Are GSEs the new Fed for Housing?
By Glen Bradford
“I say to you today, my friends, so even though we face the difficulties of today and tomorrow, I still have a dream. It is a dream deeply rooted in the American dream.” Martin Luther King, Jr. put civil rights at the top of the agenda of reformers in the United States and facilitated the passage of the Civil Rights Act of 1964. It is in his name and loving memory that I also have a dream. I have a dream that one day this nation will rise up and live out the true meaning of its creed: ‘We hold these truths to be self-evident: that all men are created equal.’
David Einhorn's Greenlight Capital returned -2.9% in the second quarter of 2021 compared to 8.5% for the S&P 500. According to a copy of the fund's letter, which ValueWalk has reviewed, longs contributed 5.2% in the quarter while short positions detracted 4.6%. Q2 2021 hedge fund letters, conferences and more Macro positions detracted 3.3% from Read More
I have a dream that one day, deep down within the echoing halls of government that the confiscation of trillions of dollars of property by the government through seizure is deliberated instead of executed in secrecy. Execution style, “The first sound they’ll hear is their heads hitting the floor.” That’s how Treasury Secretary Hank Paulson put it to the President of the United States of America George Bush on Thursday, September 4, 2008.
The Federal Reserve (the Fed) is the central banking system of the United States. In 2010, the Fed transferred $79 billion to U.S. Treasury. Before that, the Fed was transferring roughly $25 billion per year. Not to be one-upped in 2013 Fannie Mae transferred $82.5 billion to U.S. Treasury. According to a recent White House budget, the Federal Housing Finance Agency was forecasting roughly $18 billion per year in annual transfers from the GSEs to U.S. Treasury.
The purpose of this article is to illuminate some key differences between the Federal Reserve System and what looks to be set up as the new Fed for housing.
GSEs – There are two bodies of law: FDIC and HERA
HERA was modeled after the FDIA and HERA governs FHFA the same way the FDIA governs the FDIC. Michael H. Krimminger, a former general counsel to the FDIC says, “The perpetual conservatorships and Treasury sweeps are a violation of every principle of insolvency law. I do not make this statement lightly. After more than twenty years at the Federal Deposit Insurance Corp., and frequent participation in domestic and international efforts to improve insolvency laws, I provided technical advice to Congress on HERA.” The Housing and Economic Recovery Act of 2008 (HERA) is the body of law giving the Federal Housing Finance Agency (FHFA) the authority to place regulated entities into conservatorship or receivership. Because Fannie Mae and Freddie Mac weren’t having liquidity issues, FHFA used board consent to place them into conservatorship. This is where Hank Paulson came in with his sneak attack. Under a normal conservatorship, no big deal. In this one, however, FHFA and Treasury had other plans in mind. It was time to reconstruct the record and put the profits of the private companies on the federal balance sheets, but not the books. This was done by employing selective Enron style off-balance sheet accounting practices except that instead of inflating assets they were deflating assets. Through a series of agreements and amendments between the government and itself, the government has systematically taken $108B ($241B-$132.2B) away from the GSEs since conservatorship began. That’s $108B of cash money moolah.
The Fifth Amendment to the constitution was written to defend Americans from unlawful seizure of private property. Civil asset forfeiture is the small scale version of what municipality police officers do when they find a bag filled with money. In this case, that bag of money has $5 Trillion dollars of income producing assets. The trick in this case to complete confiscation and takeover was that the government had to declare that the assets they didn’t want to pay for were worthless. By declaring assets as worthless in the process of a confiscation, the government has been able to systematically violate our Fifth Amendment rights as Americans. These systemic violations are part of the design of the Senior Preferred Securities Purchase Agreement that culminated in the completely illegal Third Amendment which effectively has brought into existence an unprecedented security in American history, a preferred stock that takes 100% of the profits and reclassifies them as tax revenue. Unsurprisingly, this was done by tax collectors for tax collectors.
The Executive Branch: “We are protecting Taxpayers,” sincerely tax collectors
One of the biggest disappointments that I face in educating the public on this topic is that the narrative that is perpetuated is highly misleading and here’s why. As the parent agency of the Internal Revenue Service (IRS), U.S. Treasury is a tax collector. As a tax collector, it is at the very least highly misleading that they are taking actions that protect taxpayers that since conservatorship began take $10BB from two taxpayers and are forecasted to continue to take $18B per year on top of that going forward ad infinitum.
Meanwhile, in the court of public opinion, the narrative perpetuated by the Wall Street Journal is in line with that of US Treasury, that all of these actions have been to protect taxpayers. Taking $108B from taxpayers and planning to take everything that they ever make in the name of protecting taxpayers is just the kind of narrative that undermines our civil rights as Americans. In an Amicus Brief filed by the National Black Chamber of Commerce, we find that the government’s plan spells disaster for Black communities nationwide:
As the Fed goes, so too must the GSEs?
The Federal Reserve isn’t even forced to give all of its cash to U.S. Treasury. The U.S. Government receives all the system’s annual profits, after a statutory dividend of 6% on member banks’ capital investment is paid, and an account surplus is maintained. Meanwhile in the case of the GSEs, the Federal Housing Finance Agency has been working with Treasury to wind capital down to $0 by 2018 at which point a nationalization costs $0. Cha ching! By that point, U.S. Treasury will have taken over $130 billion for the privilege of taking $18B per annum per year going forward to “alleviate taxpayers of the burden” that is the routinely massive profitability of our beloved Fannie Mae and Freddie Mac.