July 2, 2025
Bullying the Fed
Fed Chair Jerome Powell
Central Banking quoted me in Economists Denounce Trump’s ‘Bullying’ of Fed Chair (sign up required). It opens,
Economists have attacked what they regard as US president Donald Trump’s bullying of Federal Reserve chair Jerome Powell, describing it as dangerous for the central bank’s continued independence.
On June 30, Trump posted on his social media platform a copy of a handwritten letter to Powell showing interest rates around the world. In the letter, Trump had written: “Jerome, you are as usual, too late. You have cost the USA a fortune, and continue to do so. You should lower the rate by a lot. Hundreds of billions of dollars being lost. No inflation.”
Along with the note, Trump posted that “Jerome ‘Too Late’ Powell, and his entire Board, should be ashamed of themselves for allowing this to happen to the United States. They have one of the easiest, yet most prestigious, jobs in America, and they have FAILED — And continue to do so”.
He added: “If they were doing their job properly, our Country would be saving Trillions of Dollars in Interest Cost. The Board just sits there and watches, so they are equally to blame. We should be paying 1% Interest, or better!”
On July 1, Powell said the Fed would probably have lowered rates already had it not been for the tariffs and trade policies introduced by the Trump administration.
Ralf Fendel, professor of economics at WHU – Otto Beisheim School of Management in Germany, says Trump’s note bears all the hallmarks of political interference.
“Handwritten personal correspondence is traditionally reserved for heartfelt gratitude or strategic diplomacy, but not for exerting pressure on an independent central bank,” he tells Central Banking. “In resisting such pressure, Mr Powell is upholding the Fed’s institutional credibility and responding appropriately to a macroeconomic environment clouded by trade policy uncertainty and various economic risks.”
Fendel adds that Fed decisions must be guided by economic data and not the demands of the White House.
William English – professor of economics at Yale University, and a former director of the Fed’s monetary affairs division and secretary to the Federal Open Market Committee (FOMC) – says that having a president who is so publicly critical makes the Fed’s job more complicated. “But they have their mandate and will do their best to achieve that,” he says. “We’ll see how it goes!”
Francesco Bianchi, professor of economics and department chair at Johns Hopkins University, says the most recent remarks by Trump represent a turn for the worse.
“Such a confrontational stance cannot be good for central bank independence,” he says. “Powell probably feels that he needs to push back against the pressure and that he has a bit more freedom given that his second term is coming to an end.”
Fed historian Robert Hetzel adds that Trump appears to want to return to a time when the central bank was subservient to the US Treasury.
David Reiss, professor of law at Cornell University, says there is an extensive history of presidents “jawboning” the Fed chair to lower rates. However, he says central banks work better when “insulated from the political exigencies of political leaders”.
“Paradoxically, bullying the central bank can lead to interest rates increasing, as markets demand a higher risk premium as trust in the central bank’s decision-making decreases,” he says. He also concurs with Powell’s assessment that tariffs are inflationary through many channels.
July 2, 2025 | Permalink | No Comments
June 30, 2025
Rent Freezes in NYC
Zohran Mamdani, Democratic Nominee for Mayor of NYC
The New York Times quoted me in Free Buses and Billions in New Taxes. Can Mamdani Achieve His Plans? It reads, in part,
A major pillar of Mr. Mamdani’s economic plan is housing: He wants to build 200,000 units of affordable housing and freeze rent on the city’s nearly one million rent-stabilized apartments.
But to build, he has said the city will have to borrow $70 billion, exceeding its debt limit by some $30 billion. Going over the limit would require state approval.
Freezing rent, on the other hand, is relatively straightforward and has precedent. But there are consequences.
Mayors cannot freeze rent on their own, but they do appoint the nine members on the Rent Guidelines Board, which sets rents on the city’s rent-stabilized units.
David Reiss, who served on the board under Mr. de Blasio, said that before it voted, members generally considered the overall state of housing in the city, including affordability, landlord expenses and economic conditions.
He said that members could decide that affordability was the most important factor and vote to freeze rents, as they did in 2015, 2016 and 2020.
“A rent freeze would meet the needs of a lot of people who are having a hard time keeping up with their rent,” Mr. Reiss said, “but it’s an unsustainable operation.”
