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Peter,
“If you could show that the Treasury somehow made them insolvent that would be interesting.”
Yes, I can. That’s what I’m attempting to show you. If you would take a step back and work with me on this, I’d be happy to show you how it all was orchestrated. Maybe you and I won’t see eye to eye on this and that is OK, but I want to make a personal best effort. The reality is that I know how to see things your way. I know how to look at the government’s public statements and the public agreements that it signed and openly agree with them that their account of what has transpired is the truth. Unfortunately, I am unable to do so based on facts. I want to start with simply talking cash.
On a cash basis, Treasury gave to Fannie and Freddie a net $132.2B and so far Fannie and Freddie have paid to Treasury dividends of $241B.
The math works out on a cash basis that since conservatorship began Treasury has taken away from Fannie and Freddie the difference between the two. There are only two parties transacting here, it should be very simple. Since conservatorship was imposed, on a cash basis, what was the net flow of cash between FnF and Treasury?
The net impact is Fannie and Freddie have paid Treasury $108.8B since conservatorship has began. Conservatorship has been going for 7 years, so that on a per annum basis is $15B/annum.
Now, I’m not saying that this all came from normalized earnings, part of this money came from the original capital positions of the GSEs that are currently being wound down to $0 per the terms as amended of the SPSPA.
I do have a question for you, in the context of understanding how best to communicate with you: Are you open to the possibility that discovery has been produced in the pending lawsuits that demonstrates that “Treasury somehow made them insolvent”? Have you looked at the recent legal filings discussing the deposition of Fannie Mae CFO Susan McFarland that suggests that the government was lying about what was really happening behind the scenes?
That’s really the first question that I have for you. The second question is are you aware that it is possible to make a solvency situation a liquidity crisis simply by enacting a solvency agreement that is then amended to become a liquidity agreement after the levels of capital are depleted? Are you aware that forensic audits have been performed?
Peter, for me this is all very straight forward in regards to what happened. I’d love to talk with you about it but I am not sure regarding next steps. It appears that you are unwilling to consider the possibility that Treasury and FHFA worked together to force the GSEs into a conservatorship that was never necessary that was designed to nationalize the housing market.
I am not one to differentiate among intentions but I encourage you to take another look at what’s going on here. I’m not sure that you’re reviewing all of the freely available information. I know that I could be wrong, and I know that you could be wrong. Since we disagree at least one of us is wrong. I guess we both could be wrong.
For me this all comes down to cash. Treasury’s involvement has eviscerated $108.8B of private property that otherwise would have belonged to equal opportunity affordable housing. Through a series of actions they have systematically worked with FHFA which was willing to exceed its statutory powers as conservator. Now, I’m not a legal guy so I have no idea what all the specific points of contention are there or the statutes of limitations or any of that stuff, but I will consent that you currently have points on the board since there are currently no pending legal matters in the accounting fraud department.
I knew that when I originally emailed you that if you responded it would be at least at first a series of identifying where our views differ. I was hoping that maybe you could point me to something that I wasn’t seeing. I was also hoping that maybe if I showed you facts that undermine a particular narrative, we could work on figuring out what actually happened.
I think your most recent statement is highly misleading. My numbers show the complete opposite of your conclusions. I think you’re interpreting things incorrectly. I cannot tell if you’re doing so on purpose but the ongoing dialog gives me hope. I’m sure I’m not the first person to tell you this just as I know you’re not the first person to take your stance.
I wish you could have seen things from the inside. Have you read Hank Paulson’s book? It sounds like you might not have. There are a few books on the topic where the administration works to reconstruct the record. My view is simple, FHFA and Treasury came in and victimized Fannie and Freddie. By forcing the two to report massive losses they were simultaneously making themselves look like heroes. That was stage 1, where Fannie and Freddie were forced by FHFA to take $132.2B.
Do you not see that FHFA used accounting adjustments over time and an agreement that effected cash payments to rob two Fortune 50 companies? Fannie and Freddie are not broken businesses as they have produced massive amounts of money throughout conservatorship, before conservatorship, and are expected to do more of the same across the next decade.
I don’t know what else to say, but it looks like there’s nothing that I can say or put in front of you that will change your mind. I am trying to show you what you’ve claimed to be interesting and you aren’t seeing it. I am saying that Treasury somehow made them insolvent. Now, if you’d like to walk through the process, basically I’ve outlined all of how they did it just now here for you.
