Millstein says he told Swagel, a professor at the University of Maryland who testified before the Senate Banking Committee in February during a hearing on housing finance, about his investment when they co-authored an Oct. 12 opinion essay in The Washington Post arguing the Treasury should "restructure, recapitalize and privatize Fannie and Freddie's mortgage-guarantee businesses." Millstein's investment is not disclosed in the essay, however, and Swagel says he was not aware of Millstein's investment at the time of publication.
"My experience is that Jim is a really honest, straightforward guy. He and I could have different recollections on what he told me and what I knew, but that doesn't take away from my view of him," Swagel says. Swagel, who has published several papers explaining his thinking on housing reform, says he has "absolutely no investments in anything remotely related" to the issues on which he has been advocating. Millstein declines to say how much he has invested in Fannie and Freddie preferred shares, though he says the amount is something he "can afford to lose," adding it is "a total speculative bet." Millstein adds he has more invested in a house he built and hopes to sell. He believes that sale, like the rest of the housing market, would be adversely affected if government officials followed through with their apparent intention to wind down Fannie and Freddie.
"[S]hould I have disclosed that I'm a builder and house owner who would be benefited from stable mortgage credit as well as having speculated in the preferred?" he asks. "If you want people like me who are experts to participate in the policy debate and publish and add their views to the news, and you said to them 'You have to disclose everything -- your personal investments, your personal business, your existing business that would be affected by your views,' the disclosure would be longer than the piece.'" The Millstein & Co. white papers, which Millstein began circulating before the Washington Post essay, note that the firm "may purchase and sell securities, derivatives and other instruments issued by one or more entities which are the subject of this report and may currently or in the future provide advisory, investment banking and other securities related services to such entities and to investors in the securities issued by such entities." Politico Pro first reported the Millstein preferred share investment April 2. Millstein is not the only person who thinks GSE preferred shares are worth a gamble. Hedge funds including Akanthos Capital Management and Bronte Capital have hung onto investments in GSE preferred shares for well over two years . Hayman Capital's Kyle Bass was also very bullish on Fannie and Freddie preferred shares, but then backed out in 2012 after he decided both Democrats and Republicans "wanted them dead.".