Believe it or not, sometimes I’m not cynical enough.
I couldn’t fathom the timing of the Obama plan to replace acting FHFA director Ed DeMarco via a recess appointment. The administration’s complaints about him have been as convincing as the parade of “I don’t know” bank CEOs testifying before Congress. DeMarco serves as the perfect scapegoat for Team Obama’s failed housing policies. It’s not as if there’s any reason to think Obama has gotten religion on the housing front; the most you could expect him to offer is yet another Potemkin borrower relief program that generates a few feel-good stories but does little to address the real problem. And now that the housing market looks to be on the mend, the pressure for have Fannie and Freddie take more aggressive action, meaning by doing principal mods, is considerably alleviated.
DeMarco also has a big fanbase among Republicans, so replacing him with anyone too homeowner-friendly might lead the Republicans to take revenge in some fashion in the budget/debt ceiling talks. So given that the administration has seen fit to let the DeMarco matter fester, why act when it might lead to pushback on other fronts from the constitutionally tetchy opposition (well, faux opposition)?
And lo and behold, the Administration changed course yet again. Per the Wall Street Journal:
While some liberal political groups have pushed for a quick recess appointment that bypasses the need for Senate confirmation, such a move appears highly unlikely for now. One person familiar with the discussions said officials were likely to seek a nominee who would pose few problems gaining Senate confirmation, a sign that a recess appointment isn’t being considered for now.
But then why replace DeMarco at all? He’s that rare beast of a dedicated public servant. Whether you like it or not, he actually believes that he can give borrowers enough relief without principals mods. And no one acceptable to the Republicans is going to be more forgiving on that issue.
Dave Dayen pieced it together. It’s the $200 billion in FHFA putback litigation against the banks. A few days ago, there was a peculiar article in the New York Times, “Mortgage Crisis Presents a New Reckoning to Banks,” peculiar in that it was old news, yet given prominent play. Here’s the relevant part:
Regulators, prosecutors, investors and insurers have filed dozens of new claims against Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and others, related to more than $1 trillion worth of securities backed by residential mortgages.
Estimates of potential costs from these cases vary widely, but some in the banking industry fear they could reach $300 billion if the institutions lose all of the litigation. Depending on the final price tag, the costs could lower profits and slow the economic recovery by weakening the banks’ ability to lend just as the housing market is showing signs of life…
Efforts by the banks to limit their losses could depend on the outcome of one of the highest-stakes lawsuits to date — the $200 billion case that the Federal Housing Finance Agency, which oversees the housing twins Fannie Mae and Freddie Mac, filed against 17 banks last year, claiming that they duped the mortgage finance giants into buying shaky securities.
“Duped”? This construction suggests that the banks enticed the GSEs into buying dreck, when the banks misrepresented their wares. And here’s the real reason for the bank freakout:
Last month, lawyers for some of the nation’s largest banks descended on a federal appeals court in Manhattan to make their case that the agency had waited too long to sue. A favorable ruling could overturn a decision by Judge Denise L. Cote, who is presiding over the litigation and has so far rejected virtually every defense raised by the banks, and would be cheered in bank boardrooms. It could also allow the banks to avoid federal housing regulators’ claims.
Again, you can see the pro-bank spin. “Rejected virtually every defense” implies the judge is biased, as opposed to the banks’ arguments were strained.
But the big issue is that if the banks lose the appeal, they have some big suits staring them in the eye, and the facts don’t appear to be on their side. So the best course of action is to settle. Hence having a much less tough-minded FHFA director would be very attractive. As Dayen observed:
So banks still have this extraordinary exposure from the housing collapse and their fraudulent sale of mortgage-backed securities. And their biggest hurdle comes from the FHFA lawsuit. If it’s successful, it will inform all these other lawsuits and cost banks up to hundreds of billions of dollars. And people think the Obama Administration wants to replace Ed DeMarco over principal reduction?
Compared to the FHFA lawsuit, all the other lawsuits and enforcement actions by the federal regulatory apparatus are pinpricks. That lawsuit opens up the banks to far more exposure. In addition, banks have complained about lending standards for selling loans to Fannie and Freddie in the secondary market, and the due diligence to which they have submitted new loans. A new FHFA Director would have control over all of this, and if the benchmark is “confirmability from Republicans,” I would hardly expect a more aggressive or interventionist policy profile.
So all the caviling about DeMarco was to soften up the left to putting in an more bank-friendly replacement. This is change you can believe in, predictably for the worse.
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Spot-on analysis, Yves. (Occam’s Razor applies, for sure.)
You are right Yves. You are not nearly cynical enough. Not by a mile. When you finally see our “leaders” in Washington and Wall Street for the festering, unholy parasites on humanity that they are, then you will at last finally have enough cynicism. Our society is completely corrupt, and almost no politician would ever pass up a chance to piss on the people who elected him. And what’s more: the people love getting pissed on. That is the true heart and soul of the American character. That is why this revelation makes it more likely that Democrats will see huge wins in 2014 elections.