Anatomy of a Nationalization FHFA Style:
- Take control
- Enter into an asset impairment agreement that forces draws from related party at rates that are high enough to later effect a step 4.
- Write down assets (triggering draws)
- Change the solvency agreement to a pure liquidity agreement based on false financial forecasts.
That’s my 10,000 foot view. Thanks for your time, I wish you the best. As this situation continues to develop I want you to know that I’m always available if you see something unusual that you think I’d like to see.
Happy Holidays and Happy New Year! It’s been a privilege and an honour to myself and to my family to be able to provide this to you. Cheers.
Do Not Lose,
- Richard Bradford, III
I’ve been looking forward to this moment my whole life. I like where you’re going. Don’t mind if I do how you do.
1504 Bay Road Suite 1910 Miami Beach FL 33139 (765) 543-4175
On Wed, Dec 30, 2015 at 6:50 AM, Peter J. Wallison wrote:
There’s really nothing to talk about. By the end of 2012, the Treasury had sent $187 bill. to the GSEs, and they had paid about $45 billion in dividends. Whether we talk about the total or the net after dividends is not really relevant. Your numbers show the GSEs could not have operated and can’t operate today without the Treasury’s support. If you could show that the Treasury somehow made them insolvent that would be interesting, but you can’t. The GSEs were a failed policy, driven to insolvency by the affordable housing goals. The taxpayers are supporting them until a better system for housing finance is developed by Congress.
I hope you enjoy the rest of the holidays.
Peter J. Wallison
Arthur F. Burns Fellow in Financial Policy Studies
American Enterprise Institute
From: Glen Bradford
Sent: Wednesday, December 30, 2015 5:35 AM
To: Peter J. Wallison
Subject: Re: Fanniegate – a new book I wrote
Not sure if this wasn’t important or if you were too busy. Maybe you think I’m an idiot, and you’re right. I was just hoping to learn something. Here’s a first graphic that demonstrates the GSEs only drew $132.2B of cash which is different from your acclaimed $187B
It is on page 11 of this document:
http://www.fhfaoig.gov/Content/Files/WPR-2013-002_2.pdf
So let’s start there. Do you agree that the net funds received from treasury for Fannie and Freddie Total $132.2B from the picture above?
Pay close attention to the cash, because it is critical to see the actual cash flow payments here that have seemed to enter a reality distortion field or something of the sort. Treasury exaggerated the GSE losses by leveraging FHFA’s position as the accounting department to write down valuable assets that could have been sold in the open market for more.
To me, it’s so stupid what happened. Of course to a government agency deferred tax assets are worthless. That said, to a private for profit institution they are important. People will pay for those assets and they shouldn’t have been marked down to force a liquidity crisis.
The first step was to drain the GSEs of their cash by making them pay dividends more than the money they could make during conservatorship to make it look like they were broke.
I’d love to talk to you about it.
Do Not Lose,
- Richard Bradford, III
I’ve been looking forward to this moment my whole life. I like where you’re going. Don’t mind if I do how you do.
1504 Bay Road Suite 1910 Miami Beach FL 33139 (765) 543-4175
On Mon, Dec 28, 2015 at 10:49 PM, Glen Bradford wrote:
Peter, I am writing this from my phone at dinner and I put my responses under your responses and I am so excited to see that you are a fair and reasonable man. I have heard all sorts of things from all sorts of people and I like to learn from great people specifically. Thanks for your time Mr. Wallison,
Glen
Do Not Lose,
- Richard Bradford, III
I’ve been looking forward to this moment my whole life. I like where you’re going. Don’t mind if I do how you do.
1504 Bay Road Suite 1910 Miami Beach FL 33139 (765) 543-4175
On Mon, Dec 28, 2015 at 9:06 PM, Peter J. Wallison wrote:
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> Peter J. Wallison
> Arthur F. Burns Fellow in Financial Policy Studies
> American Enterprise Institute
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> From: Glen Bradford
> Sent: Monday, December 28, 2015 11:47 AM
> To: Peter J. Wallison
> Cc: Ryan Nabil
> Subject: Re: Fanniegate – a new book I wrote
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> Peter,
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> I am delighted you took the time to reply to me. It means a lot to me. I think it is safe to say that your narrative is very similar to the one put forward by US Treasury.
