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Last week, when Ed DeMarco rejected principal reductions on Fannie and Freddie loans, Treasury Secretary Timothy Geithner pronounced himself disappointed. Housing advocates called for DeMarco to be fired; I explained why that won’t happen. And here’s another reason, courtesy Joseph Cotterill. The truth is that the Treasury Department has all the tools it needs to force compliance in any principal reduction program. They have plenty of power that, to this point, they have chosen not to use.
This comes from the fact that Treasury has a substantial investment in Fannie and Freddie, and thus can dictate terms based on this debt. This idea comes from Ralph Axel of Bank of America:
The FHFA’s decision also underscores the fact that the GSEs are not government agencies; they are private companies that have been temporarily taken over by their federal regulator whose specific mandate is to conserve their assets and continue their activities. As private companies, the GSE will likely respond to economic incentives. The Treasury’s power to modify the terms of the US$19bn dollar annual dividend that Fannie and Freddie (combined) owe to the Treasury is a tool of tremendous strength that could provide one such incentive.
The Treasury has the power to lower the dividend or tie it to incentives. It can tie the dividend to principal reductions or to easier underwriting standards or reduced putback activity to stimulate refinancings and new loans. The US$19bn dwarfs the US$3.6bn savings that the FHFA found from principal forgiveness. This is not housing finance reform, but it is a way to create effective temporary stimulus without raising additional federal debt while simultaneously moving toward larger structural changes.
Treasury, in other words, could play hardball with FHFA and force principal reductions or virtually anything else they want, as a condition of the lifeline they continue to hold out for the GSEs. This would be an aggressive strategy, to be sure, but it’s imminently available to them.
And the fact that they are not making these conditions tells you a lot about whether or not the objections at Treasury to DeMarco’s decisions represent something real or something convenient for the election period. Geithner may be pinning the blame for the continued problems with underwater borrowers on DeMarco to deflect criticism away from the Administration. But he’s unwilling to do anything about it. And that tells the tale.
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Ed De Marco is ideologically opposed to principle reduction.
The dividend proposal is another kind of pressure. Weighty pressure certainly.
However It in neither a command nor an order he MUST follow. Given that his reason for refusal is either temperamental or ideological and his financial stewardship concerns are merely invoked as a smokescreen, he could and WILL resist the pressure on the dividend as well.
Now if Treasury did pressure him on dividends by withholding them, then they could build a case on misfeasance in office as grounds for removal. But why is it necessary to remove De Marco when a like minded Commissioner Hornsby would take his place? A recess appointment for a new Director gets around that much more efficiently.
Yes, it sounds like a “he said, he said” situation.
So all along Treasury could have intervened but hasn’t. But DeMarco doesn’t want to act at FHFA either, and has refused for a long time.
We’re expected to be amazed by a new revelation that either of two, ideological opposites, could have intervened individually albeit in different ways but neither would do so to date. Maybe neither wants to be the heavy, take the reins, and accept the consequences.
Furthermore I bet they golf together sometimes, like O and Boehner? They probably tell jokes there, too.
Rotating villain procedure.
Shhhh. DD, you don’t want to expose the Kabuki performance by DeMarco & Geithner.
The lid is friggin’ blown off of that charade.
I found the invoice for their costumes. Actually pretty (Kabuki) authentic.
Geithner looks kinda fat in his and Demarco looks like a girl.
Ya’ think??????
(Ya know I’m just kiddin’)
Good cop, bad cop. Could it possibly be any more transparent?
Fail.
People, FDL supporters, citizens of these great United States.
Timothy Geithner’s photo is up there and he is the topic of this article. Are you tellin’ me that only 7, count ‘em 7 people have negative things to say about Timmy?
David, I apologize. Guess everybody’s watching the Olympics. NOthin’ more rivetting than white-water rafting.
I, for one, will not comment, because it is a waste of time. I there is a chance that Obama would fire Geithner, I would waste my energy commenting. But we all know it is not going to happen. We are all spinning our wheels at greater and greater speeds to stand in the same place. Why bother? Geithner does not even care what Barry wants, he answers to higher authority. His base pisses on Obama, because it finances Obama’s runs at presidency. What is going to happen to Geithner? Nothing, zilch, nada. No matter how much dirt is uncovered, he does not seem to be affected by it, his place in administration is assured. The only hope will be if he resigns. But then he will be replaced by a similar character. At this time there is no hope, because the only 2 characters running for presidency are 2 pockets of the same jacket. And anyway, what power does the president have against the elites? These people are above the law.
Nahhhh, not watching the Beach Volleyball Tournament For The World, because it’s boring and I really don’t believe that beach volleyball is the most important sport in history and deserves every hour of primetime coverage devoted to it.
As far as Geithner and DeMarco go, it’s a situation where, as progressives, we have a hard time calling a spade a spade when it comes from “our” ranks: ie, when a supposedly “democrat” prez surrounds himself with bankers and corporatists and follows their every lead. (I should clarify that I mean “we” as in talking heads and prog sites & blogs writers.) It hurts when our leaders act more like republiscum than like dems. But we must accept the fact that this admin is (except on social issues) more hard right than Bush, in many ways, and it is a mouthpiece for the corporate elite.
This Kabuki Theater is yet another act in the drama. In this election we are being forced to choose to have our feet chopped off by the evil we know, or have our legs gnawed off by the theater’s alternate cast. Either way, same play and we’re screwed.
Ed Demarco is a hero, but in a sad twist the tired and stale Obama administration is using him as a convenient scapegoat. Politicians like Obama have nothing but petty political games and cheap PR stunts to sell themselves to the American people–while they licks the boots of their corporate sponsors and do his best to blame others for his venality.
I am fully confident that when Romney is president in January, he will be no different. Because you all are only too happy to compromise your morality and ethics to vote for the “lesser of two evils”.