The exchange between Treasury Secretary Lew and Rep. Capuano made clear the administration’s reasons for the 3rd amendment sweep. Lew made clear that the sweep was enacted for three reasons: to buy more time for major housing finance reform, lower the debt and the fact that taxpayers are still on the hook for possible losses. You will note that none of these reasons have been used in the government’s defense of the sweep in court. They know that legally these reasons would never stand up to legal scrutiny. It is now clear that government Attorney Schwind is the only one in our government still blindly trying to defend what even the defendants he represents won’t defend. Lew made no mention of the outrageous “circular draw”(1) alibi to Capuano. No government officials are willing to stake their reputations on the defense of such a lie. One has to wonder how long Schwind will continue to allow himself to be used as a human shield in this ridiculous heist. In the last hearing in the Fairholme trial, Schwind was finally showing signs that even he is growing weary of the whole charade.
The truth is that the reasons Lew cited are poor excuses to justify seizing all of the profits of 2 private companies and effectively holding them hostage.The fact that seven years later our leaders in DC are still miles apart on Housing reform legislation is no one’s fault but their own.The fact that our country consistently spends more than they take in does not justify seizing private profits to fill budget gaps. Lews final reason I want to examine a little closer because this is a favorite amongst many of our opponents. Rep. Capuano nailed it in this exchange:
Lew: Until we move to a system beyond the current one, taxpayers are ultimately responsible and therefore
Capuano: But that’s been the case since the 1930s that the taxpayers have been on the hook and they had a blip and taxpayers stepped in, as we promised we would do for 80 years and now we’ve been paid back. The question I have is, when are we going to stop using this as a piggybank? I know we have to have a debate about reforming FF, but if that’s the case, what’s the Administration’s proposal on how to move forward?
They throw the “taxpayer on the hook” around as if the government backing of the GSEs is something new, something that came about from the crisis. As Capuano pointed out, this backing has been in place since the 1930s it has helped build the middle class in America.Now suddenly they float out the bizarre idea that the “taxpayers” need to be compensated for this risk? The compensation has always been understood to be access to a thirty year fixed rate mortgage at a lower rate than would otherwise be available.It also ensures that the predatory style lending tactics that left to their own devices, private capital has always brought to bear on Americans, is not the only option available.I actually could write a 10-page white paper on all of the benefits the GSEs provide to America, but I think you get the point.For our government to use this as an alibi for this heist is disingenuous at best and truthfully just one more outright lie. One more lie our leaders have chosen to use in their desperate attempt to hand this market over to the very banks that caused our last crisis. The very banks that literally own so many of our elected leaders.
Now wouldn’t it have been amusing if instead of the reasons he gave for the sweep and hijacking Lew had said, The imminent massive profits were not a factor it was our concerns that the circular draws would breach the GSES credit line. Also HERA authorized us to do anything we want literally, we could send all of the profits to you Rep. Capuano and no judge could stop us. Heck, if you look carefully at the wording HERA it even allows us to enjoy all of the benefits of a conservatorship and a receivership and none of the liabilities of either.We created a hybrid vehicle that the FDIC may want to consider when dealing with troubled banks; we call it a “conceivership”. It enables the majority stakeholder to make a deal with the conceiver to ensure all profits go to them in perpetuity.
Imagine the reaction that would have brought though this is exactly what our government has claimed in the various lawsuits. Not only has Lew refused to use these bizarre alibis but no one in the administration or Treasury has either. Stegman used the same reasoning that Lew did in his speech at Goldman Sachs recently.
I now want to present a few questions that I would ask if given the opportunity to ask administration officials such as Lew and Stegman. Hopefully those brave men and woman in DC and the media who have awoken to our cause will find them useful.
1) Mr. Lew, I appreciate your attempts to explain the administration’s reasons for the sweep but unfortunately I have noticed quite a disconnect between your public reasons and the reasons that Attorney Schwind has given in court. Are you aware of the reasons he has given in court on treasuries behalf?Do you know the truth Secretary Lew? Would you say that all of your reasons, as well as his, are all true? Would you agree that all six cannot possibly be true as some seem to contradict others? Is the truth the reasons you gave, but you are asking Attorney Schwind to lie? Is it because your reasons would offer no legal defense for your actions? Treasury Secretary Lew Are you asking attorney Schwind to lie and stall to buy more time for the administration to figure out how to wrap this mess up?
Capuano exchange begins at 1:22
The administration’s bizarre attempts to suppress concerns about the risk the GSEs pose by their ever shrinking capital levels were smashed this week on a few fronts. After what we experienced in the financial crisis the absurdity of their claims should be plain but apparently this is not the case. The OIG felt compelled to release this “masters of the obvious” report. Appropriately titled “The Continued Profitability of Fannie Mae and Freddie Mac Is Not Assured” it reads like a Dick and Jane starter book.
We were amazed at much of the response this report received in the media, some of the headlines were borderline surrealistic. I would think that by now everyone understood that if a company is fleeced of all of their profits while being forced to reduce their capital levels to 0 they may need a future bailout? How they were able to fill, a 23-page report on this subject is baffling but hidden amongst the report is a few enlightening charts and graphs.The bottom line is that it is grossly irresponsible to let the GSEs continue the path they are on much longer. http://fhfaoig.gov/Content/Files/WPR-2015-001.pdf
The Urban Institute also checked in on this: http://www.urban.org/UploadedPDF/2000143-What-to-Make-of-the-Dramatic-Fall-in-GSE-Profits.pdf
In addition to working on our book, we are in the process of switching from this blog only layout to a full website. We will be gearing it to be more of a “news site” and are adding more staff. We hope to get our much more truthful version of affairs to a wide audience in these ways.
Keep the Faith!