The problem, I think, JGordon, is one of system dynamics and not because, as you so colorfully put it, “the American people like being pissed on.” In any competition, a competitor who is willing to disregard the rules will have an advantage over a competitor who (honorably) chooses to obey the rules. This is true in sports, politics, and business. Rule violation in order to gain competitive advantage is a common tactic, and a generally successful one, given that the perpetrator faces a low risk of getting caught or relatively little punishment if they do.
Whereas you seem to think the populace likes to get the golden-shower from on high, I think they are just too good-hearted and naive to figure out what’s going on. Most people would not lie, cheat, and steal just to get ahead; most people would not step on another’s neck or genitals in order to advance their own position; most people then assume that no one, therefore, would do those things.
After the apocalypse, when we’re trying to rebuild our lives in a more humane way, we will need to keep all this in mind and try to design our control systems so that the unscrupulous cannot get ahead by cheating. That may not be entirely possible, but we can surely do a better job than what we’ve got now.
The American people don’t like being pissed on any more than the chump at the three-card monty table likes losing his dough. The problem isn’t masochism, it’s naivety and ignorance.
Dear JGordon and diptherio,
I stand some where between you (but with you, both). While JGordon does summarize our society’s corruption accurately, and diptherio sharpens the analysis to better explain that people are unwitting victims, I believe that the “people” are smarter than all that (and a lot meaner too). As long as any people believe that the horrors will be felt by others, and not them, they will turn a blind eye.
Just takes a leader to change that.
Absolutely correct. How many people can cut through the doublethink and doublespeak pouring through the media? Push the right emotional buttons and rationality goes away. And it’s not as if this stuff is easy even when it’s honest. Throw in some disinformation and nearly everyone is fooled.
“Show them a light and they’ll follow it anywhere.” (Firesign Theatre)
“In any competition, a competitor who is willing to disregard the rules will have an advantage over a competitor who (honorably) chooses to obey the rules. This is true in sports, politics, and business. Rule violation in order to gain competitive advantage is a common tactic, and a generally successful one, given that the perpetrator faces a low risk of getting caught or relatively little punishment if they do.”
This is sad but true, and the basis of so many of the difficulties that we now face, in my opinion. Unfortunately the opportunity to glean large monetary rewards also tends to attract rule violators… inevitably creating this uneven playing field… This also ties into why I find Randians so scary…
I don’t think so. People are willfully ignorant. As in, they deliberately decide to have no idea about what is going on in the world. Originally I tried to enlighten people about reality, but thanks to some of the responses I’ve gotten lately I’ve found myself thinking that they just deserve what they’re going to get. If people want to be deluded masochits then they’ve done a good job in electing plenty of corrupt sadists who will gladly help them out with thier innate desire.
As long as you don’t start running around wearing a barrel.
One could say that everything is going according to plan and within acceptable parameters.
The pot is boiling now as evidenced by the regular shootings of innocents around the country by crazed folk….up the fear factor and the public will give up all their freedoms.
We are still digging down furiously and at breakneck speed. I wonder if the global inherited rich are and will be entertained by the genocide they are causing?
Our cosmic karmic comeuppance cannot come too soon.
I will never give up my freedom.
I believe that many people will remember why their grandparents or parents sacrificed to start a new life for their children will never give up their freedom.
I will fight to honor the sacrifices made by my grandparents.
But, Dannyboy, you may not want to give up your freedom but it has already been taken away from you by what is going on in your government and banking system. Where is your freedom to not be treated unjustly by the government and banking system when banks are corrupt but not criminally prosecuted? Banks have taken away your freedom when you don’t have a justice system that works.
Dear JEHR,
Thank you for your compassion, but let me explain. I have fought a major bank. It was protracted and bloody. I won.
I am fighting with your government. Tougher battle. I will not have ANYTHING TAKEN FROM ME WITHOUT FIGHT.
Yeah, Silver-Greenberg’s piece was passive-aggressive shamelessness: investigators scrutinizing bank practices don’t undestand how their actions make banks feel (and their longterm economic goals might not be too enthusiastic about their investigative fadoodling).
What a bunch of anthropomophistic puke.
However, I wasn’t sure whether its “prominence” – as you put it, Yves – was ubiquitous or the result of NYT’s data mining my many visits to your site.
Administration policy designed to help the big banks has been the one constant throuh-out this mess.
Timing is about right. Rep. Brad Miller, NC, on the Finance Committee, and thought to be slated to run the Mortgage Fraud Task Force when it was still deemed to be legitimate, got gerrymandered and won’t be returning in January. He was a big force pushing this lawsuit as well.
I was following this yesterday as well. I think your analysis is spot-on Yves. It certainly fits within the theme of the broader framework…
Liberty and Justice for Some
Not when liberty and justice are put up for sale.
The “1%” (propaganda-speak) will be creamed corn, too.
Adding my two cents worth, this all looks like an event that precedes a super nova, as in the expansion before collaspe of the Empire. Just my opinion.
