The Wrap: Hassett or Warsh to Fed? Big Beautiful Housing Reform? Coin Crime?

In this edition of “The Wrap,” we give you our impression of the big stories of the past week. Each week, we provide our thoughts to subscribers of The Institutional Risk Analyst in advance of our new weekly podcast collaboration with Julia La Roche. 

Yesterday, we gave our Premium Service subscribers a look at the top seven banks – Bank America, Citi, JPMorgan, PNC, Truist, U.S. Bancorp and Wells Fargo. The message, quiet credit on the consumer side of the ledger, but continued pain for commercial real estate and credit. And the top four money center banks continue to climb in the US equity markets despite occasional setbacks with perennial laggard Citigroup leading the way!  Who is our favorite of the top four banks?

The Fed: Kevin Hassett's comments on Federal Reserve independence may have undercut his chances for the top Fed job. President Donald Trump has observed in recent days that there are “two Kevins,” Hassett and former Fed governor Kevin Warsh, who we personally support. Read our essay about how to reform the central bank in The International Economy magazine’s latest issue.

Hassett repeatedly stated that the Federal Reserve's independence is "really, really important". He clarified that while he would listen to the President's opinion if it was "based on data," the President's view would have "no weight" in the official decision-making process of the Federal Open Market Committee (FOMC), which operates by consensus. This statement no doubt surprised President Donald Trump, who will not make a final decision on the next Fed chairman until he does.

Will departing Chairman Jerome Powell remain on the Board of Governors through January 2028, as Mariner Eccles did after his break with President Harry Truman in 1951? Of note, Bill Nelson of Bank Policy Institute says that the discount rate requests from Federal Reserve Banks imply there will be a slightly more hawkish FOMC in January. He writes:

“At the upcoming January meeting, Cleveland (Beth Hammack), Philadelphia (Anna Paulson), Dallas (Lorie Logan), and Minneapolis (Neel Kashkari) will become voting members.  Based on the lack of conforming discount rate requests, it seems likely that Hammack, Logan, and Kashkari would have preferred no change at the December meeting, so three out of four.  By contrast, two of the four non-NY voting reserve bank presidents voted for no change at the most recent meeting.  By that count, the FOMC in January will shift hawkish by one member.”  

Big Beautiful Housing Reform

Meanwhile, somewhere in Washington, a search continues for good ideas to help housing and affordability, hopefully before next November. President Trump has promised a “radical reform” of the US housing market. So far the only policy proposals seem to be lower ST interest rates and pump-proming the market with more credit. But the more President Trump talks about lowering the target for Fed funds, the higher LT rates move, as shown in the chart below.

Even though national average home price appreciation is slowing rapidly, the Trump White House seems to want to boost housing before the mid-term election. But most policy moves to pump housing today will only set the US housing sector up for a serious home price correction in 2027-28.  It's all in "Seeing Around Corners," our 2024 biography of Freedom Mortgage founder Stanley Middleman.

The FHFA just increased the conforming loan limit for 2026 by $26,250 (a 3.26% rise) to a baseline of $832,750 for one-unit properties, up from $806,500 in 2025, with even higher limits in high-cost areas. This increase, announced in November 2025, affects conventional mortgage borrowing power starting in 2026, allowing buyers to finance more expensive homes. If the Trump Administration was serious about addressing affordability, they would reduce the conforming loan limit on conventional mortgages. 

Ed Pinto, a fishing buddy and senior fellow and co-director of the AEI Housing Center at the American Enterprise Institute, has consistently argued against increasing the conforming loan limits. The former Fannie Mae official believes that increasing these limits expands the government's footprint in the housing market, crowds out private capital, and ultimately contributes to higher home prices and increased risk to taxpayers.

Pinto contends that increasing loan limits and easing credit are not genuine solutions to the housing affordability crisis. Instead, he advocates for increasing the supply of housing through local zoning and land-use reforms. FHFA Director Bill Pulte has been meeting with leaders in the housing sector for ideas on ways to enhance affordability, but there are few things that the federal government can do except make the situation worse by increasing already significant subsidies on residential housing for the middle class homebuyer.

Crypto Coin Crime

Across town at the Financial Crimes Enforcement Network, there is a growing awareness that the Genius Act passed by Congress earlier this year was actually a bonanza for criminal organizations who use stable coins to evade anti-money laundering activity. 

The New York Times reported on December 7, 2025, that stable coins are being used by global criminal organizations. “These ‘cash to crypto’ swaps are an integral part of a global criminal ecosystem,” said Sal Melki, deputy director for economic crime at the National Crime Agency.

The NYT is not alone in reporting the surge in criminal activity in crypto, Many other major media outlets and financial analysis firms have extensively reported on stablecoins facilitating crime, including WIRED, Reuters, Riskified, step.org, International Compliance Association.

Financial firms like Chainalysis have also detailed the use of stablecoins in sanctions evasion, money laundering, and scams, with data showing their surging share in illicit transactions.

“Criminals are swapping volatility for predictability: stablecoins tied to the U.S. dollar offer certainty and cross-chain speed needed to scale theft, forcing investigators to shift from post-fact subpoenas to real-time chain tracking,” notes BankInfoSecurity. 

Our view is and has been from the outset that coins of all sorts are a legal, ethical and compliance nightmare. For investors who want to speculate on price movement in coins, using a registered ETF or futures contract is a far better way to participate and avoids the potentially catastrophic legal and financial risk of touching coins directly. Remember, every coin has a blockchain, a road map for FinCEN and other agencies to eventually apprehend individuals involved in elicit activities and their hapless counterparties.

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