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https://appraisersblogs.com/dear-representative-fannie-mae-has-gone-rogue/
"Fannie Mae’s solution is to do away with appraisals, lower credit scores, and relax all lending criteria. This is 2005-2007 all over again. This action provides more and more opportunities for mortgage fraud. Additionally, the results will be less and less affordable housing in America.
Fannie Mae has grossly overstepped its authority because the government has been asleep during their conservatorship. Abolishing appraisals for purchase and refinance purposes?"
"The question of appropriate governmental role in housing finance systems has gone unanswered for more than fourteen years. Amidst most recent bank failures, inflation, and increasing mortgage delinquencies. Fannie Mae in my opinion is pursuing a “rush” to fund loans. And without traditional appraisal a destabilizing step likely to bring about adverse effect in the residential mortgage market and losses to the Federal Government. Therefore; as constituent I request your Office, Esteemed Colleagues, Congressional Committees on Banking, Finance and Urban Affairs of the House of Representatives, the Committee on Banking, Housing and Urban Affairs of the Senate, and the Director of the Federal Housing Finance Agency take up these questions reviewing FHFA oversight of Fannie Mae in exceeding intent and scope of the Federal National Mortgage Association Act; Title III of National Housing Act, 12 U.S.C. 1716 et seq. And for other than streamline refinance loans (simple interest rate reduction) adding prohibition for Fannie Mae funding of any mortgage loan without a[n] traditional appraisal.
Should you have any questions or wish to discuss my concerns and request do not hesitate to contact me.
Respectfully,
‘Onlookers should not be optimistic about the corrective mechanisms of Freddie and Fannie’s regulator, the Federal Housing Finance Agency. This agency tends to blow with the political winds. The only actual regulator of Freddie and Fannie is the agency’s Inspector General’s Office, though the latter lacks the manpower to do the job of the regulator.’
“It’s really hard to stop or even slow down a bank run. And to do that requires a powerful and quick government response,” Paulson told Yellen just before the treasury secretary announced on March 12 that the government would backstop all deposits that were controlled by failed lender Silicon Valley Bank.
https://nypost.com/2023/03/27/janet-yellen-asked-bush-treasury-chief-henry-paulson-for-advice/amp/
"The founders knew that money, and who controls it, is
fundamentally important in a democratic government. They were
adamant that Congress control the power of the purse since it
can act as a critical check on the president, and because of
the House's biannual elections for Members, it is the branch
most accountable to the people."
"But despite Congress' commitment to fulfilling its role,
its ability to follow through and conduct oversight of
executive spending has been increasingly challenged over time
as presidents and agencies have sought to claim more control
over spending. They have circumvented the law, ignored the law,
and even broken the law, often without repercussions."
https://www.congress.gov/event/116th-congress/house-event/LC65552/text?s=1&r=7
Clarence, you may or may not enjoy this piece from Georgetown Law Professor Adam Levitin on the SVB issue:
https://www.creditslips.org/creditslips/2023/03/the-death-of-dodd-frank-banking-laws-dobbs-moment.html
He gave an outstanding written brief and oral testimony in the Senate Banking Committee called, “Housing Finance Reform: Should There Be a Government Guarantee?”
on September 13, 2011 10:00 am, when Congress was trying to decide what to do with the GSES.
Clarence or anyone: Yesterday the 2d federal Circuit 3 Judge Appealate Panel Decision in the CFPB v Moroney case said that the CFPB appropriations was Constitutional because:
(1) there is no Supreme Court precedent that the funding structure is an Unconstitutional Violation of the Seperation of Powers and
(2) that the Constitution puts no time limit on annual appropriations (except 2 years for Defense) and therefore it sees no problem with the annual appropriations into perpetuity.
What do you think of the strength of those arguments?
