Are some bankers betting on a Trump victory? | Opinion

Last month, bankers placed their bets on the outcome of the looming presidential election. They bet squarely on Trump 2.0 and against the Kamala Harris-Tim Walz ticket.

Unsurprisingly, they bet in their own self-interest and against housing which is experiencing a shortfall of 4.5 million units.

That was before national pollsters said this week the race is only percentage points apart and before housing was announced as an element of the Harris-Walz economic plan.

Those same bankers should be having second thoughts now that the race is too close to call.

Complicating matters further for the bankers is that Trump has reacted to the Harris campaign’s focus on housing. “Make Housing Affordable Again” screamed the backdrop of a recent Trump rally. Trump aping Harris on this issue is unsurprising since no one denies that the country is experiencing a housing crisis.

Taking the bankers by surprise, however, was the recent emergence of Trump, not as an ally of the bankers, but as a competitor.

While the bankers were placing their bets on Trump, the former president was placing his bets on crypto currency and the hope that his new company, World Liberty Financial, would “be leaving the slow and outdated banks behind.”

So, how did the bankers get it so wrong? Aren’t conservative bankers better known for covering their bets than placing them? Here is how it happened:

The bankers’ journey to Trump began more than two years ago in an obscure but important corner of the financial services industry. Meet the $1.3 trillion Federal Home Loan Banks, probably the largest government enterprise you’ve never heard of.

The FHLBs or “Flubs,” as they were dubbed by noted economist Alan Meltzer many years ago, have been around for 92 years. They were created by Congress under the Hoover Administration to stimulate housing.

Long ago, they were co-opted by their member commercial banks. Today the eleven “Flubs” scattered across the country have little to do with housing and a lot to do with enhancing bank profits at taxpayers’ expense.

According to the Congressional Budget Office, the Flubs receive an annual taxpayer subsidy of almost $11 billion. And what do the taxpayers get in return? Answer: Next to nothing, according to their regulator.

Florida, for example, is served by the Flub of Atlanta. Its year-end assets were $152 billion. The Flub of Atlanta’s share of that taxpayer subsidy in 2023 was around $1.3 billion. Its contribution to affordable housing that year was an embarrassing $72 million. Where did the rest of our subsidy — over $1.2 billion — go?

The accusation is that It went to the executives of the Flub. One of the Flubs’ regulators calls it “corporate welfare.” This abuse of the taxpayers’ wallet would be offensive at any time. During a national housing crisis, it is an outrage.

Over two years ago, the Biden-Harris administration launched a comprehensive review of the Flubs. This review culminated in a 115-page report urging the Flubs to at least double what they are doing for affordable housing. The Flubs dismissed the report.

Last month, the U.S. Treasury Department summoned the eleven Flub CEOs to Washington and delivered a stern warning: Help us in addressing the national housing crisis or we will deal more sternly with you through regulation and legislation. The Flub CEOs were unimpressed.

This prompted the Undersecretary of Treasury to pen a terse letter to each of the CEO’s bosses, the chairs of the Flubs’ boards of directors. He minced no words: “Our preference is to work in partnership with the FHLBs to help address the need for additional housing in this country... But if you are unable or unwilling to use your more than $20 billion in resources to help address our nation’s housing challenges, we will need to work with Congress..”

In other words, play ball with us or else.

Once again, the bankers rebuked the Treasury Department placing a risky bet that a Trump administration will be more to their liking. That bet may yet pay off for the bankers albeit not for the taxpayers. But right now, it is looking very risky.

Cornelius Hurley teaches financial services law at Boston University School of Law. He served as an independent director of one of the Federal Home Loan Banks for 14 years. He resides in Estero, Florida.

This story was originally published November 2, 2024 at 4:07 PM.