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| By Sam Sutton |
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There has been a lot of hand-wringing over the last two weeks about whether Donald Trump’s (eventual) pick for Treasury will fully align with his hard-line vision on global trade. Let’s widen the aperture to talk about something that’s literally closer to home: the housing market. More than 15 years after Fannie Mae and Freddie Mac were placed in a federal conservatorship at the height of the financial crisis, Trump allies are urging the president-elect to move ahead with plans for their release. Trump has said he’d like to free both companies from conservatorship. Former Treasury Secretary Steven Mnuchin told Congress that there were scenarios in which they could be released even before raising the necessary capital. And some have speculated that Trump might do just that, potentially side-stepping Congress to unlock billions of dollars for investors, who have continued to purchase shares in the financial behemoths, which function as a government-supported beating heart for the mortgage-backed securities market. But Kevin Warsh, a former Federal Reserve governor and George W. Bush aide who is now a top contender for Treasury, isn’t sure privatizing Fannie Mae and Freddie Mac would be worth the fight. "Congress, I think, keeps telling us, Democrats and Republicans, presidents of both parties, that these are effectively backed by the United States government,” Warsh said at a conference hosted by the Atlanta Fed in May. He went on: “Let’s just own that. I don’t think it's worth the fight,” he added. “This muddled middle with a, ‘Yeah, they're private until something bad happens, and then what we're going to do in our wisdom is socialize the losses and let the profits be privatized in good times.’ This strikes me as the worst way for an American economy that needs durable, sustainable growth and credibility of the world to proceed from here on out.” That view is unlikely to resonate with some of Trump’s most vocal — and wealthy — supporters on Wall Street.
Bill Ackman, the billionaire founder of the hedge fund Pershing Square and Trump booster, has held sizable positions in both companies for years in the hopes that they would eventually be released from government control. Another hedge fund billionaire and erstwhile Treasury candidate, John Paulson, also holds formidable stakes in the government-sponsored enterprises (Paulson cited his “complex financial obligations” when he withdrew his name from Treasury consideration). Other investors have piled in since Trump was reelected; shares of both Fannie and Freddie surged after Election Day. In that sense, Warsh’s comments reflect “an inherently very un-Republican idea,” said one investor, who was granted anonymity to speak frankly about the views of potential Trump Cabinet members. The GSEs have been amassing necessary capital for years and, while they remain critical to markets, privatizing them would put them in a similar category as any “private” systemically important financial institution. “The whole idea of the kind of ethos of the Republican Party is limited government involvement,” they added
But even if Trump or his eventual Treasury secretary move ahead with ending Fannie and Freddie’s conservatorship, they’ll still face an uphill climb. Elevated mortgage rates have scrambled the housing market and releasing the GSEs could send them even higher. And, as Katy O’Donnell reported, the president-elect would likely face resistance from lawmakers if he took that step without congressional approval. "That would be a huge mistake,” said Sen. Mark Warner of Virginia, a senior Democrat on the Banking Committee. IT’S THURSDAY — Will we see white smoke today? Your host was a guest on the podcast “Press Profiles” hosted by Russell Sherman to talk econ policy, journalism and the merits of Keens Steakhouse and Mama’s Too. You can listen here or on Apple and Spotify. Reach out at ssutton@politico.com and @samjsutton.
| | | | A message from the Electronic Payments Coalition: SHOW ME THE MONEY: CORPORATE MEGA-STORES POCKETED THE MONEY BREAKING THEIR PROMISE TO CONSUMERS. Corporate mega-stores promised they would lower prices for consumers if Congress put mandates on Americans’ debit cards. That never happened and the mega-stores pushing up costs pocketed more than $145 billion, according to the Congressional Research Service. Why should anyone believe this time will be different? CONGRESS: STOP THE MEGA-STORE WINDFALL & OPPOSE THE DURBIN-MARSHALL CREDIT CARD BILL! | | | | | FinRegLab will host its 2024 AI Symposium starting at 8:50 a.m. with scheduled appearances by Federal Reserve Vice Chair for Supervision Michael Barr, Acting Comptroller of the Currency Michael Hsu, Consumer Financial Protection Bureau Director Rohit Chopra, Deputy Commerce Secretary Don Graves and Sen. Mike Rounds (R-S.D.) … The Securities and Exchange Commission has a closed meeting at 2 p.m. … Commodity Futures Trading Commission Chair Rostin Behnam will participate in a fireside chat at Georgetown University at 4:20 p.m. … What about Bob? — Trump has been looking closely at Wall Street financiers like Scott Bessent, Marc Rowan and Kevin Warsh for top economic roles in his administration. With Cantor Fitzgerald CEO Howard Lutnick headed for the Commerce Department, pending Senate confirmation, the trade hawks in Trump’s circle are starting to wonder what will become of former U.S. Trade Ambassador Robert Lighthizer, Gavin Bade reports.
