Let me clarify a few things. First of all when I offer our analysis as to what is going on by no means should that be taken to imply that we agree with it. On the contrary, we feel that this whole situation has been grossly mismanaged on many levels. We are simply trying to inform everyone the truth about what has happened and what is going on. It is impossible to re-explain the entire situation in one short blog post. This is a very complicated situation with a maze of overlapping political and legal issues.
Both sides of the political spectrum wanted to bring in more private capital to insulate taxpayers in the event of a future cataclysmic housing collapse. There were high hopes that Congress could pass meaningful housing finance reform. Many in DC including Obama had an almost utopian vision for our housing finance market. They hoped that private capital could replace Fannie and Freddie, and we could still retain all of the benefits that Fannie and Freddie provided to the country. For many reasons this has proved to be just as I said all along, a utopian vision.
Now again I know that this is not what you want to hear but this entire issue is highly politicized, and it will play out in a highly political fashion. There is much at stake for both parties.
In 2012, most in DC were still 100 percent committed to this utopian vision. When Fannie and Freddie began to show signs of life, they panicked. Out of nowhere they were faced with the prospect that The GSEs were about to not only be able to pay the ten percent dividend but begin to retire the treasuries preferred shares. They knew that this would greatly complicate the whole utopian reform plan. They knew that if it became clear that Fannie and Freddie were going to pay off their debts and become free major reforms would be impossible.
Also, Remember that in 2012, the GSEs did not have many fans. It is easy to Monday morning quarterback, but the reality is that in 2012, it was still mistakenly believed by many that Fannie and Freddie played a big role in the crisis.
Also around this time the sequester cut’s were about to kick in, and Obama saw the 3rd amendment as a way to cushion the blow. By putting the GSEs on an accelerated payment plan, he would be able to avoid making as many painful budget cuts. It was justified by the fact that they were not taking any more money than was due in the original agreement. They would only recoup it on an accelerated basis.
Now let me clarify again, I think this was one of a series of grave mistakes by the administration. To let the sweep go as long as it has and to attempt to defend it in court was a very poor decision.
Now let’s flash forward to today. The dream of this new utopian housing finance system is dead. There is not a sane person in the world who believes that our Congress could pass housing finance legislation. The two sides are so far apart it would be a colossal waste of time to try even. How Obama handles Fannie and Freddie from here poses huge political ramifications. Like it or not this will define what the future holds. Right now Obama and the Democrats can point out that they led us out of the financial crisis and made many key changes to protect the taxpayers from a future disaster. The entire narrative surrounding the financial crisis will play a huge role in the 2016 elections.
Now granted they were a little late, but we have witnessed a “coup” develop amongst many key Democrats and their core constituents that are pushing for the recap and release of Fannie and Freddie. It is critical that the false narrative concerning Fannie and Freddie be shifted. Every time we turn around we see our opponents pushing their view that Fannie and Freddie caused the crisis. Look at Rep. Ed Royces comments or take a look at this review of Peter Wallison’s new book: http://www.forbes.com/sites/danielfisher/2015/01/08/why-everything-you-know-about-the-financial-crisis-is-wrong/2/
The fact remains that our allies want to do the right thing, but we must help in allowing them to score a political victory by doing so.
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Keep the Faith!
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