It's a light read at only 24 pages and they cover the different approaches that different federal Circuits have used to interpret the Collins remedy:
https://www.ca2.uscourts.gov/decisions/isysquery/6309cda3-e772-4530-ba8f-ff2feb9ca7a6/3/doc/20-3471_opn.pdf#xml=https://www.ca2.uscourts.gov/decisions/isysquery/6309cda3-e772-4530-ba8f-ff2feb9ca7a6/3/hilite/
ROLG: "Given that the GSEs are financial insurers with no risk of deposit flight, it occurs to me that there is an example of a financial guarantor in the banking sector that might offer an example for the amount of capital that should be required of a financial guarantor. That is the FDIC’s Deposit Insurance Fund (DIF).
The DIF at 12/31/2022 held $128.2 billion of capital to insure a total of $11 trillion of bank deposits (out of a total of $18 trillion, with the difference representing the uninsured deposits of individual depositors in excess of $250,000), or a capital ratio of 1.27%.
Even given that bank risks are more diverse than the risks the GSEs insure against, I wonder why this 1.27% capital ratio might not serve as a good comparable for a sensible GSE capital ratio."
TH: "The FDIC is a different type of financial guarantor compared with Fannie and Freddie. The FDIC’s Deposit Insurance Fund (DIF) is more analogous to the reserves of a property and casualty insurer, in that both types of insurance are required of the customers who make up their client base (banks for the DIF, and home and auto owners for property and casualty insurance companies). Because of that, each of these insurer types can make up for unexpectedly high current losses by raising their premiums on future business to whatever level is necessary, and their customers have no choice but to pay up (that’s why virtually all property and casualty insurers are rated AAA). Fannie and Freddie can’t do that, at least not nearly to the same degree; their current capital and guaranty fees have to be able to handle a specified amount of stress losses on their own, without the help of future income (or premiums)."
"Did SVB make some judgment errors? ... Yes. Did they deserve to be destroyed? No."
https://www.cnbc.com/2023/03/23/why-some-silicon-valley-ceos-dont-blame-svb-for-its-crash.html
Here's the Glacial speed with which the federal courts sometimes move (recall the CFPB, with its virtually unlimited time and resources, bullied this young attorney back in June 2017 with their CID demand).
Something like 90%+ of people issued a CID come to some type of settlement with the CFPB.
When was Collins case originally filed in the 5th Circuit?
The 2d Circuit goes with the J. Kagan approach to determining the appropriate remedy under Collins (I added bold):
"In the wake of Seila Law and Collins, courts have disagreed as to how one
could make such a showing. One view is that Collins requires a party to “show
that the agency action would not have been taken but for the President’s inability
to remove the agency head.” CFPB v. Nat'l Collegiate Master Student Loan Tr., 575
F. Supp. 3d 505, 508 (D. Del. 2021) (emphasis added); see also Calcutt, 37 F.4th at 316
(“To invalidate an agency action due to a removal violation, that constitutional
infirmity must cause harm to the challenging party” (emphasis added) (internal
quotation marks omitted)); CashCall, 35 F.4th at 742 (“[T]he party challenging an
agency’s past actions must . . . show how the unconstitutional removal provision
actually harmed the party.” (internal quotation marks omitted)). A less demanding
view is that Collins merely requires a party to show that “the President’s inability
to fire an agency head affected the complained-of decision.” CFPB v. RD Legal
Funding, LLC, 592 F. Supp. 3d 258, 266 (S.D.N.Y. 2022) (emphasis added) (internal
quotation marks omitted). According to this view, Collins requires only some nexus
between the existence of the unlawful removal provision and the complained-of
enforcement action. Unfortunately, the Collins majority opinion did not
pronounce a definitive holding on this point. See Collins, 141 S. Ct. at 1788–89. But Justice Kagan, writing for herself, Justice Breyer, and Justice Sotomayor, did
provide some helpful guidance.
Specifically, Justice Kagan “join[ed] in full the majority’s discussion of the
proper remedy” in Collins and, in so doing, suggested that a party seeking to void
an agency action must first show but-for causation linking an unconstitutional
removal protection to the complained-of agency action. Id. at 1801 (Kagan, J.,
concurring). According to Justice Kagan, an agency action should be undone only
when voiding the agency’s action is “needed to restore the [complaining party] to
the position [it] ‘would have occupied in the absence’ of the removal problem.”
