>Look Before You Leap: Governor Wants Appointment Powers; Senator Doesn’t Do His Homework

>Curses, foiled again! NV Governor Jim Gibbons’ proposal to allow a governor (himself?) to appoint the State Superintendent of Education failed in the Legislative Committee on Education. [LasVegasSun] The conservative side of the argument opined that if the governor were to appoint the superintendent “they could work together more closely.” Generally speaking, when one person is given the power to appoint another this is more likely to suggest a subordinate relationship as opposed to a working relationship of equals. More specifically, there’s the incumbent’s propensity for appointing proponents of nuclear waste disposal to boards opposing the Yucca Mtn. project. Or, there was that Director of Public Safety gaffe, combined with the mess with the Taxi Authority, along with the SAGE Commission and the Pahrump Board. [DB] But wait, there’s more: The appointment to the Chiropractic Physicians Board, [RJ] and one to the Wildlife Commission [inform] in addition to a flap about an appointment to the Gaming Commission. [CL] These examples ought to be sufficient to convince any sentient person that perhaps gubernatorial appointment powers should NOT be expanded.

Repeating repetition: Senator John Ensign (R-NV) parrots the GOP talking points about Fannie and Freddie, the mortgage twins, on his website. At the risk of redundancy, the embattled and ethically challenged junior Senator is missing the point. Let’s review: (1) The mortgage twins exist for the purpose of securitizing mortgages from mortgage originators so that lending institutions do not have to carry all residential and commercial mortgages on their own books — thus freeing up funds for additional construction and development. (2) During the housing bubble inflation advocates for more affordable housing and advocates for the bankers BOTH lobbied hard for the reduction in the Mortgage Twin standards for conforming loans so that more fodder would be available for securitization (and thence to the packaging of more CDOs.) (3) Republicans have been arguing for seventy years for the destruction of Fannie Mae, however no one’s yet presented a cogent proposal for replacing its function. If Fannie and Freddie are “destroyed,” then how is the securitization process to be rationalized or restrained?

The answer from the GOP is simply that it would not be. “The Market” would presumably provide the valuation of residential based mortgage securities…and we’ve just seen how well that works. Part of the problem with the Mortgage Twins was that mortgage originators, tired of waiting for Fannie and Freddie to reduced the conforming loan standards, started securitizing, packaging, and selling their own collateralized debt obligations. And, the race to the bottom was on. What Senator Ensign and Senator Sessions are advocating then is the Every Man For Himself “system” of valuing mortgage based securities. If there were ever a recipe for financial instability, this would be a prime ingredient. Without a systemic way to police the securitization, packaging, and sales of mortgage based securities there simply is no housing market. We’ve effectively tossed the proverbial baby out with the hypothetical bathwater.

Somehow or another Senator Ensign has gotten it into his head that the Mortgage Twins “subsidize” mortgages. [Ensign] Once more time: The Mortgage Twins DO NOT subsidize mortgages, they securitize them for sale to investors. Here’s the mission statement from Fannie: “Fannie Mae operates in the U.S. secondary mortgage market. Rather than making home loans directly to consumers, we work with mortgage bankers, brokers and other primary mortgage market partners to help ensure they have funds to lend to home buyers at affordable rates. We fund our mortgage investments primarily by issuing debt securities in the domestic and international capital markets.” (emphasis added) What’s so confusing about that?

A quick peek at the mission statement from Freddie Mac provides: “Freddie Mac’s retained portfolio plays an important role in making sure there’s a stable supply of money for lenders to make the home loans new homebuyers need and an available supply of workforce housing in our communities.” And, “Freddie Mac makes sure there’s a stable supply of money for lenders to make the loans new homebuyers need. This gives everyone better access to homefinancing, raising the roof on homeownership opportunity in America.” (emphasis added) This is about Stability and Liquidity. Obviously, this isn’t about “subsidizing” home mortgages, it’s about providing stability and liquidity for LENDERS.

It’s unfortunate that Senator Ensign didn’t review these basic bits of information about housing market finance BEFORE taking to the floor of the Senate to embarrass himself by intoning GOP talking points first set forth in 1938.

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Filed under Ensign, financial regulation, Gibbons, housing

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