What would Watt do as the new head of the GSEs?
“And Jesus went into the temple of God, and cast out all of them who sold and bought in the temple, and overthrew the tables of the moneychangers, and the seats of them that sold doves, And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves.”—Matthew 21:12-13
So what will Representative Mel Watt do if he is put in charge of the GSEs? Will he make it a den of thieves by reducing principal on mortgages for constituents on the political left? Will he overthrow the tables of the moneychangers and shut down the GSEs? The only thing we can tell from his public statements is that he plans to keep everyone in the dark until he gets the job.
By Nick Timiraos — May 2, 2013, 8:10 PM
President Barack Obama said on Wednesday he would name Rep. Mel Watt, a North Carolina Democrat, to lead the regulatory agency that controls Fannie Mae and Freddie Mac.
In an interview on Thursday, Mr. Watt offered few specifics about how he would lead the agency. On the politically charged issue of allowing Fannie and Freddie to modify mortgages by cutting loan balances, Mr. Watt said it was too soon to tell if he would revisit the decision of the Federal Housing Finance Agency’s acting director, Edward DeMarco, against permitting such write-downs.
Whoever gets appointed to this job won’t make any statements his or her opponents can use as ammunition. After the Robert Bork Supreme Court nomination of the 1980s, it’s become necessary for appointees to any public position to avoid any controversial stands.
What follows is an edited and condensed version of the interview:
WSJ: What would be the biggest difference between having you in that position and Mr. DeMarco?
Mr. Watt: I don’t know that I can answer that—perhaps none. I won’t know the answer until I get over there and get access to information… I don’t know that any decisions that I would make would be different from the ones that he has made.
OCHN translation: “I know exactly what I would do, but I can’t tell you what I will do because it would torpedo my nomination. I am going to feign ignorance and hope you don’t point out that as a member of the finance committee I have access to all data both public and private on the GSEs.”
WSJ: What should be the mission of the FHFA, and how would you measure success in achieving those goals?
Mr. Watt: I’m not sure I can answer that question, either. Obviously, the mission of the FHFA—the primary mission is to safeguard what is already there and, secondarily, to be a resource for people who are trying to work [towards] what the future will bring. But again, I think we may be putting the cart before the horse to start having me speculating about what I would be doing to advance those two things.
OCHN translation: “I am going to completely dodge this question by spouting nonsense. Everyone wants to know what I will do so they can find a reason to oppose my nomination. I can always deny speculation, but once I go on record, I’m screwed.”
WSJ: What do you think are the most important issues facing the FHFA and the broader housing-finance space right now?
Mr. Watt: I don’t think I can answer that question…Obviously, I am aware as a result of being on the financial services committee and the whole series of … hearings we’ve had [that] there are challenges. We want to transfer as much of this back to the private sector as the private sector can take—and without an explicit or implicit government guarantee. But there are constraints to doing that, and we have to be very careful about how we do it. Those are challenges; safeguarding what we are already into is probably the primary challenge. How you do both of those things—I’m really not in a position to comment on at this point.
OCHN translation: “I know exactly what issues face the GSEs, and I can’t pretend otherwise, so I need to offer some milquetoast answer to placate you and your readers. Well, the GSEs are a mess, and we need to do something about it, but I haven’t figured out how to placate my big-money donors in banking and finance and the left-wing housing advocates I pander to, so I won’t say anything.”
WSJ: For refusing to permit principal write-downs, Mr. DeMarco has faced a storm of criticism from the left, including many people who are supporting you in your upcoming confirmation hearing. Should that decision be revisited?
Mr. Watt: I can’t answer that question either. Again, I don’t have access to the information that Acting Director DeMarco has had. I don’t know what the timing would be of when I would get over there. It might be an issue whose time has already passed. And there may be information that would lead me to the same conclusion that they have already reached, if the issue is still a timely issue to consider. I don’t know how I would come down on that. The fact that I have expressed myself as a member of Congress shouldn’t be taken as an indication that I would necessarily reach the same position in a position where I was regulating the two entities….
OCHN translation: “I can’t tell you that I plan to give away money to buy more votes from the political left because the Republicans will kill my nomination. I am going to have to tell a bold-faced lie and say I don’t know what information DeMarco was viewing. Realistically, I will work to buy as many votes as possible for Democrats while not actually harming my big donors in banking and finance. I will seek to make the taxpayer absorb the costs of my vote-buying, and I will work diligently to see if I can get more bank losses put on the back of the taxpayer through the GSEs so I can solicit even more money from banking and finance donors.”
WSJ: As congressman you supported principal write-downs, but you’re saying you might approach the issue differently as the agency’s director?
Mr. Watt: I was in a different position at that time. I was a member of Congress advocating for a different constituency with a different set of responsibilities. My responsibility as a director would be to evaluate all of the information and make a sound decision. It could very well lead me to the same conclusion that the existing acting director has reached. Again, we don’t even know the issue will continue to be timely.
