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Well, I’ll tell you what… the economics profession sure has lost some points these past couple of years, wouldn’t you say? Sort of like the intelligence community did during the Bush presidency just a few years back. It pains me to see the profession relegated to being “The Pips,” to Barack Obama’s “Gladys,” if you know what I mean.
We’re never even told their names anymore, all we get to know is that when the news is bad, the “economists were surprised by the numbers.” Not any of the economists that I either know personally, or frequently read, but a nameless and faceless band of economists who seem to forecast so poorly, they couldn’t even get hired as the San Diego weatherman.
It’s like, “the number of jobs created last month came in lower than economists expected,” or… “Economists were surprised to learn that home prices have fallen for 70 months in a row, that water is in fact wet, and that the sky is blue. Until that news was released today, the consensus answers to those three questions was: “13”… “clean”… and “high.”
Okay, so I’m only bringing this up as a way to introduce this month’s REAR… Edward DeMarco. Ed is currently serving as “Acting Director” of the Federal Housing Finance Agency (“FHFA”), the independent federal agency that placed both Fannie Mae and Freddie Mac into conservatorship in the fall of 2008.
And with a Ph.D. in Economics from the University of Maryland and a B.A. in Economics from the University of Notre Dame… he’s an economist. Prior to joining FHFA, he was COO at the OFHEO, where he provided policy advice for the FHA, before that he was Assistant Deputy Commissioner for Policy at the SSA, and before that he was the Director of the OFIP at Treasury where he oversaw analyses of public policy issues involving the GSEs… and before that he conducted economic and financial analyses of the GSEs at the GAO where he developed recommendations for improved safety and soundness related to the government’s exposure to the GSEs.
Read that last line again… “he developed recommendations for improved safety and soundness related to the government’s exposure to the GSEs?” Well, did he now? Obviously, that was some absolutely crackerjack work right there. Considering that Fannie and Freddie, so far, have cost us taxpayers about $170 billion in “safety and soundness,” I’d have to say that I sleep better at night knowing that we’ve now got Ed watching out for us at FHFA.
Best I can tell, Ed’s never had a job that wasn’t a wonky acronym, and since I want to give you a picture of what he looks like… hmmm… well, if Tim Geithner and Peter Orszag had a child… I mean, the man just screams Caucasian. I’m not saying that to be a racist, I’m saying it because the combination of all of those factors makes me rock solid sure that this guy knows a lot about real people in this country from reading about them in policy reports.
Last year, President Obama and Treasury Secretary Tim Geithner asked Fannie and Freddie to start doing principal reductions for homeowners underwater and at risk of foreclosure. In fact, Geithner even testified that he believed there to be a solid economic case for Fannie & Freddie to participate in the principal reduction programs, such as the new HAMP PRA. But, DeMarco said no anyway. Ed’s rationale was that principal reductions, while positive for Fannie and Freddie in the long run, would be bad for their books in the short run.
This is the sort of thing that makes one long for the ghost of Lyndon Johnson to come back and kick DeMarco in the pants… you just don’t say no to both the president AND the to most powerful man in the world… Timothy Geithner.
Geithner can snap his fingers and Ben Bernanke starts up the printing presses from his nightstand by his bed. Even Lord Blankcheck over at Goldman Sachs takes his calls. And Vikram Pandit over at Citi? Yeah, well I heard he comes over and rubs Geithner’s feet in the evenings. I swear, that’s what I heard.
Fannie & Freddie, in my way of thinking shouldn’t even be given the choice. They are both bankrupt. They’ve already been NATIONALIZED, no matter what they want to call it. For God’s sake, Fannie Mae stock is trading OTC right next to Blockbuster! And besides, Freddie and Fannie have been GSEs for years… “Government Spending Entities,” so why stop now?
And, since when does Fannie Mae base decisions on whether something is prudent in the short run, or long run for that matter? Because that’s what comes to my mind when I think of the word “prudent”… Fannie Mae. Nice castle, by the way.
Regardless of all of this, DeMarco wouldn’t budge. Obama does appoint the head of the FHFA, but he can’t order him to do anything. DeMarco is legally “independent,” he can’t be fired and so far refuses to step down, so at this point he’s singlehandedly preventing our government from doing something to stop foreclosures, as if the Republicans alone weren’t enough of an obstacle in this regard. So… fine… I say someone have him shot and viola! Problem solved.
So, recently DeMarco, in his testimony to congress over the $35 million in bonuses being paid to Fannie and Freddie executives, said that executive compensation at Fannie Mae and Freddie Mac has been appropriate as well as necessary to prevent taxpayer losses. This is the kind of logic that’s obviously the product of a beautiful mind.
DeMarco defended the bonuses, saying that without them, there could be an exodus of talent, which could result in taxpayer losses. And I have just two things to say in response to that:
Fannie and Freddie have already cost the American taxpayer roughly $169 BILLION, and estimates are that we’re on our way to a $220 BILLION tab. Last quarter, they needed something like $13 BILLION alone. So, whatever talent you’ve got over there… for God’s sake, let them go. Paying bonuses at the GSEs now is like closing the door after the horses have run out and then opening it back up and shooting the horses that remain inside.
I’m absolutely positive that I could have saved the country a fortune here. I’d bet anything that I could have bankrupted Fannie and Freddie for a lot less than $169 BILLION. I would have been more than happy to run the two GSEs into the ground for a few hundred million. Next time, pick up the phone… I’m here to help.
At this point Mr. Ed, is standing right smack in the way of programs that could at least start turning around the housing market and that is making me crazy.
On this topic, DeMarco recently told Politico.com: “Sweeping plans to help homeowners ‘did not meet our responsibilities as conservator. That doesn’t mean principal forgiveness might not be appropriate… but it does not meet our mandate to return Fannie and Freddie to solvency and guard against another taxpayer bailout.”
He also said that the FHFA, “has exercised its responsibilities … to not undertake certain initiatives.” Did I tell you he was an out of touch policy wonk?
He was also recently quoted as saying: “Americans, whatever their political stripe is, whether they are lawmakers or businesspeople or citizens, we all are frustrated.”
No, Ed… you’ve got that wrong. I’m frustrated… homeowners are frustrated. You? You are frustrating.
And he also said: “We are in a set of circumstances in the housing market we have not seen since the Great Depression. It has taken a long time to get to that point, and it’s going to take a long time to recover.”
And evidently, Ed is going to do everything in his unchecked power to make sure of that, which more than qualifies him as my end of year REAR.
[caption id="attachment_4464" align="alignleft" width="100" caption="Martin Andelman"]
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