Counterparties: Government’s governance problem
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The US and UK have a unique sort of corporate governance mess on their hands. Both countries are trying to deal with the complications of owning a multi-billion dollar financial institution, and are having a hard time doing so.
Britainâ€™s problem is RBS, which the government owns 81% of as a result of 2008 bailout that ended up costing $71 billion. In the US, itâ€™s Fannie Mae and Freddie Mac, the mortgage giants that have been under federal conservatorship since 2008.
Hours after a senior official at the Bank of England called for a more certain timetable for RBSâ€™s privatization, CEO Stephen Hester, who took over in November 2008, unexpectedly announced his departure.
Reutersâ€™ Matt Scuffham reports that the RBS board decided Hester need to be replaced after he refused â€śto make an open-ended commitment to remainâ€ť. Analysts, the WSJ says, were â€śsurprised and disappointedâ€ť by Hesterâ€™s departure just as the bankâ€™s privatization process is getting underway. Faisal Islam thinks Hesterâ€™s exit may be a sign that the government wants to restructure how it manages the bank, something it has had trouble doing in the past.
The US government, meanwhile, is facing a lawsuit from Fannie and Freddie shareholders seeking $41 billion in damages for improperly seizing the companies in 2008. Fannieâ€™s stock has been on a tear recently, based on the essentially speculative rationale that the government will decide to privatize the company. Matt Levine makes the great point that the bailout-related lawsuit could should cause the government to keep its hands on the mortgage companies:
Fannie and Freddie were designed to carry out a public purpose while also making money for private shareholders. When those goals conflicted, the public purpose won and the private shareholders were thrown into the abyss. If youâ€™re the government: thatâ€™s perfect. Except now those shareholders are suing, as shareholders tend to do. If youâ€™re the government: why would you set yourself up for more of that?
Jesse Eisinger argues that Congress continues to find new and interesting ways to bungle Fannie and Freddieâ€™s rehabilitation. Neither of the two main proposals to reform Fannie and Freddie, Eisinger writes, reflect what weâ€™ve learned about the housing market since the crisis. Not that Frannie were ever that sound to begin with. The companies were flawed all along, Eisinger says: “hybrids, privately held institutions with government charters â€“ along with too much political influence and too little capital.â€ťÂ â€“Â Ben Walsh
On to todayâ€™s links:
Foreign exchange rate benchmarks may have been manipulated daily for the last decade – Bloomberg
Maybe all that FX market manipulation was just standard trading – Felix Salmon
The term “market manipulation” used to mean something – Matt Levine
Dan Loeb is giving more money to charter schools to get back at the teachers’ union – Bloomberg
And, of course, there are many more links at Counterparties.