Id. (Kagan, J., concurring) (quoting Milliken v. Bradley, 433 U.S. 267, 280 (1977)).
Justice Kagan explained that “[g]ranting relief in any other case would, contrary
to usual remedial principles, put the [complaining party] ‘in a better position’ than
if no constitutional violation had occurred.” Id. (Kagan, J., concurring) (quoting
Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 285 (1977)).
We find Justice Kagan’s logic to be persuasive. Requiring but-for causation
in these cases properly matches the constitutional injury to the requested remedy.
See id. at 1789 (Thomas, J., concurring) (“[T]o the extent a [g]overnment action
violates the Constitution, the remedy should fit the injury.”). Such a requirement is also consistent with long-established remedial principles articulated by the
Supreme Court and our own precedents, see Mt. Healthy, 429 U.S. at 285–87; Swann
v. Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 1, 16 (1971) (“[T]he nature of the
[constitutional] violation determines the scope of the remedy.”); United States v.
City of Yonkers, 197 F.3d 41, 55 (2d Cir. 1999) (“[T]he nature of the . . . remedy is to
be determined by the nature and scope of the constitutional violation.” (quoting
Milliken, 418 U.S. at 746)). We therefore hold that to void an agency action due to
an unconstitutional removal protection, a party must show that the agency action
would not have been taken but for the President’s inability to remove the agency
head.
In this case, there is no dispute that the CFPB Director who issued the CID
was properly appointed."
https://www.ca2.uscourts.gov/decisions.html
20-3471
CFPB v. Law Offs. of Crystal Moroney
United States Court of Appeals
for the Second Circuit
August Term 2021
Argued: January 18, 2022
Decided: March 23, 2023
No. 20-3471
CONSUMER FINANCIAL PROTECTION BUREAU,
Petitioner-Appellee,
v.
LAW OFFICES OF CRYSTAL MORONEY, P.C.,
Respondent-Appellant.*
Appeal from the United States District Court
for the Southern District of New York
No. 20-cv-3240, Kenneth M. Karas, Judge.
Before: KEARSE, WALKER, AND SULLIVAN, Circuit Judges.
Respondent-Appellant the Law Offices of Crystal Moroney (“Moroney”) is
a law firm that principally provides legal advice and services to clients seeking to
collect debt. As the agency charged with regulating this industry, the Consumer
Financial Protection Bureau (“CFPB”) served Moroney with a civil investigative
The King can no wrong my friend !
Net Worth Cash Swipe for 100's of BILLIONS? NOTHING TO SEE HERE MY FRIENDS, MOVE ALONG !
https://nclalegal.org/moroney-cfpb/
"While the case was pending, CFPB petitioned the court to enforce its civil investigative demand (CID) against Crystal Moroney’s law firm in Bureau of Consumer Financial Protection v. Law Offices of Crystal Moroney. CFPB sought to compel production of documents and information related to the law firm’s debt collection practices dating back to 2014. But in addition to policies, procedures, and communications with debtors, the CID also unlawfully seeks confidential and privileged attorney-client material generated in the course of Ms. Moroney’s practice of law. Moreover, CFPB pursued its enforcement action in the wake of Seila Law with an invalid attempt to ratify the prior unconstitutional issuance of the CID and related administrative proceedings.
On August 18, 2020, the District Court for the Southern District of New York ruled in CFPB’s favor, holding that its funding structure does not violate the Nondelegation Doctrine, that CFPB validly executed its post-Seila Law ratification, and that the CID is not an unlawful attempt to regulate the practice of law. NCLA is appealing that decision.