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> First, I wanted to extend your mortgage analogy. If an individual has a mortgage or any other debt on which he owes interest as well as principal, is it reasonable to assume that instead of paying 10% the burden can be increased to the individuals entire net worth the year before the individual has the most profitable year in the world’s history because the individual is forced to write up assets that the individual was previously forced to write down beyond what was reasonable causing the draws in the first place?
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> I think you are arguing that Fannie and Freddie were not insolvent when they were taken over. That’s a hard argument to make, since you have to explain why the government eventually had to invest $186 billion in them. I agree that they, along with the banks on which the financial crisis was blamed, recovered somewhat after the panic ended when it turned out that most people were not defaulting on their mortgages. However, the “huge profits” that Fannie earned came from the fact that once it began to produce earnings its $50 billion in tax loss carry-forwards became suddenly viable and were included in its earnings as profits, making Fannie look immensely profitable. Since then, they have not shown the earning power to pay back the principal that they owe, and without the government’s continued support they would not be viable entities—that is, they could not borrow in the market. And this would be true even if they had been allowed to keep their cash earnings. To borrow without the government’s support would require at least $250 billion in capital for the assets they hold and that would take years to accumulate after they’d paid back the Treasury. There is this strange alliance between the left and the hedge-fund speculators in GSE stock, and you should not become part of it.
A liquidity crisis is different from a solvency crisis. That is not the argument I am attempting to make. The government’s money was $132.2B and not $186B. Please check that number. How much cash did they actually take from the government? $132.2B. How much cash did they actually pay the government? $241B. I am talking cash. The government has taken over $100B of cash out of the companies since conservatorship began. That’s the only affect the government has had on Fannie and Freddie. That amount is basically their normalized profits since conservatorship began of $15B per annum since 2008. On top of that, the government’s fiscal budget recently forecasted $179.2B of profits across the sequential 10 years. You also are not seeing that their most profitable year in the world’s history comes from reversing the false losses that they were forced to take by FHFA to make them look like they were the problem. The problem is that FHFA came in and wrote down all of their assets to justify the nationalization. If FHFA did not put Fannie Mae and Freddie Mac into conservatorship they would have over $100B more in capital today than they do. I do agree that the one time profits were one time and did become suddenly viable. I am saying that FHFA knew that they were going to be viable before they enacted the third amendment and they enacted the third amendment in order to prevent the GSEs from ever having capital, even the capital that should have been theirs if they weren’t forced to take money they simply did not need and served no economic purpose. You are telling me that the GSEs could not borrow in the market? At what point in history is this true? Do you have evidence that you can show me? To borrow from the government without the government’s demands to borrow from it simply would not have happened. This was mandated and people who fought it were let go.
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> Second, in any scenario where FHFA can come in and write down Fannie and Freddie’s assets to $0, yes, Treasury will have to bail out Fannie and Freddie in the future. I wasn’t aware if you had a chance to review any of the forensic accounting fraud audit papers that suggest that FHFA worked hand in hand with Treasury to illegally nationalize the twins by forcing them to take money they never needed in a conservatorship that was designed to nationalize. Did you see the Mulvaney exchange where Melvin Watt says the law was trumped?
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> No, I haven’t seen that, but would not be surprised to learn that someone tried to demonstrate a vast rightwing or leftwing conspiracy to nationalize Fannie and Freddie. Why the right would want to do that is beyond my imagination. Perhaps you can explain the left’s reasons.
Peter, I honestly do not have the imagination to understand the difference between the left and right or politics. I cannot for the life of me understand the differences between left and right. For me, I am wearing two different shoes, one left and one right, and they are different shoes of different colors with one red and one white, but I don’t understand what exactly the purpose of investigating ghosts is either. What am I supposed to say?
Can we talk about something else? Let’s focus in on the cash, where it went, the legal cases, and what constitutes good logic and reason something I am betting you are familiar enough with, maybe I will learn something. Have you read how to win friends and influence people?
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> Third, when Fannie and Freddie pay money to Treasury, you have two tax payers that are paying money to tax collectors. In fact, Fannie and Freddie are tax payers. Treasury is not a tax payer. Treasury is a tax collector. FHFA and Treasury have effectively made agreements that treat Fannie and Freddie like a tax collector instead of a tax payer where G-Fees are now a tax on home ownership. Also, you make a reference to our children and grand children. That’s very thoughtful of you. I don’t have any children at present. I do care deeply about children as they are our future. Your statements regarding the annual national deficit would be alarming to me if the US Government was a currency user instead of a currency issuer. It is impossible for the US Government to default except by choice on a currency that it prints itself. Modern Monetary Theory or Cullen Roche at Pragcap.com or Mike Norman at Mikenormaneconomics.blogspot.com would be more capable of fielding those sorts of questions than I would be.
