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Fannie and Freddie

After the housing and banking crisis Fannie Mae and Freddie Mack were taken over by the government as part of the federal bailout. In order for the government to feel ok about giving them money, they felt that the institutions should be placed in to conservatorship and run by the Federal Housing Finance Agency (FHFA). In recent months many private shareholders have pushed for the government to relinquish its hold over the two companies. The most popular argument is also the dumbest. Marsha Blackburn (R., Tenn.) introduced a bill in March of 2016 that would suspend the government’s involvement in both companies under the argument that undercapitalization “threatens to put taxpayers on the hook for another bailout.” The reason this is so frustrating is that Fannie and Freddie send all profits to the federal government. Let’s look at this differently. You are in financial trouble and I agreed to help you as long as you give me all your net income. In 2015 you give me $20,000. In January of 2016 you are short on money and I give you $5,000 of your own money back. That’s not a bailout. When (if) this happens to Fannie or Freddie, it doesn’t mean taxpayer funds will be used to provide relief.  Looking at it from the government’s perspective, they have already taken $130 billion in profits . Should there be another housing downturn, Fannie and Freddie may need to recoup say…$100 billion? Then the government would have $30 billion left! It’s a good thing Marsha Blackburn is available to stand up for the poor, defenseless government. I’m sure that it’s a total coincidence that her bill was proposed the day after Timothy Pagliara, head of Investors Unite (a Fannie and Freddie shareholder group) donated $5,000 to her campaign (her 1st donation since 2009).  

Who’s on First?

I considered not including this article because it’s political but I can’t help it. That being said, don’t read too far into this. My interest has nothing to do with who said it but rather what was said. The New York Times wrote a story this week about Donald Trump’s relationship with Wall Street.  In Trump’s words, “I am friends with all the major banks, they are dying to do business with me.” When his connections to Wall Street were questioned Trump responded, “Why don’t you call the head of Deutsche Bank? Her name is Rosemary Vrablic. She is the boss.” Nope. Not even close. Rosemary Vrablic is a private wealth manager at Deutsche Bank. In Trump’s defense, it’s really hard to keep track of the Deutsche Bank CEO. Last year Anshu Jain was the CEO. Recently Jurgen Fitschen was Co-CEO with John Cryan until Fitschen stepped down, leaving Cryan as the only CEO. Plus, Bruce Springsteen is the boss. I have to admire that level of hubris though. I love the idea that Trump would just assume that whoever he knows at a company must be the CEO. When he gets coffee at Starbucks he must think, “Wow, that guy is really down to earth for a billionaire.” 

 

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Categories: Industry Ideas, News, The Market