Seeking answers on Fannie and Freddie.Speaking candidly to press at the convention, ICBA President/CEO Cam Fine said he found parts of Henry Paulson's new book to be very interesting. He was referring to "On the Brink," the book which chronicles the former Treasury Secretary's efforts to deal with the financial crisis of 2008..When I asked Fine about the future of Fannie Mae and Freddie Mac, which were put into conservatorship at Paulson's direction, Fine noted that the move wiped out the value of Fannie and Freddie preferred stock. "We had 1,200 member banks that were burned, and burned badly," Fine said.."In Paulson's book, he devoted a whole little section to the GSE preferred stock episode and 'fessed up. He used the word 'ambush,' I use the word 'screwed' these community banks for his good friend, the chairman of the Central Bank of China. He said our subordinated bond holders are nervous about Fannie and Freddie and may sell those, and so as Paulson said, 'I ambushed the American banks' and took these firms into conservatorship to protect the subordinated Chinese bondholders. Of course, he really damaged hundreds of community banks.".Quoting from Paulson's book, Fine said he wrote Treasury Sec. Geithner, Rep. Barney Frank and Sen. Christopher Dodd about it. He said Rep. Frank responded with a phone call and told him he would ask Geithner about it at an upcoming hearing. .ICBA's position on housing GSEs."ICBA supports an impartial secondary mortgage market," Fine said. "That might be Fannie and Freddie, it might be one firm. It could be organized in many different ways, but the key for ICBA's member banks is that we are not forced to sell our 15- and 30-year fixed-rate mortgages to Wells Fargo's SIV [structured investment vehicle] or Bank of America's SIV or JP Morgan's SIV. We don't want to sell our mortgages to our competitors. We want an impartial purchaser, an impartial mortgage market maker that is not aligned with one of the big Wall Street mega-firms." .Odds getting longer on reg reform legislation.Fine put the odds of reg reform legislation becoming law this year at 60-40 in favor. He said time is the enemy. Fine noted that Sen. Dodd will need to find at least one Republican senator to support his plan in order to get the 60 votes he needs for legislation to clear the Senate. Fine speculated that Sen. Olympia Snowe (R-Maine) is a good candidate. "But Dodd will have to get a Republican without alienating the left, which already thinks he has given way too much away," Fine said.."Then, if he gets it through the Senate by Memorial Day, (if he doesn't, the odds go way, way down), then he has to face Barney Frank," Fine explained. "Barney gets to be chair of House/Senate conference. The House will probably put up a fuss about wanting their version to prevail. That could take all summer.".Fine said if a bill isn't settled by the August break, there won't be legislation passed this year "because they will never pass a bill in September or October.".Fine said that although Republicans would like reform, they are not as threatened by the calendar. Republicans, he said, would be less upset than Democrats at the prospect of dealing with reform after the fall elections..Fine said ICBA wants legislation this year. "If there is no bill and the status quo prevails, then there are no resolution authority mechanisms, there is no systemic risk council, there is no shutting down the too-big-to-fail policies of the government. All of that goes out the window," Fine said. "I guarantee you, if there is no bill, three years from now, Wall Street will go 'What crisis?' and they will have the $100 million bonuses. They are already getting back to some of those practices. I think not only do community banks lose but America loses if there is no bill." .Why community banks need capital.2010-11 ICBA Chair Jim MacPhee gave reporters a real-life example of why community banks need additional access to capital. MacPhee, a Michigan banker, explained that there are 70-some community banks in Eastern Michigan that provide credit to dozens of auto part suppliers to the big car manufacturers.."These tier 2 and 3 suppliers right now are starting to get orders because inventory for cars is down. The auto manufacturers are starting to reorder," MacPhee explained. "The suppliers don't have any capital. They are out. The community banks that had been supplying them, are making money on the margins but they are out of capital as well.."If they want to get this country moving, they are going to have to get this capital back in place. When I met with President Obama in December, the point I made was there has got to be some way to get capital back into these community banks if are going to get this country moving.
