Edward DeMarco, the acting head of FHFA, wrote a letter to some heavy hitters in Washington: Sen. Dodd-Banking, Sen. Shelby-Banking, Congressmen Frank-Financial Services and Bachus-Financial Services. The letter was a cry for help. I sincerely hope that these important legislators do not ignore this SOS. If they do, some irreversible damage will have been done. Hundreds of billions of dollars are at stake. Even more significant, the direction of the government's future role in the mortgage market is going to be shaped by the corporate Exec’s at Fannie (FNM) and Freddie (FRE). There could not be a worse outcome.
DeMarco laid it all on the line. He described the terrible mess that Fannie and Freddie are in. His words: “These calls on taxpayer funds are troubling to all of us.”
There was a significant amount of information provided regarding all of the new management at F/F. Those that are dirty from the past are all gone. Both Fannie and Freddie have new private sector Boards of Directors that meet regularly. There was a discussion that it had been agreed that both F/F would not do anything “new”.
As I was reading this I was getting the sense that in some ways DeMarco was mocking the charade that is happening. We have two ‘private sector’ entities with all of the trappings of Boards and high priced corporate talent. And at the same time these two dogs are sucking down taxpayer money at the rate of $10B a month. Losses are now expected to exceed a half a trillion. Why do we need fancy Boards and big buck talent to accomplish that?
The important sentence comes in the summary:
The only (alternative) FHFA may implement today under existing law is to reconstitute the two companies under their current law
That is polite Washington speak. What Mr. DeMarco said between these lines was:
If you guys don’t get off your ass and pass some new legislation I am going to be forced to take us down a road that we should not go down. I don’t have a choice in this. I think this is a big mistake. Please do something to stop this. I don’t want to be the guy that puts the mortgage giants on a path that will end very badly. We have made this mistake before with the GSEs. I don’t want to make it again. Please help, before it is too late
Mr. DeMarco should have addressed this letter to Tim Geithner. Nothing can happen with the GSE’s without strong leadership from Treasury. And we have a nincompoop running the shop. On the urgent need to address the problems with the D.C. lenders, Weak Tim said on NPR recently:
I don't think we're going to be able to legislate that until that process can start, until next year, because it's just a complicated thing to get right.
This problem is too complicated for the current Treasury Secretary? The head of the FHFA is urgently calling for help; Congress is frozen over health care and the changing political reality. Where is the leadership that is needed? There is none. There is a reason for that and that reason needs to be addressed. This letter points to one of a dozen issues that need attention from an effective T.Sec.
Here’s a plan for Tim, Chris, Barney, Rich and Spence. Finish the job. The conservatorship is a joke and a private sector GSE approach has already proved a disaster. Privatize these dogs. Get it over with.
Then merge the two of them. Create a good bank and a bad bank. Do what you have to with the bad bank and don’t ever, ever make the mistakes of the past with the good bank. Get rid of that high priced talent that is costing so much and doing so little. De-list these deadbeats. That would save $20mm a year. Get rid of those big Boards and their “do nothing new” meetings. And if you’re looking for someone to run this mess, consider Edward DeMarco. He’s the only one who has spoken the truth about the Agencies for years. Listen to him.