Landlords, including those whose buildings have a large majority of rent-stabilized units, are increasingly saying that they are not collecting enough rent to maintain units.
“Are we going to be pushing a distinct portion of the housing market into great distress because their expenses are outstripping their income?” Mr. Reiss said.
June 30, 2025 | Permalink | No Comments
May 30, 2025
Fannie, Freddie and Trump
FHFA Director Bill Pulte
Central Banking quoted me in Fannie, Freddie . . . and Donald. It reads, in part,
IIn a client note on May 13, investment management firm Pimco said any privatisation of Fannie and Freddie would be a solution in search of a problem.
“If the GSEs are released but the government remains accountable to come to their rescue, wouldn’t taxpayers ultimately be the biggest loser, once again, by seeing GSE gains privatised but losses socialised?” it said, adding: “Don’t fix what’s not broken.”
David Reiss, professor at Cornell Law School, says Pimco’s view reflects the fact that the mortgage market has been functioning “pretty smoothly” since Fannie and Freddie were nationalised. According to this viewpoint, there is “no need to release them from conservatorship”.
However, Reiss says he does not like to see so much power and influence concentrated in the GSEs, and he believes the private sector would do a better job of evaluating credit risk.
“Some people – mostly investors in Fannie and Freddie securities – think [privatisation] is the right thing to do because the conservatorships were supposed to be temporary and the companies should be returned to private control and investors should be able to get some kind of return on their investments,” he says.
Reiss adds that some members of the Trump administration think privatisation would generate hundreds of billions of dollars in revenue that could be used to help pay down the national debt, offset tax cuts and seed a sovereign wealth fund.
Joe Tracy, senior fellow with think-tank the American Enterprise Institute and a former official with the Federal Reserve banks of New York and Dallas, agrees with Reiss. “The problem is that they are in conservatorship limbo, so the government has effectively nationalised a large segment of mortgage finance,” he says. “This should be carried out by the private sector.”
* * *
Lawrence White, professor at New York University and co-author of Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance, says the GSEs are unlikely to become boring unless they are broken down. He believes that if Fannie and Freddie are privatised in their current form, each enterprise will be likely to pose a systemic risk from a financial stability perspective.
“The implication is that their regulator, the Federal Housing Finance Agency [FHFAI, will need to have strong powers of examination and supervision and will need to impose substantial, risk-adjusted capital requirements,” he says.
“It is unclear whether there will be implications for the Fed as lender of last resort, since the Fed’s lending function is currently limited to banks.”
Reiss agrees that the two lenders are systemically important. If they “had to significantly scale back their lending, it would likely cause a crisis in the financial markets”, he says. “If that crisis were not quickly addressed it would cause a crisis in the real economy as well, freezing up credit for new construction and resales.”
Given that the two GSEs issue more than 70% of the outstanding $9 trillion of mortgage-backed securities in the US and, if privatised, would be two of the country’s largest publicly traded companies, the financial stability risks are clear, he says.
Reiss adds that if the privatisations were poorly planned, and if this were priced in by the markets, it would lead to “higher mortgage rates, with all of the knock-on effects that would have”. This, he says, would “increase the magnitude of a financial crisis if the two companies were to report poor financial results down the line”
Reiss’s interpretation of the Fed’s role is different to that of White, and he believes history may end up repeating itself. He says that although the FHFA is Fannie and Freddie’s primary regulator, the Housing and Economic Recovery Act of 2008 requires the Fed to be consulted about any federal government processes related to the companies.
“The Fed may also co-ordinate with other parts of the federal government in responding to a financial crisis, such as purchasing Fannie and Freddie securities, as they did during the financial crisis of 2007-08,” he says. “One could well imagine the Fed playing a similar role in future crises involving Fannie and Freddie.
May 30, 2025 | Permalink | No Comments
May 14, 2025
The Importance of Mentorship for New Lawyers
I interviewed Connor Blancato, an up-and-coming real estate lawyer, for the New York Real Property Law Journal. The interview emphasizes the importance of mentorship for new lawyers.
Click on the picture to read the interview.
