Rep. Capuano Talks About Corkercare

Thursday, 20 Mar 2014 07:44 AM

By Robert Feinberg

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Rep. Michael Capuano, D-Mass., appeared on C-SPAN's Washington Journal March 14 to discuss a proposal announced the previous day by Senate Banking Committee Chairman Tim Johnson, D-S.D., and ranking Republican of the Committee Michael Crapo, R-Idaho, to reform the mortgage finance system now dominated by Fannie Mae and Freddie Mac, both of which have been in federal conservatorship for five years.

The announcement caused a drop in the stock of both companies, as hedge funds reacted, and possibly overreacted, to a development for which their highly paid minions had apparently not prepared them.

The appellation "Corkercare" is an admittedly snarky reference to the eagerness with which Sen. Bob Corker, R-Tenn., has promoted his role as the chief craftsman of the bill in a partnership with Sen. Mark Warner, D-Va. Given that the Democrats are in the majority in the Senate, one can bet that if this proposal were anything but a long shot, it would be known as the Warner-Corker bill.

Also, from the viewpoint of this certified cynic, this proposal stands as an example of the determination of Congress and the financial lobbies to put back in place the toxic products that caused the 2008 episode of the ongoing financial crisis, this time with explicit government backing. If it ever achieves fruition, it has the potential to become another great leap forward and do for mortgage finance what Obamacare is doing for healthcare.

One can almost sympathize with the producers of programs like this one. Recently, Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, introduced a tax reform bill that everyone agrees is going nowhere. CNBC apparently couldn't find anyone from Ways and Means to talk about it, so they grabbed Sen. Pat Toomey, R-Pa., who hadn't seen the bill but was happy to talk about stuff.

Now we have a member of the House Financial Services Committee who has been enlisted to talk about a Senate initiative. However, Capuano is a smart and witty legislator, so perhaps he can provide insight, as a long-time supporter of Fannie and Freddie, of the prospects for action on mortgage finance legislation in the House.

Capuano clarified that the Senate Banking Committee has two proposals on its table. For me, it means that after months of wrangling, all of these senators who are eager to reinvent the government-sponsored enterprise platform can't agree on a single legislative vehicle. Tactically, given how inherently difficult the task is after years of procrastination, this is not good. Capuano also pointed out that the Republicans on the House side have not been able to agree among themselves either.

Another important point from Capuano is his reference to pending litigation by stockholders of Fannie and Freddie who bought at the bottom and now claim that they have repaid the $188 billion the government bailed them out with, so it has no right to shut them down. This one is likely to go all the way to the Supreme Court.

Otherwise, what viewers will see in Capuano is a true believer in the 30-year, fixed-rate mortgage as the path to prosperity for the middle class, and from his point of view, this can simply be reset as if Fannie and Freddie had not "gone crazy," as Capuano puts it.

(Archived video can be found here.)

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