taking action accordingly.
We must say our disgust continues to rise as the once respected WSJ chooses to again and again present utter works of fiction to the American people cleverly disguised as “journalism”. We also want to make it clear that we are documenting their coverage in detail and intend to use it to completely destroy what may be left of their reputation when this is over.Hopefully one day we call all enjoy “Life without the WSJ”.
We want to share a few chilling confessions that the CBO included in their report:
“(Although Fannie Mae and Freddie Mac are now owned and run by the federal government, CBO still refers to them as GSEs for simplicity and because they differ from fully federal agencies in some significant legal and institutional ways.)”
“In 2012, the Treasury and the two GSEs revised their agreements: Rather than pay a fixed dividend on the Treasury’s preferred shares, Fannie Mae and Freddie Mac began in 2013 to return almost all of their profits to the Treasury. However, those payments do not reduce the amount of preferred stock held by the Treasury, and the GSEs are prohibited from buying back that stock under their agreements with the Treasury and FHFA. Thus, the terms of the agreements and the conservatorship ensure that the federal government effectively retains complete ownership and control of Fannie Mae and Freddie Mac.”
Obviously the CBO did not clear this with the government attorneys. Here we see the CBO completely agree with my simple explanation of the 3rd amendment sweep which is: “The government made a deal with the government to sweep all of the GSEs profits to……the government”.
They also included this gem:
“As of the end of September 2014, the Treasury has purchased $187 billion of senior preferred stock from Fannie Mae and Freddie Mac, and the two GSEs have paid $219 billion to the Treasury under the terms of their agreements with the government.Most of those payments came from the $130 billion in net income that Fannie Mae and Freddie Mac together earned in 2013. (Those earnings were boosted by one-time accounting changes—the revaluation of the GSEs’ deferred tax assets, which resulted in additional payments of $75 billion in 2013—and by $8 billion in legal settlements with large banks.) In its budget for fiscal year 2015, the Administration projected that the two institutions would make payments to the government totaling $181.5 billion between January 2014 and September 2024.”
Here they acknowledge both the fact that Fannie and Freddie have more than repaid their debt and the rewards that the government would reap as a result of the lawless sweep if it were allowed to stand. Thankfully we have learned that the administration never intended for the sweep to be permanent,it was the result of a hastily crafted and ill advised scheme to buy congress more time to enact housing reform legislation. Geithner was all to happy to go along in hopes that Fannie and Freddie took the fall for his gross dereliction of duty while head of the New York fed. This will be covered in more detail in a future post.
We have one final point from the report that we hope to share in another post which concerns the fact that the CBO included some very detailed suggestions on how to reform Fannie and Freddie as part of a responsible reform/release plan. Although the option of keeping Fannie and Freddie was not commissioned as part of the report it is very interesting to note that they did include some very detailed suggestions regarding this.
In closing, we want to remind everyone that the attacks we have experienced lately will continue to escalate. We must prepare for what will surely be the fiercest battles in our campaign. Take advantage of this brief holiday break to arm yourself with the facts. As I said before we are preparing to play a much bigger role going forward, and we look forward to leading our side to victory. Keep the Faith!
(TO read the WSJ opinion piece for free simply type “Life Without Fannie and Freddie” in google. you can click on the link and read it without being a subscriber. This goes for all of their articles as well I believe.