May 14, 2025 | Permalink | No Comments
April 29, 2025
Defend the Consumer Financial Protection Bureau
I signed on to this important letter, along with hundreds of others:
349 Consumer, Civil Rights, Labor, Legal Services and Community Organizations
April 29, 2025
U.S. House of Representatives
Washington, DC
Re: Support the Consumer Financial Protection Bureau
Dear Representative,
The 349 undersigned consumer, civil rights, labor, legal services and community organizations and academics write to urge you to demand action to restore a strong and independent Consumer Financial Protection Bureau (CFPB). We further urge you to oppose changes to the CFPB’s funding, structure or other changes that would weaken its ability to stand up for consumers, competition and a fair financial marketplace.
The CFPB, created after the devastating 2008 financial crisis, has worked to protect consumers and responsible industry players alike. The CFPB has obtained over $21 billion in relief for over 200 million people, including $363 million for servicemembers and veterans, and its consumer protection mission continues to be overwhelmingly supported on a bipartisan basis. The CFPB has worked to support a healthy, sustainable housing market, improve credit reports, crack down on junk fees, reduce the burdens of medical and student debt, fight lending discrimination, and promote safe banking practices and banking competition. Now more than ever, we need a strong CFPB that will continue to keep our personal financial data safe, protect our privacy, and fight fraud.
Congress created the CFPB, and Congress must support ordinary people and fair competition by standing up for a strong and independent CFPB.
Yours very truly,
The full list of signatories can be found at the link here.
April 29, 2025 | Permalink | No Comments
April 17, 2025
Cornell’s Entrepreneurship Center Expands in Its First Year
Cornell Law School just posted this about the new Entrepreneurship Law Clinic on Roosevelt Island:
In the summer of 2024, with a transformative gift from Franci J. Blassberg ’75, J.D. ’77, and Joseph L. Rice III, Cornell formally launched a center for entrepreneurship law in New York City. Bridging Cornell Law and Cornell Tech, the Blassberg-Rice Center for Entrepreneurship Law has continued to grow in the months since, establishing a new Entrepreneurship Law Clinic on Roosevelt Island, welcoming its first cohort of J.D. and LL.M. students, and hiring a second faculty member, David Reiss, clinical professor of law and research director, to lead the New York City program.
“We are thrilled to have David on board,” says Celia Bigoness, director of the Blassberg-Rice Center and clinical professor of law, who continues to lead the Entrepreneurship Law Clinic at the Ithaca campus. “This is the first time we’ve been able to offer a clinical experience that’s entirely embedded in the technology ecosystem of Cornell Tech, and there’s been tremendous demand among students and clients for the work that we’re doing.”
The upstate and downstate clinics operate in parallel, with the two halves meeting together throughout the semester to share lessons and progress. In both locations, students represent entrepreneurs in setting up the business entities for their startups, representing them on a range of matters involving commercial contracts, data privacy, employment, equity allocation, founders’ agreements, governance, intellectual property, and real estate.
Alex Cho ’25 is working with social entrepreneurs, including one that has released an AI-powered chatbot that helps tenants navigate their relationship with their landlords.
“We’re giving students an exposure to the breadth of knowledge that is key to serving entrepreneurs,” says Reiss, who began teaching in January. “Just as important, we’re spending time on the soft skills that will help students not just understand the law, but understand how to effectively counsel their clients. Every student who passes through these programs will come out with hands-on transactional skills that can best be learned in a clinical setting.”
In Ithaca, seven of Bigoness’ twelve current students are continuing from the fall semester, working on increasingly challenging questions for startups in biomedical engineering, food services, product development, technology, and youth sports. In New York City, where the spring semester’s clients are drawn from Cornell Tech, Weill Cornell Medicine, and the Queens Chamber of Commerce, Reiss’ six students are counseling clients in the early stages of creating startups in climate tech, software, and transportation.
“It’s been a great experience, and I think the thing I have gained the most from it is confidence,” says Maria Hatzisavas, LL.M. ’25, who is attending Cornell Tech in the year between earning her J.D. and beginning her first job in corporate law. “At Notre Dame, I developed as a law student, and here, I’m developing more as a lawyer. I’m learning skills I’ll use throughout my career, and I’m gaining new insights into the practice of law because so many attorneys come in to teach us.”
