Month in review: June, 2006
[Previous months in review available here: May, Apr, Mar, Feb, Jan-06, Dec-05.]
Everyone’s favorite GSE dominated the June postings, both with a bit of news (Fannie Mae’s wolf pack on the hunt) and then with the first five parts of my massive analysis and explication of OFHEO’s report, Fannie Mae: the implied story, consisting of:
Part 1: Summary and introduction
Part 2: Maximizing executive bonuses
Part 3: Gaming the bonus formula
Part 4: Turbocharging the balance sheet
Part 5: Smoothing earnings with financial tricks
Along the way, I provided explanation of such key, daunting-but-understandable concepts as:
Earningssssssssss per sssssssssshare …
- Flaws in Fannie Mae’s bonus metric (core business Earnings Per Share)
- Using accounting decisions to smooth out rough patches
- Interest rate risk
- Optionality of prepayments
To tell OFHEO tell it, the strategies were all of a piece, a complex multipart plan for self-enrichment at taxpayers’ risk:
“Have you heard? OFHEO says Fannie Mae misbehaved!”
Got it now? You double your earnings by turbocharging the balance sheet. Ordinarily the resulting mismatched optionality would make the earnings engine rattle and shake, which would worry the board.
Indeed, the earnings volatility would arise even if you didn’t sell the loans, because those FAS rules — FAS 133, FAS 115, and FAS 91 — are all about pricing and repricing inventory based on expected but not realized gains and losses. The vibration would show up in earnings if not in cash.) You couldn’t hide it.
We’re managing our earnings — you’re not!
Silly me. Fannie Mae had elected to ignore FAS 133, 115, and 91.
The wobbles should also show up in cash, and in frantic financial patching — and it did.
The Fannie Mae series finished in July with:
Part 7: What now? Why should taxpayers care?
The exasperating saga of New New Orleans continues with a rare good decision — by HUD! — the demolition of 5,000 decrepit public housing apartments, in New New Orleans: Creative destruction, Part 1 and Part 2. We care about New New Orleans because Affordable housing is essential to modern cities, and for this, we need funding, as I demonstrated in Housing the world’s poor: the four essential roles of government, which highlighted my recent article in Harvard International Review.
Lack of funding is killing public housing, which didn’t stop the Boston Herald from publishing, on its front page, an outrageous, error-strewn calumny of revitalization plans, that I took apart in Logic not required. We need more such innovations, not fewer, as I reported at length in Public housing: the Ghost of Christmas Yet to Come:
Although evolutionary pressures make no value judgment, they do have rules, and the law of economic gravity is catching up with the inventory. As so often happens, everything is breaking down all together. […]
The public housing inventory is a huge resource currently being undernourished. Someone has to point out the consequences:
He sat very close to his father’s side upon his little stool. Bob held his withered little hand in his, as if he loved the child, and wished to keep him by his side, and dreaded that he might be taken from him.
“Spirit,” said Scrooge, with an interest he had never felt before, “tell me if Tiny Tim will live.”
“I see a vacant seat,” replied the Ghost, “in the poor chimney-corner, and a crutch without an owner, carefully preserved. If these shadows remain unaltered by the Future, the child will die.”
“No, no,” said Scrooge. “Oh, no, kind Spirit. Say he will be spared.”
“If these shadows remain unaltered by the Future, none other of my race,” returned the Ghost, “will find him here. What then? ‘If he be like to die, he had better do it, and decrease the surplus population.’”
“I was elected to cut waste, fraud, and abuse, and reduce the budget deficit.”
The
Aren’t I part of the family?
After reminding readers that you may receive more in-depth analysis through free Web Updates, I did a short piece exploring how to turn a fearful and uneducated renter into a confident home buyer: Homebuying: whom do you trust?
I know it was supposed to be ‘whom’ but “Who do you trust?” sounded better.
I gave a favorable nod to one affordable housing leader who’s retiring, Thriving as a non-profit sponsor: CommonBond’s Joe Errigo, and one who died suddenly, untimely: Robert Kuehn, 1942-2006.
At Bob’s gala 60th birthday party — held, fittingly enough, in Upstairs on the Square, a Harvard Square restaurant housed in a historic rehab building — were displayed two blown-up photographs: one of a tall slim young man, pink-cheeked and bright-faced, labeled New Construction; beside it another of the same man thirty-five years later, gray-bearded, broader of beam, clothing in rumpled woolly disarray, similarly smiling, labeled Historic Rehab. For that was Bob’s passion, the rehab of historic buildings, their transformation from abandoned anachronisms into adaptively reused jewels. If Bob had been a hindu deity, his avatar would have been a filigreed weathered brick. […]
When I posted about Max Kargman, Bob added his own appreciation: as with most of his commentaries, it was wryly ursine, faintly self-deprecating, respectful of history, and witty.
Too soon you left us, Bob. Too soon.
Here’s hoping the fish are biting in the afterlife, Bob.
