Saturday, September 03, 2011

Ballance reaches new heights

The Fannie/Freddie took over agency (FHFA, that is, DeMarco) is going to sue major banks for fraud. The claim is that employees of the major banks lied about the mortgages underlying securities sold to Fannie or Freddie. No one seems willing to claim that this fraud did not occur. Also, the banks were saved by Federal intervention. Also the bankers are paying each other huge bonuses. Finally the banks have huge piles of cash which they aren't lending. It might seem hard to argue that the suit is a bad idea.

But where there's a will there's a way. For Ballance, Brady Dennis, Steven Mufson and Zachary A. Goldfarb present the case for letting banks keep money which, by law, belongs to the Federal Government.

Argument 1) what is good for the banks is good for us

Some financial analysts said the lawsuits come at a particularly bad time because bank lending is already sluggish. They warned that the lawsuits could sap capital from banks, leaving them with even less money to lend, and further weaken the economy.

Some financial analysts need to be told about supply and demand. Low volume can be a sign of low supply of loans with many liquidity constrained agents eager to borrow but with banks afraid to lend because they don't have capital or reserves or something. This isn't the current problem. Banks and other firms have huge amounts of money sitting around. Did you notice the interest rates on Treasuries ? There is low volume of lending because firms have excess capacity and don't want to invest, many consumers are not credit worthy no matter how much money one has sitting around (zero real return is better than loaning to someone with an underwater mortgage) and solvent consumers are not inclined to ramp up consumption much (consumption is like that).

These "financial analysts" are not reasonable independent economists (more on that below).

Argument 2) I will just quote "Others argued that Fannie and Freddie were sophisticated investors who helped shape the very securities they purchased." What ?!? if Fannie and Freddie issued the securities, why did they purchase them. The whole point of hte law suit is that not all mortgages are equal (and the ones the banks sold to Fannie or Freddie are not like the ones the banks said they were selling). Argument 2 is based on the assumption that all mortgage backed securities are the same, not similar, the same (the *very* securities). This is pathetically grossly false. Sure Fannie and Freddie issued a lot of mortgage backed securities. The Fed bough over $ T worth of them. The Fed has been making huge mega gigantic profits.

Everyone knows that different mortgages have different risk of delinquency. For some reason Brady Dennis, Steven Mufson and Zachary A. Goldfarb feel the need to pretend to take seriously someone who claims that all mortgages are the same. I'm sure they aren't stupid. I'm sure that they feel that to be responsible journalists, they have to quote an obvious lie without noting that it is a lie (actually, as far as I can tell, adding the "very" which makes the claim totally false as opposed to merely deceptive). Why do they feel they have to do that ?

OK sourcing. Who are these "financial analysts" ? Who said that Fannie and Freddie issued the securities they bought ? How about some names. How about one name ?

One former top executive at a financial institution that bought and sold mortgage securities, and who spoke on the condition of anonymity, criticized the suits, saying that “the whole thing has gotten ridiculous and out of hand. The banks are big boys. Fannie Mae and Freddie Mac are big boys. The people who invested in private securities are big boys.”

Uh doesn't the Washington Post have a policy on granting anonymity ? For one thing aren't they supposed to explain why they granted it ? What is the explanation ? A former top executive is afraid he might be fired by his former employer if he said that it shouldn't be forced to pay lots of money to the Federal Government ? The source demanded anonymity, because he is ashamed of the nonsense he is spouting. Why aren't the Post's intrepid reporters ashamed to quote him (or, hah sure, her) ? Why did an editor allow anonymity ?

Then "Added another bank official: “These are folks that were involved in creating these securities. The idea that Fannie and Freddie were victims in this, it defies credibility.”" More anonymity ! Also a lie. The claim would be true if "these securities" were replaced with "securities of this general type." The whole argument of the plaintiff is that securities of this general type are fundamentally different. The anonymous quote is a material lie.

No one is quoted by name in the article arguing against the suit. Note there is no hint in the entire article about who the "financial analysts" who think the suit will hurt the economy might be. The assertion is supported by no evidence at all -- not even a source who was granted anonymity counter to Washington Post policy. I assume someone made that argument (I am not accusing Brady Dennis, Steven Mufson and Zachary A. Goldfarb of journalistic fraud). However, I suspect that the analysts are (or were previously) employed by big banks. The only anonymous sources quoted arguing against the suit (for other nonsense reasons) have a clear conflict of interest.

By the way, the article goes on to note that the securies in question were not assembled by Fannie or Freddie. This is obvious, but Brady Dennis, Steven Mufson and Zachary A. Goldfarb should have noted that the facts they describe contradict the assertion made by one of their two anonymous sources.

The part I find most frustrating is that I'm sure Brady Dennis, Steven Mufson and Zachary A. Goldfarb consider the article a no holds barred call em as they see em (various other sports metaphor) description of what crooks the bankers were. But for some reason, they feel obliged to quote BS and lies (respectively) from two people ashamed to let people know their names.

Couldn't they just write "we could find no one willing to be quoted by name defending the banks." ? That appears to be the case. It is news. Why not report it ?

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