“(In 2000), Realty Times was having none of it. The bank campaign (against Fannie and Freddie), it said, posed a direct threat to the “U.S. Department of Housing and Urban Development’s vow to boost home ownership to 70 percent this decade.” So important was this initiative,…

…a “national coalition of home builders, community bankers, community developers, civil rights groups, real-estate brokers and secondary mortgage market leaders will help make it so.” You know how that ended: A government-sponsored subprime lending boom was eventually transmuted by Wall Street into a global crash and a deep recession. Not that any of this context found its way into the New York Times piece, whose apparent impetus was entirely reactionary: Fannie and Freddie must be restored to their antediluvian status because, because, because . . .”, Holman W. Jenkins Jr., “Fannie and Freddie’s Propaganda War”, The Wall Street Journal, December 12, 2015

“Fannie and Freddie don’t have a business, without the government’s backing of its mortgage guarantee business. As I have said many times on this blog, any “profit” derived from this activity belongs to the American taxpayer. Better yet, get the government out of the business of guaranteeing most mortgages and student loans, except for maybe first-time home buyers, first-generation college students, and the poor.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Opinion

Fannie and Freddie’s Propaganda War

A newspaper’s ‘investigation’ of the battle over the housing giants’ fate may be nonsensical but that’s OK by certain hedge funds.

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Fannie Mae headquarters in Washington, D.C. PHOTO: KEVIN LAMARQUE/REUTERS

By Holman W. Jenkins, Jr.

Seven years since they were seized by the federal government, Fannie Mae and Freddie Mac’s fate is still up in the air, and a “convergence of conditions could undermine the foundation of the American Dream.”

Oh wait. That quote doesn’t come from Monday’s big New York Times “investigation,” painting as sinister a lobbying effort by big banks and private mortgage lenders to have the government-sponsored housing giants gradually shut down, which also happens to be the position of many Republicans and the Obama administration.

The quote comes from the Oct. 4, 2000, edition of the real-estate industry publication, Realty Times, reacting to a similar effort, known as FM Watch, begun in the 1990s and backed by J.P. Morgan Chase, Wells Fargo and others. Well before the housing bubble and the 2008 crash, these banks were lobbying to roll back Fannie and Freddie’s role in housing finance, especially their pending spread into subprime lending. In this, they were ably assisted by then-Clinton Treasury Secretary Larry Summers and Federal Reserve Chairman Alan Greenspan, both longtime critics of the housing behemoths.

Realty Times was having none of it. The bank campaign, it said, posed a direct threat to the “U.S. Department of Housing and Urban Development’s vow to boost home ownership to 70 percent this decade.” So important was this initiative, a “national coalition of home builders, community bankers, community developers, civil rights groups, real-estate brokers and secondary mortgage market leaders will help make it so.”

You know how that ended: A government-sponsored subprime lending boom was eventually transmuted by Wall Street into a global crash and a deep recession.

Not that any of this context found its way into the New York Times piece, whose apparent impetus was entirely reactionary: Fannie and Freddie must be restored to their antediluvian status because, because, because . . .

Well, actually, the reason is never explained, leaving the reader to suppose that if the big banks are hostile to Fannie and Freddie’s resurrection, their resurrection must be desirable.

Back on earth, there is nothing nefarious or unusual about interested parties seeking to influence government policy. A free and pluralistic society cannot work otherwise. And Fannie and Freddie’s status is naturally up for grabs because they have been under federal conservatorship as bankrupt entities since 2008.

Unmentioned is that the American dream of homeownership would still be subsidized eight ways from Sunday via the tax code, federal housing aid and “community reinvestment” standards. Unmentioned too, except for an obscure, passing reference to hedge funds, is that the fight isn’t a one-sided battle of bankers vs. the natural order, mom and apple pie.

There is lobbying on the other side. By far the loudest voice raised against Fannie and Freddie’s long-discussed liquidation comes from big-time fund managers Bill Ackman of Pershing Capital, Richard Perry of Perry Capital, and Bruce Berkowitz of Fairholme Capital Management.

Why? After noticing that the government’s stated, bipartisan intention to wind them up had driven down their shares to penny-stock levels, these fund managers opportunistically began buying great gobs of their stock. These funds were able to score large, instant profits for their investors simply by mounting a visible campaign to suggest the government’s intended outcome might be in doubt.

The hedge funds claim they are committed to a long-term fight to see the companies recapitalized and set free, and have filed lawsuits to that effect. But they undoubtedly have also earned millions from the gyrations in Fannie and Freddie’s thinly traded shares as the penny-stock enthusiasts pile in.

Indeed, it’s tempting to see Monday’s New York Times piece, with its strange lacunae, as a classic plant (and not the first) aimed at stirring up action in Fannie and Freddie shares. Which it certainly did: Both were up handsomely Monday morning. And Mr. Berkowitz of Fairholme, one of their backers, soon jumped on the Times piece with a letter to his own shareholders, decrying what he called a “surreptitious campaign spearheaded by the ‘Too Big To Fail’ banks to assume control over the mortgage market and usurp the assets of Fannie Mae and Freddie Mac.”

Of course, the fillip to their share prices didn’t last long. Fannie and Freddie now are trading back where they started before the New York Times weighed in with its 4,700-word “investigation.” The market, not being stupid, was able to digest the deficiencies in the paper’s lengthy but myopic account of the Fannie-Freddie policy debate.

Posted on December 14, 2015, in Postings. Bookmark the permalink. 1 Comment.

  1. Perfect!

    Mark Nelson 3256 Sitio Tortuga Carlsbad, CA 92009 760.473.7558 mnelson.doit@gmail.com

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