The next comment has been submitted to FHFA upon input requested to interested parties
regarding the “2018-2020 Enterprise Housing Goals Proposed Rule” and I will
submit the same comment on every initiative related to FnF’s Public Mission.
Dear FHFA’s
representative,
As a common shareholder
of Freddie Mac, I’m an interested party on this topic.
Because the government
is not fulfilling its obligation under the Charter, I urge the FHFA
to not abide by the Enterprises’ obligations either, regarding the Public
Mission.
I’d like to denounce
that the lawmakers, politicians and officials are acting pretending that the
operating system of their Charter or “Spirit of the Charter” doesn’t exist.
Every generation of
lawmakers introduce an amendment into their Charter to curtail the Spirit of
the Charter: Fannie Mae and Freddie Mac were chartered by Congress to fulfill
a Public Mission (affordable housing, to serve underserved markets, countercyclical
role in the secondary market, etc.). In exchange for this Public Mission, the
lawmakers at the time wrote a bailout scheme for the enterprises in their
Charter, because “affordable housing” and “countercyclical role” translate into
risky mortgages.
The bailout scheme is a
low-cost U.S. Treasury’s funding commitment to purchase securities of the
enterprises.
FMCC’s Charter. SECTION
306 (c)
Each purchase of obligations by the Secretary of the Treasury under this subsection shall be upon terms and conditions established to yield a rate of return determined by the Secretary to be appropriate, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of the purchase.
And the 2 year Treasury
note, when Conservatorship
began, stayed at 0.3% - 0.4% annual rate since long time ago, not 10% that was
the rate imposed by the government at the time.
Thanks to this
commitment, the enterprises are able to issue bonds at very low rates on the market
to finance their operations, and not due to the false concept of “securities
backed by a Government Implicit Guarantee”. Concept spread throughout the media
by the same interested parties that pretend that their Charter doesn’t exist
(the usual suspects: Goldman Sachs, W. Buffett, hedge-fund managers,
bribed-journalists at CNBC,
Bloomberg,
WSJ,
etc.)
There is no way the
lawmakers at the time (FNMA was founded during the Great Depression and
chartered in its current form in 1954; FMCC was chartered in 1970)
didn't lay out a bailout scheme for the enterprises, as the current interested
parties have argued in order to benefit off FnF’s balance-sheet with lucrative
deals later (issuance of Preferred Stocks, Credit Risk Transfer transactions,
Net Worth Sweep, 30 year callable MTN redeemed months later at an
outstanding rate of return when Conservatorship began,…)
But, surprisingly, in
the run-up to a crisis (which is a symptom of the moral character of the lawmakers), their
charters were amended on July 30th, 2008 by enacting the HOUSING AND ECONOMIC
RECOVERY ACT (HERA), in order to incorporate to their charters a subsection
called "TEMPORARY AUTHORITY OF TREASURY TO PURCHASE OBLIGATIONS AND
SECURITIES" . SECTION
1117
Basically the new
amendment removed the previous cap in the yield so that the Treasury can
approve later a scheme with a 10% punitive dividend (the PSPA),
signalling:
Treasury is authorized to purchase any obligations and other securities issued by the Corporation under any section of this Act, on such terms and conditions as the Secretary may determine and in such amounts as the Secretary may determine.
It was former Treasury
Secretary and Goldman Sachs alumni, Hank Paulson’s bazooka requested to Congress, according to his book.
But the first measure
to contravene the Spirit of the Charter was written in the law Federal Housing
Enterprises Financial Safety and Soundness Act of 1992, SEC. 1304, when for the
first time included that there is no obligation by Treasury to provide any
funds to the enterprises. It’s clear that it was written to protect the
taxpayers against crippling liabilities, but more clear is that the Spirit of
their Charter says that there should be an obligation of the Treasury to commit
funds to FnF
at very low rates when they need funds to carry out their Public Mission,
primarily because the entity charged to supervise the Safety and Soundness of FnF
is a Federal Agency, the FHFA,
the one to blame if FnF
are insolvent (that is, without a Retained Earnings account big enough to
absorb future losses).
Therefore, HERA wasn't necessary if their Charters already contemplated the purchase of FnF's securities. Congress just had to update the $2.25 billion obsolete limit in the Treasury's funding commitment written in their Charters, because it was set 40 years ago by Congress. At the time, Fannie Mae had only about $15 billion in outstanding debt. In 2008, it had total debt of about $800 billion, while Freddie Mac had about $740 billion.
The Spirit of the Charter is the intention why the lawmakers chartered FnF. It wasn't to make FnF be placed into Conservatorship during 9 years on every crisis because a bunch of gangsters have hijacked the U.S. Institutions.
It doesn't matter if the lawmakers and US officials want to implement the Spirit of the Charter or not. It's legally binding. Period.
Kind regards,
Carlos Vignote
Freddie Mac common shareholder since August 2010.
Comments
Post a Comment