I just was contacted
by Mr. F and the sainted Maloni, asking me to weigh in on this exchange.
(The latter was
sitting on his commode, waiting for DJT to call and invite him to head the
FHFA. I explained that not only could he get leg cramps, circulatory issues,
and a stroke for doing that for long periods, you get the call from the POTUS
when he is going to fire you!)
Most of my answers
won't satisfy because they raise other questions, but....
Yes F&F have state incorporating charters, in this instance from Delaware and Virginia--as all shareholder owned corporation
do, which the GSEs once exclusively were--but they operate under "federal
rules," i.e. their statutory federal business charters, which is why Congress played
and plays such a big part of their lives and their regulation is in DC not in state
capitals. (Think "national banks," which have federal business charters.)
Jeff, I have people
very close to me who lobbied for more than 20 years that "Fannie and
Freddie are private," using any number of indicia of those facts,
including the congressional discussion creating Fannie in 1970 (and Freddie as
its clone 9 years later), the argumen "federal agencies aren't traded on the New
York stock exchange," for years F&F were two of the largest federal
tax payers, and GSE mortgage activity doesn't show up on the federal budget., etc.
etc.
Few
people--including a lot of judges since the original Lamberth decision--buy
those arguments.
Instead, since the
2004 phony charge of "securities fraud" leveled at Fannie execs by
FHFA's predecessor, OFHEO, they point to the GSEs "federal history, Fannie's
as a creature of the Roosevelt depression years, "federal" in their business names, the locations
of their corporate headquarters, their debt costs historically higher than Treasury’s
but lower than other large financial institutions.
Where you are stone
cold correct--and what is even more aggravating--banks, especially the large
ones, have a bushel of statutory/regulatory federal benefits/subsidies which far
outweigh what the GSEs had and have.
Best but not only example is Federal Deposit Insurance that allows banks to pay bubkis for their working capital (what are you
earning on your checking or savings accounts?), which is where get most of the
money to provide personal and commercial loans.
Soft lending
windows at Fed and Treasury, protected markets, think "non-conforming mortgages" that the GSEs can't touch., etc. etc. But, the banks successful
have sold the story that they are "private" and the GSEs are
federal or public and nobody is tearing down that meme.
But, as history
has shown, banks can’t handle the interest rate risk on fixed rate loans, in
part given their great reliance on insured deposits. Interest rates could go up
when they are holding 15 and 30 year fixed rate loans on their books and to
compete for funds they will have to match rates that could go to other assets.
Go back and look at
the inflation driven late i970’s and early 80’s, the "hot money"
years, when banks lost huge amounts of deposits, again their working capital, to competitors’
CDs paying 14%, etc.
The banks couldn’t
manage that asset-liability gap and still can't hedge the possibility.
So, today, the banks either
securitize those mortagge loans through the GSEs or premium price and hold them on their
own books and pray for rate stability.
Just like our
recent court experiences, until someone of stature seeks to publicly correct
all of the myths/lies about the GSEs, the "bad guys"--with impunity
can lie and distort and easily get away with it.
