Christopher Whalen quite a change in stance
SimSla
SimSla
Below are some thoughts for the discussion at Cato Institute in Washington, D.C., today, “Financial Crisis and Reform: Have We Done Enough to Fix the Government-Sponsored Enterprises?”
The title for today’s discussion is a question “Have We Done Enough to Fix the Government-Sponsored Enterprises?” The short answer is “Yes.”
A decade and a half before the US government took over the GSEs in 2008, Harold Ramis came out with a film called “Groundhog Day” starring Bill Murray, Andie MacDowell, and Chris Elliott.
Murray’s character, an arrogant TV newsman from Pittsburgh named Phil Connors, is caught in a time loop, repeating the same day over and over again. Talking about GSE reform has taken on a similar quality.
There is a crisis in the world of mortgage finance, but it has nothing to do with the debate of government-sponsored enterprises such as Fannie Mae and Freddie Mac. The situation with the GSEs is a Washington story that deals mostly with issues of equity and public policy, but gets virtually all of the attention from the financial media.
To the bond market, though, the only validation needed to support the “AAA” rating of the GSEs is the credit support of the United States, period. The “sale” of the GSEs 50 years ago was a financial fraud perpetrated by members of Congress and a number of Presidents going back to Lyndon Johnson.
The US government never “loosed dominion” over the GSEs, to paraphrase Supreme Court Justice Louis Brandeis, who ruled in 1925 that an incomplete sale “imputes fraud conclusively.” The erstwhile shareholders of the GSEs, seen through that prism, are really creditors rather than owners.
Meanwhile, the business of making and servicing loans is being slowly decimated by over-regulation, soaring operating costs and uneven interest rate markets. Over-regulation of the mortgage industry hurts banks and non-bank financial institutions, and their customers and shareholders. More the any other change to the Dodd-Frank law, the standard for regulation of lenders needs to be revisited.
A bizarre line of thinking prevalent in the academic world says that increased regulation of commercial banks since 2008 has somehow made non-banks more competitive that depositories, which are after all GSEs just like Fannie Mae and Freddie Mac. Banks have access to the Discount Window, federal deposit insurance and other subsidies, and are protected from hostile takeovers by the Fed. But of course, we all know that Feinberg’s First Law states that no private entity can compete with a GSE.
SimSla
Joe W
Is he looking for work as a lobbyist or at a TBTF?