NCLA filed Appellant’s Brief on March 5, 2021, asking the Court of Appeals to resolve three questions: 1) Title X of the Dodd-Frank Act violates Article I’s Appropriations and Vesting Clauses; 2) the Director’s attempt to blindly ratify the second CID was ineffectual because she intentionally caused the constitutional harm of which Ms. Moroney complains, along with several other defects in her attempted ratification; and 3) the second CID is unreasonable because it seeks information prohibited by Title X. NCLA is asking the court to reverse the district court’s erroneous judgment and dismiss the second unlawful CID."
https://consumerfsblog.com/2023/03/the-cfpb-funding-structure-is-constitutionally-sound-says-2nd-circuit/
“We cannot find any support for the Fifth Circuit’s conclusion in Supreme Court precedent . . . [or] in the Constitution’s text,” the Second Circuit panel wrote. Citing a 1990 Supreme Court decision, the Second Circuit concluded that a funding scheme that is “authorized by a statute” is all that is required under the Appropriations Clause. There is no question that Congress did just that in 2010 when it crafted the CFPB’s funding scheme in section 1017 of the Dodd-Frank Act.
The Fifth Circuit’s reasoning that annual or “time limited appropriations” are a necessary element missing from the Bureau’s funding scheme fared no better. The text of the Constitution, the Second Circuit noted, only places time limitations on funds to “raise and support an army.” Since no other funding has such a limitation, by negative implication the Fifth Circuit could not impose one.
A BATTLE OVER THE BREADTH OF AGENCY POWER
As much as this appears to be an argument over the CFPB, it is likely bigger than that. A few weeks ago I wrote that when the Supreme Court decided to take up the Fifth Circuit’s decision, it looked like the stage was set for a battle between two philosophies.
One is concerned that administrative agencies wield excessive power and are not constitutionally sound because elected officials do not have sufficient control over them. The other believes agencies should not be easily swayed by politics, and so, need to be insulated from political winds. Because they are composed of professional civil servants, they carry out their functions within the bounds of formal and technical restraints.
Have Congress temporarily guarantee all FDIC deposits. That's what happened in 08, I believe. That should end bank runs.
If there is a continued flight of large uninsured depositors and bank runs from the regional banks, Congress would probably extend unlimited FDIC deposit insurance for a temporary time.
BA loves these 'fortress' companies with protective moots around their businesses, similar to Warren Buffett.
If we EVER get out of government control he may be interested in holding them long term, but just like Bruce B, their duty of loyalty is to the best interests of the Shareholders in their funds.
BA in his latest update said next catalyst could be 2024.
We'll probably get a ruling in the CFPB case by then.
BA could sacrifice his common if overall he makes out well, we'll see.
Consider recent events impact on the long-term cost of equity capital for non-systemically important banks where you can wake up one day as a shareholder or bondholder and your investment instantly goes to zero. When combined with the higher cost of debt and deposits due to…
— Bill Ackman (@BillAckman) March 22, 2023
FYI, check out what happened to the toxic Stanford Administrator that came to 'assist' Judge Duncan....
https://www.reuters.com/legal/legalindustry/stanford-law-official-who-admonished-judge-during-speech-is-leave-dean-says-2023-03-22/
Senator Hagerty and Yellen today:
Treasury Secretary Janet Yellen, to a senate subcommittee:
— David Gura (@davidgura) March 22, 2023
“We have not considered, or discussed anything having to do with, blanket insurance or guarantees of all deposits.” pic.twitter.com/mXIgl9Dv1c
Yellen on expanding FDIC deposit insurance: "This is not something that we have looked at"
— Saleha Mohsin (@SalehaMohsin) March 22, 2023
She says Treasury has not "in any way" discussed "blanket" coverage
She's testifying in the Senate
"Dr. Dharan’s PIK analysis in his supplement also falls squarely within opinions he offered
prior to the first trial. Dr. Dharan previously opined in his prior rebuttal report that in lieu of the
Net Worth Sweep, “FHFA could have announced that future dividends that exceeded the GSEs’
net worth in a particular quarter would be paid in kind . . . This would have left the commitment
available to address shortfalls occurring in the ordinary course of business, including in stress
scenarios.” Dharan Rebuttal Rpt. ¶ 32. He further explained that there “is no reason” the payment
in kind option “would not have served the goals claimed by Dr. Attari as effectively in 2012 as the
Net Worth Sweep.” Id. ¶ 34. Dr. Dharan offered the same testimony at trial—i.e., that the
payment-in-kind option was preferable for addressing the alleged problem of circular draws given
that it would have eliminated the need for circular draws without depriving the GSEs of their
capital and forcing them to pay the Deferred Tax Assets in cash. Trial Tr. 1256:14–1257:20.