“As someone who wants to do transactional work but hasn’t had an extensive background in accounting or finance, this clinic has shown me the legal side of business,” adds Kylee Nguyen ’25, whose 3L year in the Ithaca clinic has given her a taste of life as a general counsel. “It’s sharpened my soft skills, taught me how to think in the real world, and helped me make a tangible difference in the lives of my clients. I’m taking everything I’ve learned in this clinic into my practice, and I’m not leaving anything behind.”
“This launch is incredibly exciting. I’m grateful to Celia Bigoness, Franci Blassberg, Joe Rice, Jens Ohlin, Eduardo Peñalver, and Shawn Gavin for their vision and to all involved for the hard work it took to bring this about,” says Beth Lyon, clinical professor of law and associate dean for experiential education and clinical program director.
April 17, 2025 | Permalink | No Comments
April 10, 2025
What Happens if Fannie and Freddie Go Private?
AI Generated from StockCake
I was quoted in Fintech Nexus’ Home Invasion: What Happens if Fannie and Freddie Go Private. It reads, in part,
The Trump Administration has telegraphed significant changes to GSE mortgage lenders — with massive implications for the industry
Since his swearing in on March 14 as the fifth Director of the Federal Housing Finance Agency (FHFA), construction mogul William J. Pulte has executed major policy and personnel changes. Among other moves, Pulte has named himself board chair of the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, removed 14 of the GSEs’ 25 sitting board members, fired most of the companies’ audit boards, generally slashed headcount, and rescinded several Biden-era oversight-related advisory bulletins.
According to Professor David Reiss of Cornell Law School, a scholar of real estate finance and housing policy, Pulte’s simultaneous leadership of the FHFA in addition to roles at the GSEs, which have been under federal conservatorship since the 2008 financial crisis, is not normal.
“The whole point of regulation is you have somebody who’s overseeing an industry,” he told Fintech Nexus. “This is like the left hand [knowing] what the right hand is doing: You’re overseeing yourself, so it’s … kind of inconsistent with the notion of a supervisory regulator.”
Fintech Nexus contacted the FHFA, requesting that it comment on the impetus behind Pulte’s simultaneous self-appointments to Fannie and Freddie. The FHFA did not respond.
* * *
CAPITAL IDEAS
One idea percolating is for the Trump Administration to use Fannie and Freddie as a pool of capital to inject into a sovereign wealth fund. An op-ed in the Financial Times by Stifel CEO Ronald Kruszewski suggested this reconfiguration could provide “continued government backing,” “stabilize investor confidence,” and “pave the way for a $1 trillion sovereign wealth fund by 2040.”
However, in a letter to the editor in the Financial Times, Dini Ajmani, Former Deputy Assistant Secretary of the US Treasury, suggested the idea would fail, as any privatization of the GSEs would require proper capitalization, taxpayer compensation, and adequate confidence of securities investors.
“I believe the difficulty in meeting all three conditions is why [the] status quo has persisted,” Ajmani told Fintech Nexus. “To build capital, Fannie/Freddie must retain earnings, which means the taxpayer is not compensated. If the taxpayer is compensated through dividend payments, private capital will be uninterested because the agencies will be undercapitalized.”
To this end, FHFA Director Pulte may continue to atrophy many forms of GSE oversight as a way to prime the pump: Pre-empting congressional activity by deregulating Fannie and Freddie can accelerate their transition toward open-market frameworks.
The Trump Administration may see it as its only viable short-term avenue, as many members of Congress are uninterested in bringing Fannie and Freddie out of conservatorship; Senator Elizabeth Warren (D-MA), member of the Senate Committee on Banking, Housing, and Urban Affairs, called the move “Great for billionaires, terrible for hardworking people.”
Should the Trump Administration succeed in its quest, we may see states attempting to fill in the gaps on regulatory accountability, rhyming with blue-state attorneys-general’s litigiousness in the wake of the Consumer Financial Protection Bureau’s de-clawing, though this is unlikely.
“State regulators do not generally play a role similar to the two companies (except to some small extent state Housing Finance Agencies),” Reiss of Cornell Law School said. “I could imagine state agencies trying to increase consumer protection for mortgage borrowers, if the federal regulatory environment changes, but we would have to see how that plays out to understand how the states would respond.”
April 10, 2025 | Permalink | No Comments
