Wednesday, March 24, 2010

Geithner's Fannie & Freddie Omissions

Treasury Secretary Tim Geithner testified before the House Financial Services Committee on the future of housing finance. Tim's testimony omitted two groups. While he testified on the role of government service organizations, Geithner left out Fannie Mae and Freddie Mac's governing boards. They approved key decisions on capital and underwriting standards.

High paying board positions served as plums for high profile politicians. Blue Rahm Emanuel sat on the Freddie Mac board, while Red Ken Duberstein not only served on Fannie's board, he was on the Assets and Liabilities Policy Committee. That committee was responsible for oversight of management’s interest rate risk, credit risk, and capital management activities. Ken Duberstein also earned over $1.8 million performing regulatory consulting services for Fannie.

Rep. Carolyn Maloney asked Geithner about the management of Stuyvesant Town at the 56:05 mark of the hearing. Stuyvesant Town went under, leaving Fannie and Freddie as bag holders. BlackRock, the firm bailing on the project, does huge work for Tim's Treasury department. If the IRS can chase deadbeat dads, one might expect Tim Geithner to ask BlackRock to make up any GSE losses.

Geithner avoided two groups responsible for major aspects of the current mess. Both are politically connected. It's a virtual guarantee that every time Tim opens his mouth, he'll say nothing but generalities and political platitudes.

Update: Tim mentioned "covered bonds" as a new model for mortgage finance. Guess who has a financial interest in such products? George Soros.

Update 2: Randall Quarles, Treasury Undersecretary for Domestic Finance under President Bush, had Fannie and Freddie, as well as derivatives, under his purview. Quarles now works for The Carlyle Group, a private equity underwriter doing its best to avoid any form of regulation. He'll serve as keynote speaker at a Utah economic conference. Check out his bio.