From Gavin: “Not picking Lighthizer for a top economic role would be a signal that Trump may not follow through on the aggressive trade proposals he made a centerpiece of his campaign — like a 20 percent across-the-board tariff and duties at least three times higher on China. Lighthizer and his team were instrumental in crafting those ideas and have been working behind the scenes to prepare executive orders to carry out such tariff increases, as well as the economic justification for them.” Basel III pause — Banking regulators on Wednesday told House lawmakers that they will halt rulemaking before Trump takes office, Michael Stratford reports. That means the long-awaited Basel III endgame reproposal won’t see the light of day in the Biden era. Michael Barr, the Fed’s top regulatory official, said the central bank will not be moving ahead with its plan to hike capital requirements for big banks over the next two months. “I expect to work with my new colleagues at the OCC and the FDIC in the coming year on those measures to get their policy input, their perspectives,” Barr said. Both the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. are expected to immediately switch over to Republican control once Trump takes office on Jan. 20. — But Barr says he’s not going anywhere: “We serve fixed terms of office, and I intend to serve my fixed term of office,” Barr told the committee. His term as vice chair for supervision runs until July 2026. The undoing — Elon Musk and Vivek Ramaswamy, the co-leaders of Trump’s planned effort to cut federal rules and workers, wrote in a WSJ op-e d that civil service protections can’t stop them from firing workers who are no longer needed to enforce nullified regulations. — Congress is also looking to hack away at the federal rulebook. Senate Minority Leader Mitch McConnell of Kentucky on Tuesday declared that Republicans are plotting to use the Congressional Review Act to kill Biden administration rules, per Kelsey Brugger.
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| The Gaetz Saga — The House Ethics Committee on Wednesday did not agree to release its report on multiple allegations against Trump’s pick for Attorney General, former Florida Rep. Matt Gaetz, Jordain Carney, Daniella Diaz, Nicholas Wu and Olivia Beavers report. The allegations include that he had sex with a minor. Senate Republicans have said they would like to see the report as they consider Gaetz’s nomination. — The NYT’s Michael Schmidt: “Federal investigators established a trail of payments from Matt Gaetz, President-elect Donald J. Trump’s choice to be attorney general, to women including some who testified that Mr. Gaetz hired them for sex, according to a document obtained by The New York Times and a lawyer representing some of the women.” Last push — Meredith Lee Hill and Eleanor Mueller: “Senate Agriculture Chair Debbie Stabenow is making an eleventh-hour push to clinch a deal on cryptocurrency legislation before Republicans take power next year. Stabenow’s staff on Wednesday circulated to lawmakers a revised text of her digital assets proposal, which was obtained by POLITICO. But the effort faces an immense uphill climb with just a few legislative days left before the end of the year.” It’s Trump’s world — House Republicans vying for committee leadership posts are touting their Trump bonafides as much as their policy chops as they make their pitch to colleagues, Eleanor Mueller reports. “It's going to be supremely important,” Rep. Ann Wagner (R-Mo.), a top contender to replace outgoing House Foreign Affairs Chair Michael McCaul (R-Texas), said in an interview after Trump addressed House Republicans last week. “What he spoke to us about is how his relationship with the House is better and stronger than the one he has with the Senate, and so he's going to lean on us to get his agenda through.” House China chair 'optimistic' about investment crackdown prospects — Rep. John Moolenaar, who chairs a House committee focused on China issues, said Wednesday that GOP lawmakers who have been negotiating legislation to restrict U.S. investments in adversarial nations have crafted "a good proposal" that he hopes to pass before the end of the year, Jasper Goodman reports.