Relatedly, Dr. Dharan has from the outset opined that the Net Worth Sweep made the GSEs
worse off by depriving them of all of their capital for no good reason. Dharan Rpt. ¶¶ 79–81, 91;
Trial Tr. 1136:9–1137:8; 1270:13–:22. Further, he has opined that it forced them to pay the Deferred Tax Assets out in cash when it was entirely unnecessary to do so. Dharan Rpt. ¶ 113;
Trial. Tr. 1272:17–24; 1274:5–:13."
Seems like a good argument to get in Dr. Dharan's supplement report:
"Dr. Dharan’s supplemental report includes additional analysis supporting his previously
stated opinions that the payment-in-kind option would have addressed FHFA’s purported reason
for agreeing to the Net Worth Sweep at least as effectively as the Net Worth Sweep without taking
100% of the GSEs’ profits, and thus without harming the GSEs and shareholders. Defendants
oppose supplementation of Dr. Dharan’s opinions on the payment-in-kind option, but their sole
discussion of the analysis asserts only that he could have offered the opinions at an earlier point.
Defendants do not attempt to identify any prejudice that they would suffer from permitting
supplementation. Further, they ignore that everything in the supplemental report appropriately
rebuts opinions on the payment-in-kind option that Defendants’ expert, Dr. Attari, offered for the
first time at trial.
As stated in Dr. Dharan’s supplemental report:
Dr. Attari’s rebuttal report did not address the viability of the PIK option provided in the
Certificates for potential use by GSEs. Nevertheless, he testified at trial that using the PIK
option would not have “solved the circular dividend problem,” and would instead have
made the GSEs’ situation “worse.” Dr. Attari’s testimony on this issue is incorrect.
ECF No. 291-1 (“Dharan Suppl. Rpt.”) ¶¶ 3–4 (citing Trial Tr. 1961:9–:13, 1964:7–:9) (emphasis
added).
Defendants disregard Dr. Attari’s testimony and nowhere dispute that Dr. Dharan’s
supplemental report appropriately responds to Dr. Attari testimony that was not disclosed until trial. That should be the end of the analysis, and Dr. Dharan’s testimony on the PIK option must
be permitted.
Indeed, by providing Dr. Dharan’s full rebuttal of Dr. Attari’s PIK testimony in a
supplement, Plaintiffs have given Defendants the opportunity to depose him on those opinions and
to offer a rebuttal report and have their expert address Dr. Dharan’s opinions in his testimony."
Politics are the most important risk facing ALL GSE Shareholders. So far, the courts only limitations on the FHFA's powers has been whatever is "in its best interests and by extension the public it serves."
But if you think the 'Capital Stack' will protect you may be in for a surprise, Credit Suisse is an example of Equity Shareholders Bypassing bond holders in the 'Capital Stack'.
Both common and jps are down approximately 90%+ over the last decade.
WSJ today: "Without government backing, U.S. community and regional banks stand to lose large deposits and customers to big banks already deemed too big to fail. In response, midsize banks are urging the government to insure all bank deposits for two years. Tuesday, Treasury Secretary Janet Yellen said more bank deposits could be protected.
A blanket deposit guarantee would stabilize banks, at a cost. It could draw funds from similar investments such as money funds that lack the guarantee, and it could effectively turn every bank into a government-sponsored enterprise. In the process, a key of the postcrisis regulatory push would go up in smoke: that the public should never again have to backstop the losses of private risk taking."
That's the second reporter from the WSJ that has recognized the fact that the GSES have been Nationalized by the federal government.
Greg Ip was a business reporter for the Washington Post prior to joining the WSJ and may know more about Fannie Mae and Freddie Mac, than say the GasBag or Andrew Hackerman.
