The man in the middle of that melee (figuring out what to do with Fannie and Freddie) is likely to be Joseph A. Smith Jr., the commissioner of banks for North Carolina since 2002. In November, the Obama administration nominated him to head the Federal Housing Finance Agency, Fannie and Freddie’s regulator.
Yep. There was a hearing last Thursday, and beyond prepared remarks, there was little of note. I didn’t Ticker it at the time as it was a pretty-much pointless exercise; there was little meat there. This week we’ll get the procedural votes out of committee and, presumably, a confirmation vote before The Senate adjourns (maybe; if not, guess who gets to make a recess appointment? Yep.)
When he has testified before Congress in recent years, he has shown a keen interest in saving taxpayers from institutions that are too large and interconnected to be allowed to fail.
He certainly has plenty of ammunition. Janet Tavakoli’s presentation, as I Tickered last week twice, once on her slides and presentation itself, and again on her interview with CSPAN, has presented what looks to this commentator to be a prima-facia case against the banks on the premise of fraud in the inducement, fraud in the execution and fraud in the coverup.
MR. SMITH would also do well to follow another of Mr. DeMarco’s leads: pushing back against the growing chorus of groups arguing for an explicit government guarantee of all mortgages going forward. After what we have been through, isn’t it incredible that anyone could argue for government guarantees of all mortgages? Yet that’s just one of the many perverse “solutions” that have been floated in the aftermath of the crisis.
There should be no guarantees. Period. Credit risk is only properly evaluated and priced when those who make bad loans are forced to eat them. As soon as you can give someone a colorable claim that they’ll be able to force the taxpayer to do it instead credit becomes underpriced and the resulting ramp in unsound loan issuance then turns into a systemic issue.
This is then pressed to lawmakers as “tanks in the streets if you don’t help us” – and instead of locking up the fraudsters, they’re sucked off with the people’s money instead.
The perversity of this is profound. Not only do the people lose their homes and wealth by having the bad loans made and being sold down the river they are then forced at literal gunpoint via taxation or deficit spending that depreciates the currency (and thus is effectively a tax) to pay for their wealth being stolen again!
That’s much like being robbed and when caught, the robber is ordered to pay restitution – but instead of him paying it, the government shows up and sticks a gun up your nose a second time, robs your till to cover the “restitution”, and gives it to the guy who planned to stick-up job – and who remains free and doesn’t go to jail!
There is only one solution that will work: Those who made bad loans must have them forced back upon them and be made to eat the loss. All of it. If this forces them into bankruptcy, so be it. That process is how we clear the credit overhang and by doing so we also pave the road to recovery.
We cannot get out of this swamp until that’s done folks.
No matter how many people will try to tell you otherwise and that there is some other path forward that will work, it simply isn’t true.
Thus far we’ve seen zero intent even when a clear allegation with documentary evidence exists and is made that these acts were not “mistakes” they were intentional.
It’s up to us folks. We can keep playing in the Hopium fog that politicians would love to see us remain in, or we can force these issues into the light of day and put a stop to them.
The latter will not be particularly pleasant in the short run, but it certainly beats the alternative as we watch huge swaths of our population become not only indentured servants to debt (that’s already happened) but slowly slip beneath the water and literally become destitute and die as the noose of these policies and practices – all created and supported by our political system – tighten around 99% of the population’s neck.