Moolenaar is a member of a House GOP working group that is working to resolve a longstanding intra-party divide over how to restrict U.S. capital from flowing to China. National security hawks pushing to block U.S. firms from investing in certain sectors of the Chinese economy have been at odds with the business-friendly leaders of the House Financial Services Committee, including Chair Patrick McHenry (R-N.C.), who want a narrower approach using sanctions. “I believe that the work that’s been done reflects a very good, reasonable outcome between the debate going on between the Financial Services Committee, as well as the Foreign Affairs Committee," Moolenaar said. "I’m optimistic, but I can’t predict what ultimately will be in the NDAA.”
It is unclear whether McHenry, who has been a critic of the sectoral restrictions, will support a deal. Moolenaar said the working group has "taken a lot of input from Chairman McHenry," who he said has "really helped improve the legislation."
| | | | A message from the Electronic Payments Coalition:
  | | | | | First in MM – Treasury Secretary Janet Yellen today will unveil $76 million of funding to help more than 250 organizations build their capacity to become certified Community Development Financial Institutions and serve financial products to underserved populations, Stratford reports. Yellen will announce the funding alongside former President Bill Clinton who will be on hand for Treasury’s celebration of the 30th anniversary of the CDFI Fund. First in MM: International banks make their case — As the Trump administration plots out its economic policy agenda, the Institute of International Bankers has released new data produced by the consulting firm Oliver Wyman to underscore how their members support U.S. capital markets. The U.S. arms of foreign banks lent more than $1.3 trillion to domestic companies last year. They also underwrite more than 70 percent of the debt issued by foreign companies in U.S. markets, which accounts for nearly a third of all dollar-denominated debt issuance.
“We cannot take for granted the significant participation of internationally headquartered banks in America’s capital markets,” IIB CEO Beth Zorc said. “As President-elect Trump and the new Congress consider ways to cut red tape and provide regulatory relief, we encourage a close look at existing regulations that could stifle critical investment from abroad to ensure the United States remains a country that fosters innovation and economic expansion.” Industry broadside against brokered deposit changes — A coalition of financial trade associations and business groups argue in a new letter to the FDIC this morning that the banking agency’s proposal to tighten regulations on banks’ brokered deposits would run afoul of the law, Stratford reports. Public comment on the Democratic plan, which would expand the scope of companies that are considered deposit brokers, closes today. The FDIC isn’t expected to move forward on the plan before Biden leaves office. And a new Republican-led FDIC is likely to scale it back or scrap it altogether.
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| Uh-oh — Shares of the retailer Target plunged on Wednesday after the company posted a down earnings report that reflected declining sales, smaller profits and elevated inventories, the NYT’s Jordyn Holman reports. — Inventories may be elevated elsewhere as American companies load up on imports in anticipation of Trump imposing new, potentially sweeping tariffs, the WSJ’s Hannah Miao reports. — POLITICO’s Alexander Nieves: “Trump’s planned tariffs on imported goods would disrupt the American supply chain and increase prices for consumers, economist Mary Lovely warned during a discussion with Port of Los Angeles Executive Director Gene Seroka on Wednesday.”
| | Archegos — Bill Hwang, the founder of the failed investment firm Archegos Capital Management, was sentenced to 18 years in federal prison after being found guilty of securities fraud and market manipulation. The collapse of Archegos rattled Wall Street and rattled big banks in 2021.
| | | | A message from the Electronic Payments Coalition: DON’T LET CORPORATE MEGA-STORES TAKE FROM CONSUMERS… AGAIN!
Corporate mega-store lobbyists are at it again. They promised to lower prices for consumers if Congress enacted new mandates and price controls on debit cards. Congress gave them what they wanted, passing the Durbin Amendment, but consumers never saw those savings. The Richmond Fed reported 98% of retailers actually RAISED PRICES or kept them the same. Home Depot’s Chief Financial Officer Carol Tomé said on an earnings call in 2011 the company could gain $35 million in revenue annually from lower fees. Today, mega-stores are making the same broken promises if Congress passes new credit card routing mandates. THE DURBIN-MARSHALL CREDIT CARD BILL IS A MULTIBILLION-DOLLAR CORPORATE WINDFALL PAID FOR BY AMERICAN CONSUMERS via less secure transactions and a loss of rewards and services. | | | | |
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