OCHN translation: “This is the most difficult problem I will have to overcome to get the job. As a politician, I had to pander to my constituents even as I was taking money from the other side. What Obama and I have found is that bankers like to own liberals if they can buy them because liberals owned by banks can further the bank’s legislative agenda with less opposition. I have to wink at my supporters on the left as I deny I will give them taxpayer money to get the job. In private meetings in smoky rooms with my banking donors, I have to convince them I will do what they want, or they will call up their henchmen from the right and kill my nomination. It’s a difficult path to get the job, but I can make it happen.
WSJ: You may have seen the reports that protestors, upset over the decision, camped out at Mr. DeMarco’s home in Maryland. Do you feel pressure to support principal write-downs?
Mr. Watt: No. I wouldn’t. People camp out at my office sometimes—I’ve been through that before. You try to make a good public policy decision, and I think I have a strong reputation for doing exactly that regardless of what the pressures are.
OCHN translation: “I’m a politician. I sold my soul years ago, so I couldn’t care less what a few vocal idiots think unless my opponents can latch on to it to sway public opinion.”
WSJ: One criticism that was made yesterday by some Senate Republicans is that you did too little to push for tighter regulation of Fannie Mae and Freddie Mac—that when it came to the GSEs, you were too comfortable with the status quo. Sen. Bob Corker said putting you in charge of the FHFA would be like having the fox guard the henhouse. What would you say to those critics?
Mr. Watt: I wouldn’t say anything to the critics. I think there are sufficient answers to all of those things, but I’m not getting into a public debate [right now] with anyone with this. I’m looking forward to going to sit with Sen. Corker…. I can understand how he would raise those concerns. If I were in his position, I might be expressing the same concerns. I will encourage him to look at my record and if he does, I’m sure he’ll find that I was the first person in Congress to file an anti-predatory lending bill. It was four to six years before the financial services meltdown. We actually got to about the same place in Dodd-Frank that the first bill was advocating for…We’ll have that conversation with Sen. Corker and with all the members of the committee. I certainly am not trying to debate that in the newspaper.
OCHN translation: “I will have a private meeting with Bob Corker. He represents the banking and finance interests who fund my campaigns. If I can placate him, probably with some giveaways to the banks, the money interests who currently own our government will make sure I get in.”
WSJ: Given that you are the president’s nominee for this job, what kind of relationship do you expect to have with the White House and the Treasury?
Mr. Watt: This is an independent agency. I expect it to be treated as an independent agency. I expect the director to act as an independent agent. But the statute does say the president has the prerogative to nominate, and he has done that.
OCHN translation: “I will owe Obama my job and any chance I have of a political life after this job is done. I will kiss his ass until his skin puckers.”
WSJ: What are the most important components for any overhaul of the housing-finance market?
Mr. Watt: I can’t comment on that….
OCHN translation: “You know I can’t answer any controversial question, and I wish you would quit asking them.”
WSJ: Should Fannie and Freddie be wound down?
Mr. Watt: There is general—almost unanimous—consensus that we should move as much of this back into the private sector as quickly as can be done. There’s virtual unanimity.
OCHN translation: “I will avoid expressing my own opinion by echoing everyone else’s. The GSEs do need to be wound down, but it needs to happen in a way that buys the most votes for Democrats while soliciting the most money from banking and finance interests.”
WSJ: It’s not clear that Congress or the White House is going to address the future of Fannie and Freddie any time soon. To the extent that the current holding pattern continues, what sort of steps do you think the FHFA should take for that interim period, however long it lasts?
Mr. Watt: Whatever responsibilities Congress sees fit to the FHFA, we have to play them out in a responsible way. But I don’t think it’s my role to be defining what those responsibilities are.
I would prefer DeMarco to stay in charge, but anyone who can get through a nomination process to replace him will be just as bad as Watt.
Back in the late 1960s when the GSEs were first being discussed, the main reason their function was not rolled into the existing FHA is because politicians on the right feared the growth of government and how the political left would use a large agency to further its own agenda. The GSEs were set up as a private agency partly to avoid costs to the federal government and partly to limit the ability of the left to control it and use it to buy votes. Of course, the left still tried to force the GSEs to give bad loans to “underserved” borrower groups, but their ability to steer money was greatly limited by the fact that these were private corporations. Unfortunately, the GSEs did not work as a quasi-private enterprise.
Now that the GSEs are back under government control, the temptation from the political left to use them as a vote-buying machine to give free money to political constituents is tough to ignore. If Congress doesn’t deal with the wind-down of the GSEs soon, they will become a politically entrenched bureaucracy favored by the party in power. If that happens, they may never go away, and the future taxpayer bailouts will keep recurring.