Well Norman you know that no other ‘democracy’ (and I use that term VERY LOOSELY these days) has lasted as long as The U.S. I’m not sure there IS a way back from all of this mess. God help us all if there isn’t.
As Lilly Tomlin said: “No matter how cynical you get, it’s impossible to keep up.”
Lily Tomlin…now THERE’s somebody we could stand to hear more from these days!
Yves–
That’s an interesting 2nd dimension you’ve found on the DeMarco sitch. Do you acknowledge the offsetting counterbalance (at least from the banks’ perspective)?…
DeMarco is credited with standing by his mandate as an FHA fiduciary; he’s resisted the White House’s pleas for mortgage mods. No surprise that Obama’s dumping him, likely to push for $100-300B in FNM/FRE modifications now.
“No surprise that Obama’s dumping him, likely to push for $100-300B in FNM/FRE modifications now.”
The administration has done nothing to push for principal modification for 4 years. What makes you think they have either the desire or the will to do so now?
Geithner & Summers blocked mods for their own agendas, but Obama concurred to play nice w Wall St (i.e. reelection). Reelection, check. Geithner resigning, check. Summers resigned, check.
http://www.bostonreview.net/BR37.6/ndf_mike_konczal_debt_forgiveness.php
Anecdotal, but what makes you think otherwise?
Yves,
You got me at: “Believe it or not, sometimes I’m not cynical enough.”
welcome
While I wholeheartedly agree with Dayen, there is the proverbial slip between the cup and the lip, just as Romney found out.
These suits are actually going to start getting somewhere.
MBS industry takes a hit in second NY ruling on trustee liability
http://newsandinsight.thomsonreuters.com/Legal/News/2012/12_-_December/MBS_industry_takes_a_hit_in_second_NY_ruling_on_trustee_liability/
“There was much gnashing of teeth in the mortgage-backed securities industry last April, when U.S. District Judge William Pauley of Manhattan ruled that mortgage-backed certificates are debt, not equity. That finding, in turn, led Pauley to conclude that MBS trustees are subject to the federal Trust Indenture Act of 1939, which imposes duties on bond trustees. Under the TIA, Pauley said, MBS trustees can be liable if they fail to notify investors of deficiencies in the trust’s underlying mortgage loans and fail to act on those deficiencies. “
Justices Pauley and Forrest are favs.
Gotta love that Pauley. My faves are Pauley and Rakoff.
It never made sense to me that the trustees would NOT have a fiduciary duty to the beneficiaries. By its very definition, a trustee holds assets for the benefit of a third party (and not the sponsor, but the beneficiaries, or certificate holders), which implies an obligation to safeguard those assets.
The banks will appeal. Now we pray the decision will hold up. As we all know, the game is rigged.
get those principal reductions moving , they were needed yesterday !!!!!
When pigs fly. Obama had a chance to do principal mods on non-agency MBS. He declined.
I’d like to see your sources on that one.
I’m worried. I think the agency is right to bring these law suits and I think Obama is whoring for the banks.
Take me where to pick up my outrage and run with it. Sickening, really.
There’s also the traditional answer. That the Democrats traditionally used Fannie & Freddie as a tool of the party to exchange loans for votes(the last few years being an exception). We’re just going back to that.
This analysis is way off base. DeMarco has been a big stumbling block to economic recovery. he has this religious belief that principal write-downs are bad when all independent studies have shown them as the least expensive route to recovery. By refusing to allow Fannie and Freddie to do them, he has provided cover for the private banks to also avoid them.
Now Demarco wants to increase the price of mortgages in states that provide protections against fraudulent foreclosures as a way of punishing them.
This man has never run the numbers. We need to keep these people in their homes paying a reduced mortgage. The market cannot asorb the amount of properties that would flood the market if all these people were foreclosed upon.
You hit the provervial nail on the head. The market CAN NOT ABSORB all of the homes that would hit the market. It just can’t do it. Hell it can’t take the ones that are on the market NOW. And if they were ALL unleashed at the same time, your HOME would worth LESS than the cup of coffee you have at Starbucks’s every morning!
The “soften up the left” bit is the easy part – is always the easy part. The American left has always in my lifetime been weak and pitiable, but I remember it having some sense of self-respect – before the advent of Obamabotics, that is. Now it’s all roll over and shut up, and pray that the Czar receives our ‘umble petition for relief. And, of course, celebrate the Czar’s ascension, like it were a victory for the peasantry. This is what Glen Ford refers to as Obama’s mad skills.
No way, this is a sign of the government turning on the banks.
When I read what DeMarco wanted to do, all I saw was a privatizer. The last thing we need is to enhance privatization.
Yes, I know they’re only GSE’s, but they actually did do a better job than the wholly private sector.
We all know that the problem was that they started acting less and less like GSE’s. We also all know that it was unregulated Wall Street that crashed the system. They threw money at borrowers and then passed the buck while keeping the doe.
Once again, you hit the nail on the proverbial head.