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> I can’t follow you monetary comments, but I think you are a bit confused about Fannie and Freddie—probably from reading Fiderer’s blog. Let’s assume they had no shareholders at all, but were simply owned—nationalized—by the government. What would be your objection then? The government would pay their bills and they would remit to the government whatever they received in profits. Your complaint is that they are charging too much for their services in the form of G-fees. OK, that’s a legitimate issue, but G-fees are supposed to compensate them (and, if nationalized, the government and the taxpayers) for the risks the GSEs are taking in acquiring mortgages. Right now, the nature of those risks, and how they should be compensated, are being set by Mel Watt. Is he your idea of a mean right-winger who would tax home ownership? If you don’t like it, don’t complain to me. I opposed his nomination.
If they want to nationalize Fannie and Freddie that’s perfectly fine. The government needs to put them on their budget instead of account for them like off-balance sheet enterprises. They would be government agencies and G-Fees would be a tax on home ownership. In order to effect a nationalization, per the terms of the fifth amendment to the constutition the government has to pay a fair market price to take claim to private assets. In this case, FHFA came in and saw that they could structure an agreement that makes the GSEs look bad by reporting losses and them look good, and so they did. They came in and forced the GSEs to enter into an agreement that forced them to borrow money at FHFA’s virtual discretion, with FHFA overruling internal accounting staff and auditors aggressively making all sorts of false projections to justify the unnecessary draws that are required when you have a solvency matching agreement and you want to run the company to the tax collector forcing the solvency agreement that will later be amended into a liquidity agreement. First you claim insolvency which isn’t a crisis. Second you claim liquidity, which fhfa could not until they sweep $100b that would otherwise have belonged to the enterprises to the government. I love Melvin watt. He is doing a great job. We need more black leadership. I will say that our minority leaders are all favoring the rule of law. Have you seen their reasonings? What about what they are saying doesn’t make sense to you? Companies with capital can better support equal opportunity affordable housing than companies where governments enter into systematic arrangements to steal fortune 50 companies by claiming crisis where there is none. Have you not seen the lawsuits against the banks and the settlements? I know that’s a side point and it isn’t that big of a deal to my argument but it is relevant. Let’s get real.
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> Fourth, if payments were kept by Fannie and Freddie, who are taxpayers, the money would stay with taxpayers instead of being taken by tax collectors. Also, taxpayers did not save Fannie and Freddie from collapse with bailouts. My opinion as outlined in my book and the same opinion that is being pursued and will soon be a matter of fact is that when conservatorship began, Fannie and Freddie had their highest levels of capital in history. The conservatorship was forced by board consent under seige.
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> You have an odd sense of economic justice. The government keeps F&F in business—they cannot function without the government’s support—yet you want the benefits of the government’s support to go to the shareholders rather than the US taxpayers who are paying for their support. That’s doesn’t make much sense to me, unless you’re a hedge-fund operator.
I used to manage a hedge fund that I grew from $0 to $15million at its peak where I made mistakes and learned how organizations can commit fraud as I was a victim of believing what they produced in sec filings. The problem is that sec filings can be manipulated for short periods of time but eventually GAAP forces catch up with the misleading and things are caught and fixed. In the case of Fannie Mae fhfa forced Fannie Mae into a spspa that they used to force Fannie Mae to take $132.2b by forcing the accountants to write down assets at Fannie Mae. Subsequently, they entered into an amendment that would sweep them away if they reported they were still there and the market valued them. This is the problem I see. Do you see what I mean or where am I wrong in my narrative? Please advise.
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> The gift from taxpayers to their shareholders is simply business as usual. The weird part is when the government steps in and decides to unilaterally take everything.
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> Now, on your last point, whether or not Fannie and Freddie were or are a terrible idea, that’s an opinion. Historically, these two businesses have been consistently profitable and have done more good than harm and in the absence of FHFA led accounting fraud — you may change your tune.
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> You should stop thinking about this in terms of accounting fraud; it makes you sound like a Trump supporter.
I actually don’t have an informed opinion on politics. You probably are the authoritative figure here. If I could figure out who to vote for I would probably sound smarter.