I highly suspect that even if he wanted to do a deep dive piece at the WSJ covering the reality of the GSES 14+ year CONservatorships, it would be nixed by the WSJ Editorial Board since the WSJ owns/leases Realtor.com, which benefits financially from the GSES status quo.
Politics may end up being more important than the 'Capital Stack':
WSJ today: "Switzerland's decision to give priority to shareholders over some bondholders in its rescue of Credit Suisse is counterintuitive for finance folk. But it has a political logic and, in bank failures, politics matters."
"The exceptions are aggrieved bondholders who will be wiped out even as shareholders can expect a modest $3.25 billion payout. A company's equity is typically considered the riskiest part of its capital structure and the lowest ranking in the hierarchy of creditor claims. But the Swiss regulator chose to write off Credit Suisse's roughly $17 billion worth of additional tier 1 (AT1) debt.
Its legal basis for doing so is up for debate. Documentation for the so-called bail-in bonds appears to allow the regulator broad sway to do what it likes in an emergency, as you might expect of a security designed after the 2008 financial crisis precisely to provide a capital buffer in times such as these."
"Lawyers will presumably argue over the fine print for years.
So why did Switzerland put the stock first? The readiest explanation seems to be politics. AT1 bondholders, being global financial institutions, made an easier target than shareholders, who tend to include ordinary citizens. Credit Suisse's top shareholders are also from the Middle East, a region that gives plenty of business to Swiss private banks.
The deal needed capital from somewhere to add up for UBS. The Swiss government was desperate to avoid the appearance that this was a taxpayer-funded bailout.
There is a wider lesson here: Too-big-to-fail bank failures are inevitably political, leading to potential conflicts with the financial agenda. Could the pattern be repeated in future bank collapses?"
WSJ: "Some bondholders are thinking about challenging the wipeout. "What investors look at when they are investing is certainty of process and rule of law. That has just been swiped away in one fell swoop by Switzerland, " said Natasha Harrison, managing partner at law firm Pallas, which is assembling an investor group for potential litigation.
The write-down "could lead to contagion for wholesale funding costs across the sector," JPMorgan analysts said in a research note Tuesday. "We expect that credit investors are now likely to demand a higher risk premium across the spectrum, with cost of AT1 issuance potentially rising into double digits," they wrote.
Over the past year, banks have typically issued such bonds paying annual percentage interest rates of mid-to-high single digits.
Market pricing initially appeared to back that position. The value of most AT1 bonds inched back up Tuesday along with global bank stocks, but most prices remained substantially below levels from before Credit Suisse's implosion.
Some fund managers said they aren't likely to invest in Swiss bank AT1s because of how bondholders were treated.
"We wouldn't be too willing to bet on those terms, there is too much uncertainty," said Artaud Caloni, a credit portfolio manager at Meeschaert Asset Management."
Greg Ip, today in the WSJ:
"A blanket deposit guarantee would certainly stabilize banks, but at a cost. It could draw funds from similar investments such as money funds that lack the guarantee. It could effectively turn every bank into a government-sponsored enterprise, as Fannie Mae and Freddie Mac once were. In the process, a key goal of the postcrisis regulatory push would go up in smoke: that the public should never again have to backstop the losses of private risk taking."
Perpetuity is a long, long, long time! Don't worry the benevolence of our 'dear leaders' will save the Shareholders, right? !
https://www.americanbanker.com/news/regulators-opened-a-can-of-worms-with-the-silicon-valley-signature-rescue
"WASHINGTON — Regulators might have created fresh risks for the financial system when they agreed to back the uninsured deposits at two failed banks.
Both Silicon Valley Bank and Signature Bank held unusually large amounts of uninsured deposits, and their failures set off panic in the financial system that regulators worried could lead to a run on deposits at other banks with similar structures. To stem that deposit outflow, the Federal Deposit Insurance Corp., the Federal Reserve and the Treasury Department said they would back the uninsured deposits at the two institutions, sending an intentional signal to the depositors at other similarly sized banks that their money had an implicit guarantee.
