Deception of Proposal to OVERHAUL Fannie Mae and Freddie Mac

Dr. Sankarshan Acharya
Founder, Pro-Prosperity.Com and Citizens for Development

April 26, 2017

Dear President Trump,

In a general equilibrium model of the economy, I found in April 2013 that Fannie and Freddie are necessary for stability, efficiency and fundamental fairness (constitutionality).  Acceptability of this finding permeated to the investment community so credibly that Fannie and Freddie stocks rose from about 20 cents per share to $5.5 per share in just one month (May 2013) when large investors purchased nearly 300 million shares of the two company's stocks - this is an empirical ratification of the findings of the general equilibrium model.

This was after Obama Administration had decided (in August 2012) to sweep all Fannie-Freddie profits to eventually shut down Fannie and Freddie and after many Senators had publicized 'bipartisan draft bills' to eliminate Fannie and Freddie. 

Despite politically powerful (virtually invincible) diktats of Congressional leaders and Presidents (Bush and Obama), Fannie and Freddie could not be shut down, despite surreptitious machinations in many draft bills:  The general equilibrium paper made Fannie and Freddie necessary for survival of the economy. 

The 2007 clandestine plot to eliminate Fannie and Freddie - so that mega banks would capture the mortgage market to raise the mortgage interest rate on surreptitiously usurped credits of the plotters - precipitated the 2008 financial catastrophe. Imagine that the US economy could revive from the Great Depression only after Fannie was created in 1938.  These events vouching for economic significance of Fannie Mae and Freddie Mac as well as the fact that mega powerful political leaders could not eliminate Fannie and Freddie robustly ratify the rational general equilibrium model.

After the Current Deep Administrative State failed to bondage the home mortgage borrowers (thanks to the publicity of the general equilibrium model in April 2013), CDAS' agents - Mortgage Bankers Association - has floated a new proposal to OVERHAUL Fannie and Freddie as private shareholders' owned utilities! 

The MBA has no general equilibrium model to specify its OVERHAUL proposal exactly. 

What is a private shareholder-owned utility:  it is a private company with government regulatory price control. 

The only price that can be regulatorily 'controlled' for Fannie and Freddie is the interest rate (price of borrowed money) on mortgage loans charged by these lenders.  This is exactly what my equilibrium model supports: the interest rate on funds raised by Fannie and Freddie is determined in markets in equilibrium while Fannie and Freddie set the mortgage interest rate equal (on average) to their cost of funds and of operations plus a competitively set fair return on private equity, which is based (on average) on dividends paid by competing private financial institutions.

The MBA acting at the behest of Current Deep Administrative State (including mega banks and supporting Congressional leaders), thus, has nothing more in its proposal than the policy obtained in equilibrium of my model. 

So is MBA-CDAS' proposal superfluous?  NO.

What MBA-CDAS want is to OVERHAUL Fannie and Freddie as utilities.  By OVERHAUL, they mean elimination of current equity (in lieu of new shares granted to existing shareholders) in order to VOID their obligation to purchase Fannie and Freddie shares in the open market to cover their massive hidden short interest (perhaps billions of shares).  To hide the short interest, CDAS used the Obama Administration to delist Fannie and Freddie from rules-based exchange like the NYSE.  Fannie and Freddie since the delisting from NYSE have been trading over the counter with no requirement to financial security follow rules like reporting their short interests as per rules of the SEC. 

Making Fannie Mae and Freddie Mac government-regulated utilities (as characterized in my general equilibrium model) does not necessitate any such OVERHAUL ostensibly to eliminate current F-F shares.  OVERHAUL is simply a shenanigan to enrich mega short-sellers among CDAS and MBA. 

Making Fannie and Freddie government-regulated utilities simply requires that their current equity, preferred shares and debt trade freely in NYSE as per exchange rules, with short interests in their shares and long positions known publicly as per SEC rules. MBA's proposal to OVERHAUL of Fannie and Freddie is nothing but a shenanigan to transgress these rules to enrich mega short-sellers who continue to destroy enterprising American wealth creators.

Obama Administration's executive policy - needing no Congressional approval - on Net Worth Sweep (sweeping all Fannie and Freddie profits to bankrupt Fannie and Freddie perpetually) and on hiding the mega short-sellers' short interests by delisting Fannie and Freddie from NYSE were precisely designed to loot enterprising wealth creators unconstitutionally (fundamentally unfairly).

Trump Administration's executive policy - needing no Congressional approval likewise - should be:

  • To release Fannie and Freddie from Conservatorship.
  • To relist Fannie and Freddie in NYSE.
  • To make everyone (including the mega looters) follow SEC and exchange rules on outstanding shares and short interests.
  • To return all Fannie and Freddie profits, which has been unconstitutionally swept away by government.
  • To return all penalties collected by the government on mortgage fraud committed by mega banks on Fannie and Freddie; these fines belong to Fannie and Freddie because Fannie and Freddie were forced to purchase the junk mortgage backed securities from mega banks using up their equity as well as $187 billion lent by Treasury.

Such a Trump Executive order will certainly stabilize Fannie and Freddie, real estate market and the economy and restore confidence of mega investors worldwide on US banking and government.  

With best regards,

Dr. Sankarshan Acharya
Director, Academy of Unanimously Agreeable Philosophy and Governance