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> This isn’t a me vs you. I just wanted to share my thoughts on something that you care about so deeply and express concern that it might seem that your idealogies are leading you to jump to conclusions that seem to be easily refuted by facts.
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> In order to make Fannie and Freddie look terrible, FHFA has had to take roughly $15B/annum away from them since conservatorship began. You agree with my ballpark numbers. That’s the conclusion that they have led me to. I am not the smartest of the bunch, but I’d love to introduce you to people who would be more capable of walking you through specific points of contention.
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> Thanks for the offer, but by expressing a lot of what these folks have said in the past without using the term “lying” or “liar” about people with different views, you have shown you are in fact the smartest of the bunch. Happy holidays to you, too.
I understand how that is. People can be abrasive. I am sorry. I don’t think everyone has read how to win friends and influence people by Dale Carnegie. I tried to write a similar book entitled act as if. You can find it on Amazon.
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> You’re the best Mr. Wallison. Happy Holidays! 2016 is going to bring wisdom.
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> Do Not Lose,
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> G. Richard Bradford, III
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> I’ve been looking forward to this moment my whole life. I like where you’re going. Don’t mind if I do how you do.
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> A link to my latest book.
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> 1504 Bay Road Suite 1910 Miami Beach FL 33139 (765) 543-4175
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> On Mon, Dec 28, 2015 at 10:39 AM, Peter J. Wallisonwrote:
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> Glen: I don’t read the Fiderer’s blog, and wouldn’t trust anything he writes, but your numbers seem to be roughly in the ballpark. There are several errors that most people make when they discuss this issue.
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> First, it is necessary to understand that Fannie and Freddie are only paying “interest” (really dividends on the preferred stock the government purchased in 2008 to keep them afloat). They have not paid back principal, which is the amount that was actually been lent to them (in the form of the preferred stock purchases) by the Treasury. If an individual has a mortgage or any other debt on which he owes interest as well as principal, the debt is not canceled until he has paid back the principal; it is not canceled when the total interest payments exceed the amount of the loan. This becomes very obvious when you look at the information on your credit card statement, which usually shows a huge amount to pay over time if you don’t pay immediately the full amount of the outstanding principal that you owe.
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> Second, the Treasury is very likely going to have to bail out Fannie and Freddie in the future—Freddie has already had one loss quarter–in which case the amount Treasury is receiving will be used again to keep the firms operating.
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> Third, when Fannie and Freddie pay money to Treasury, they are returning money to the taxpayers, not taking money from them; all payments to the Treasury reduce the annual national deficit and in that sense reduce the future burden of the taxpayers and their children and grandchildren.
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> Fourth, if the payments were kept by Fannie and Freddie, they would not go to the taxpayers anyway; they would go to the shareholders, who continue to have an interest in Fannie and Freddie only because—in 2008–the taxpayers saved their companies from collapse with bailouts. In other words, if Fannie and Freddie were allowed to keep the profits they are earning now it would be a gift from the taxpayers to their shareholders.
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> Fannie and Freddie were and are a terrible idea, based on the notion that private managers and shareholders should be able to reap the profits from government-backed companies, but when those companies fail the taxpayers, and not their shareholders, should bear the losses.
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> Best regards, Peter
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> Peter J. Wallison
> Arthur F. Burns Fellow in Financial Policy Studies
> American Enterprise Institute
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> From: Glen Bradford
> Sent: Monday, December 28, 2015 1:53 AM
> To: Peter J. Wallison
> Subject: Fanniegate – a new book I wrote
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> Hi Peter,
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> Saw an exchange between you and Bill Maloni on Fiderer’s new blog. I thought it was interesting and was curious if you would entertain my two thoughts for accuracy:
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> 1. Do you agree that Fannie and Freddie borrowed $132.2B?
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> 2. Do you agree that Fannie and Freddie paid back or will pay back $241B per the most recent pmt?
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> The corollary is that by some fluke FHFA has somehow managed to sweep the difference away from the private taxpayers to the tax collector US Treasury, a total of now over $100B rounding out to $15B/annum since conservatorship started.
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> If I’m wrong, please put me right. Thanks in advance.
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> Do Not Lose,
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> G. Richard Bradford, III
>
> I’ve been looking forward to this moment my whole life. I like where you’re going. Don’t mind if I do how you do.
>
> A link to my latest book.
>
> 1504 Bay Road Suite 1910 Miami Beach FL 33139 (765) 543-4175
>
>