"What we just did really is essentially implicitly guarantee all wholesale deposits," said Saule Omarova, a professor at Cornell Law School and one of the leading scholars on financial regulation. "Of course, the signal was received loud and clear, and it was meant to be seen loud and clear."
https://www.americanbanker.com/opinion/the-implied-guarantee-of-deposits-solves-one-problem-and-creates-another?cx_testId=3&cx_testVariant=cx_1&cx_artPos=4&cx_experienceId=EX04577VHVNT#cxrecs_s
"I started covering bank regulation well before I became a parent, but it has been long apparent to me that the skills required to be a successful bank regulator are in many ways the very ones that I use every day to keep my kids in line.
There are rules (no cookies for breakfast), and there is supervision to enforce those rules. I issue supplementary guidance statements to my kids all the time, including Frequently Asked Questions about the applicability of my rules; no cookies for breakfast does not preclude the possibility of cookies between breakfast and lunch, but cookies in the morning hours should be reserved for circumstances of enhanced market stress, like when Mom and I want to sleep in.
Chief among those parenting/regulating skills is the ability to strongly imply something without actually promising it: If you go to bed at a reasonable hour and don't wake up too early, Mom and I will take you somewhere special and get you a treat (turns out that special place is the hardware store and the treat is Wendy's drive-through)."
https://www.usatoday.com/story/money/2023/03/15/bank-safe-collapse-protect-money-svb/11474023002/
CBO 06/22: "...under the terms of the
conservatorships, the federal government retains operational
control and effective ownership of Fannie Mae and Freddie Mac."
And the FHFA gets funded off the federal government books!
What's not to like for Uncle Suggy? Oh, did I mention the sweeps of ALL THEIR FUTURE PROFITS INTO PERPETUITY?
1st monthly decline YOY in almost 11 years!
The good news: (1) Thanks to the 30 yr PREPAYABLE AT ANY TIME AND NONCALLABLE FRM refinanced or financed at 50 year LOWS, Americans are reluctant to move (2) American Housing Inventory still at 2 to 3 months supply (3) 30 yr FRMS have dropped approximately 10% since SVB
The bad news: Jerome isn't finished and Fannie Mae is calling for a drop in 2023 Housing Prices.
The Ugly: The current administration will continue sacrificing the capital rebuild for short term political gain.
Which branch of the federal government has the power to federally guarantee Americans and their businesses deposits?
From todays NYT:
"Peter Conti-Brown, a financial historian and a legal scholar at the University of Pennsylvania, said the 2010 Dodd Frank law ended the option for the agencies to temporarily insure larger transaction accounts the way they did in 2008.
Now, he said, the regulators would either need congressional approval, or lawmakers would have to pass legislation to enable such a broad-based backstop for deposits. While regulators were able to step in and promise to protect depositors at Silicon Valley Bank and Signature Bank, that is because the collapse at those banks was deemed to have the potential to cause broad problems across the financial system.
For smaller banks, for which failures would be much less likely to have systemwide implications, that means that uninsured depositors might not receive the same kind of protection in a pinch.
In a nod to those worries, Janet Yellen, the Treasury secretary, suggested on Tuesday that even smaller banks could warrant a “systemic” classification in some cases, allowing the agencies to backstop their deposits.
“The steps we took were not focused on aiding specific banks or classes of banks,” Ms. Yellen said in a speech. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
But the chances that such an approach — or another workaround that allows the government to take the action without passing legislation — would be effective are not yet clear.
Sheila Bair, who was chair of the F.D.I.C. from 2006 to 2011, said she thinks that the Biden administration should propose legislation that would let the F.D.I.C. reconstitute a bigger deposit insurance program and use a “fast-track” legislative process to put it in place.
While Dodd-Frank curbed the ability of the F.D.I.C. to restart the transaction account guarantee program on its own, it did provide for a streamlined process for future lawmakers to get it up and running again, she said.
“I hope the president asks for it; I think it would settle things down pretty quickly,” Ms. Bair said in an interview. “Deposit runs can pick up pretty fast and the F.D.I.C. needs to be able to react quickly.”
But some warned that enacting broad-based deposit insurance could set out a dangerous precedent: signaling to bank managers that they can take risks unchecked, and leading to calls for more regulation to protect taxpayers from potential costs.
