Reconciliation and the GSEs

Why the Trump 47 Administration Might Want Congress to Authorize a GSE Recap/Release Through Reconciliation Even When It Can Proceed Administratively Without Congress

I suspect that the Trump 47 Administration will proceed administratively soon after inauguration to recapitalize and release the GSEs from conservatorship. This will involve a complex mix of transactions involving the GSEs, FHFA and Treasury whereby, among other things, (i) Treasury will monetize its investments in the GSEs through stock sales, (ii) the GSEs will implement capital raising plans involving a series of public stock offerings, and (iii) FHFA will suspend the overly-restrictive Enterprise Regulatory Capital Framework, either permanently or by consent decree.

None of these actions require Congressional authorization or participation. HERA, the statute Congress passed that created FHFA and authorized Treasury to coerce the GSEs to enter into conservatorship, also authorizes FHFA on its own initiative to release the GSEs from conservatorship. As for Treasury, it has authority to deal with its GSE investments as it pleases without Congressional approval. Look to Treasury sales of its financial institution bailout investments after the Great Financial Crisis.

So why do I suspect that the Trump 47 Administration will also seek to have Congress authorize the GSE conservatorship recap/release even as the administration proceeds independently? Why seek Congressional blessing of an administrative recap/release?

Three words. “Reconciliation”. And “pay fors”.