Posted on 06/05/2003 9:03:19 AM PDT by AdamSelene235
OFHEO Seeks Authority To Name Receiver For Nonviable GSEs
WASHINGTON -(Dow Jones)- The financial safety and soundness regulator of government-sponsored enterprises Fannie Mae and Freddie Mac wants Congress to authorize it to be able to "appoint a receiver to close and wind up the affairs of an enterprise that is not viable."
In a cover letter to the chairmen of the Senate Banking Committee and House Financial Services Committee to his agency's 2003 report, Office of Federal Housing Enterprise Oversight Director Armando Falcon said other federal safety and soundness regulators already have this explicit authority.
"Financial markets, the housing sector and creditors all would benefit from a final, predictable resolution of a nonviable enterprise," Falcon said.
Any such change would take the form of an amendment to the 1992 law that created OFHEO to oversee the financial safety and soundness of Fannie Mae and Freddie Mac, Congressionally-chartered, shareholder-owned firms established by Congress to help housing.
The OFHEO director also reiterated his standing request that his agency be removed from the Congressional appropriations process.
Taxpayer dollars aren't used to fund the regulator's activities, but the amount of money assessed on Fannie Mae and Freddie Mac to pay for their regulation is subject to the Congressional appropriations process.
"Permanent funding would permit OFHEO to adapt more easily to changes in the ever-expanding range of enterprise activities and to act quickly should serious problems develop or a financial crisis become more likely," Falcon said, insisting that OFHEO's funding mechanism should be the same as that of the other federal safety and soundness regulators.
In a separate "message from the director" in the report, released Wednesday, Falcon said OFHEO, celebrating its 10th anniversary this week, "has developed into the strong, capable and innovative regulator that Congress envisioned when it created the agency only a decade ago."
Richard W.
But the headline confuses me even more than that. It explicitly says the appointment of a receiver would be for a GSE. While the article lists Freddie and Fannie as GSE's, the article does not explicitly say the receiver would be for GSE's or Freddie or Fannie -- I can read the article to say the receiver would be for some type of business that Fannie of Freddie deals with.
But taken at the headline's say so, then this is pretty earth-shaking news -- and WHO would get that lucrative and powerful post of being the reciever?
Or am I missing the meaning entirely. It's not very clear.
That's correct. Do a Free Republic search on "Fannie" for endless discussion of this subject.
But taken at the headline's say so, then this is pretty earth-shaking news --
That's why its been moved to chat. For all the gory details see my link to the OFHEO report on systemic risk.
and WHO would get that lucrative and powerful post of being the reciever?
If I had to guess? GE Capital and JP Morgan.
Falcon recently authored a report on systemic risk (see my links) at the GSEs. In it he describes a scenario in which the GSEs could take down the entire financial system via their counterparties.
Now he's just asking for the authority to part them out in the event they fail.
Naturally since bureacrats are a far-sighted, pro-active bunch, who never ever close the barn door after the horse has left, this proposal is a pure theoretical exercise with no relation to the thinly capitalized, opaque and extraordinarily indebted GSEs.
You identify JPM as a potential receivers of Fannie. Which do you suspect has the riskier portfolio: JPM or Fannie? Based on bank secrecy laws we will never know, of course. You could say JPM is more diversified, perhaps, but Fannie's operations are relatively plain vanilla relatively speaking. Also, JPM has the HUGE special accounting privilege (accorded only to banks) to mark its assets to market, selectively. In other words, even when JPM reflects viability, you can never be sure. Give Fannie, or any other entity the ability to selectively mark to market and no problems will ever exist---on paper. The real world will be a different story entirely!
There you have it. Fannie is exempt from SEC laws concerning transparency so it is again impossible to know.
Of course, once risk reaches a certain level it ceases to be a liabilty and becomes a negotiating tool.
I then did a search on receivership to look at the detail basis upon which the recommendation was being made. The word, "receivership" next appeared on page 114 of the 114 page report. Authority to impose a receivership---is, again, requested using virtually the same words as in the Exec Summary. There is no basis, therefore, for having an opinion on this issue other than that someone who recommends it does not even try to explain why in this 114 page report wherein that is one of a handful of recommendations! That seems odd to me.
As we say in Texas, someone is going tits up!
Where can I read about that? It surely reveals more of what's actually going on than the 114 page report that makes a recommendation in the executive summary and then never addresses the issue throught the entire report except to make the same recommendation (again, with no basis offered) on the last page of the report.
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