Aaron Klein, a senior fellow in economic studies at the Brookings Institution, said he would oppose even a revamp of the 2008 deposit insurance because he thinks that it would be temporary in name only: It would reassert to big depositors that the government will come to the rescue.
“If we think the market is going to believe that these things are temporary when they are constantly done in times of crisis,” he said, “then we’re deluding ourselves.”
The UST Secretary selling the Implicit Federal Guarantee on bank deposits this morning at the American Bankers Association:
“Our intervention was necessary to protect the broader U.S. banking system,” Ms. Yellen said in remarks before the American Bankers Association, the industry’s leading lobbying group. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
"In response to a question from Rob Nichols, the chief executive of the American Bankers Association, Ms. Yellen said she did not want to “speculate” about what regulatory changes might be necessary to prevent a similar situation from recurring."
"Ms. Yellen said recent federal actions after the failure of Silicon Valley Bank and Signature Bank this month were intended to show that the Biden administration was dedicated to protecting the integrity of the system and ensuring that deposits were secure."
“The situation demanded a swift response,” Ms. Yellen said. “In the days that followed, the federal government delivered just that: decisive and forceful actions to strengthen public confidence in the U.S. banking system and protect the American economy.”
"Ms. Yellen made clear on Tuesday that banks of all sizes are important, highlighting how smaller banks have close ties to communities and bring competition to the system.
“Large banks play an important role in our economy, but so do small and midsized banks,” she said. “These banks are heavily engaged in traditional banking services that provide vital credit and financial support to families and small businesses.”
The Treasury secretary added that the fortunes of the U.S. banking system and its economy were inextricably tied.
“You should rest assured that we will remain vigilant,” she said."
"You can't trust anymore the Capital Stack of a bank."
MM 2:12
https://www.cnbc.com/video/2023/03/21/axiom-cio-discusses-credit-suisse-bond-wipeout.html
The @federalreserve should pause on Wednesday. We have had a number of major shocks to the system. Three US bank closures in a week wiping out equity and bond holders. The demise of Credit Suisse and the zeroing of its junior bondholders. Notably, bondholders bearing losses is a…
— Bill Ackman (@BillAckman) March 20, 2023
"Federal Home Loan Banks’ total advances to members had already more than doubled to $819 billion last year. And until the FHLBs ramped up issuance last week to support member institutions, volumes in the federal funds market — where FHLBs are the largest lender of overnight cash — had reached seven-year highs amid banks’ increased funding needs."
“The Fed doing its new emergency bank program and QT at the same time is totally contradictory policies,” said Michael Darda, chief economist at Roth MKM. “The Fed is now at cross purposes – working against itself. They are trying to support the banking system on one hand but on the other side they are doing things that will constrain it.”
The counter to the argument that Fed is sending mixed signals is that this new program is more akin to what the Bank of England did last year, when it bought government bonds to stabilize markets — an emergency action as opposed to a broad thrust of monetary policy."
https://finance.yahoo.com/news/fed-8-6-trillion-balance-151726666.html
https://www.bloomberg.com/news/articles/2023-03-20/fhlb-issues-304-billion-in-one-week-as-banks-bolster-liquidity?leadSource=uverify%20wall
"The Federal Home Loan Bank System issued $304 billion in debt last week, according to a person familiar with the matter, who asked not to be identified discussing non-public data. That’s almost double the $165 billion that liquidity-hungry lenders tapped from the Federal Reserve.
The FHLBs are a Depression-era backstop originally created to boost mortgage lending. The system is known as the “lender of next-to-last resort” — a play on the nickname for the Federal Reserve’s discount window."
https://academic.oup.com/jfr/advance-article-abstract/doi/10.1093/jfr/fjad002/7078933?redirectedFrom=fulltext&login=false
"This article examines past incidence and future potential for the FHLBs to amplify financial stability risks. It offers a framework for regulatory reform by the Federal Housing Finance Agency to contain these risks and avoid harmful interference with the activities of other federal regulators."