Wednesday, December 5, 2007


You know what happens when you get mad at people or things you love, like the GSEs or your favorite pro football team?

You expect certain behavior from them. You feel you are entitled to it and when you don’t get it, you feel you have a right to sound off, because you “care.”

When the star running back on your all time favorite football team fumbles four times in one crucial game, you want to say, “Don’t give to the ball to Willie Parker when the Steelers game is on the line.”

These issues compellingly overlap. Willie Parker should hold onto that football, keep it close, protect it, “cherish it” and never let anyone take it away from him. Just as the GSEs should nurture their franchises, protect them, cherish them, and never let anyone take them away.

But when they don’t, sometimes you just have to call out your homies.

Both Dropping the “Ball”

I complained to all my pro football buddies about Parker’s case of the “fumble-itis” and I am angry at the GSEs recent clunky handling of their charter responsibilities.

Willie Parker will run for well over 1000 yards this season, maybe lead the NFL, and possibly carry the Steelers deep into the playoffs on his legs and his speed (hopefully holding onto the football). But the GSEs clumsy play reveals something that close observers are beginning to suspect. Fannie and Freddie may not be as agile or as managerially adept as they once were and they need only look into the mirror to see who is responsible.

Have Fannie and Freddie been beaten down too much or have they lost too much talent? Do they no longer remember the fundamentals, why they were created and for what? Or is it just that there less than top tier managers piloting the ships and hard times are exposing them?

Someone at Freddie put a ton of questionable mortgages on their books and didn’t do a good job of managing that risky load. Fannie could have similar issues, although not as severe, but someone or some people at 3900 sure lost the book on how to introduce new and positive developments to a skeptical public.

While Freddie was acknowledging record losses, the folks on Wisconsin Avenue seemed surprised when they were questioned about a perfectly reasonable accounting change, that appeared in the quarterly financial documents which finally made them “SEC compliant.”

Fannie seemed caught unawares when analysts and media said “Huh, what’s this about?”

Worse, in a hastily generated conference call, the designated Fannie explainers just added to the confusion with more obtuse verbiage.

The “Fannies” totally failed to introduce and present the change to their various constituencies and then did an abysmal and confusing job explaining it when they were given an opportunity to do so. Thus they made a Fortune Magazine article—written by a long time critic--look more like another expose of ongoing GSE perfidy rather than just a snarky look at a new accounting technique.

Coming within days of Freddie’s announced heavy quarterly losses, Fannie’s accounting faux pas made the company look clumsy and ham handed, two very bad things when you are trying to emerge not only from a sad business chapter but doing so during a very difficult time in the mortgage finance industry.

Hold onto the ball, Willie!


The GSEs boards should look closely at who is at fault in each company’s respective debacle and demand accountability. Someone should be sanctioned (a rolling head or two would help) and comp cuts should be considered both in McLean and Northwest DC to those responsible for these costly and careless adventures. And nobody involved should qualify for end of the year bonus, when their actions cost tens of billions in market cap.

After spending hundreds of millions of dollars and nearly three years trying and reestablishing some of the credibility and respect that the institutions previously had by the buckets full, Freddie’s recent red ink and Fannie incompetence stole much of the healthy momentum.

Did Fannie "game plan" the announcement, did they rehearse (and rehearse, more) the presenters, press people and anyone else dealing with their publics over what to say and how to explain the changes? Did they have a “murder board,” where the prime presenter was assailed with unrehearsed questions from a variety of corporate officials who best know what kinds of details would be raised by media, analysts, and policy makers?

If so, what happened? Where were the adults?

Both stocks are down almost 50% from their 2007 highs, with a big slug of that coming in the past several weeks. Management isn’t responsible for the macro economy, but they do share responsibility for the conditions leading to some of the huge losses in shareholder value in that minuscule time frame. Lots retirement nest eggs and children’s’ college funds got buried, if not wiped out, in this slide into $30 stock prices and who knows if that money ever comes back to investors or lower level GSE employees, who can’t afford to “buy on the dips, as several company officers and board members have done recently?

Thank You Karen and Don’t Look to Lockie

I find it incredibly ironic that it took Karen Shaw Petrou—about whom I have written before in glowing terms re her financial services analytical ability--who has worked closely with and been employed by interests not friendly to the GSEs--to write that the accounting move made sense and Fannie Mae was appropriate in its adoption!

In tough times--and these are those--the GSEs can’t look to their regulator for help, since he is intent on doing as much damage to them as possible, without leaving his fingerprints directly at the crime scene. In the near term OFHEO’s Jim Lockhart forever will cite lofty reasons why he can’t or won’t reduce the additional capital or investment burdens which he imposed on Fannie and Freddie and which he just as easily can remove.

Although, because of his recent shenanigans, I now have found a surefire way to know exactly when OFHEO and Lockhart (one and the same) are “lying.” It’s when you see Lockie’s lips move.

Freddie always has been rumored to have more heavily invested in lower quality mortgages to reap a higher return. That’s OK, if manage those risks, carefully and constantly. Fannie no doubt has some of the same stuff on its books, too.

The different Fannie and Freddie issues bother me only a little bit less than the fact that, rhetoric to the contrary, neither company seems super willing to really dig into the housing mess the nation has encountered. What does “mission” mean to some of these officials?

One fact of the GSE world is that you will be slaughtered either for being a sheep or a wolf and I’d much rather meet my fate as a predator than a lamb chop provider.

There are pitfalls everywhere for those who undertake serious mortgage market initiatives, but that doesn’t mean you don’t do it. You’ll always find plenty of people to counsel prudence. But to many housers taking aggressive market actions is part of what the GSE franchise is all about.

(The Washington Post, which editorialized last week that the GSEs should not be given any new investment authority--ignoring that any current financial problems the companies have are from implementing current not new powers--just awoke to the fact, yesterday, that the GSEs have to manage to conflicting objectives: shareholders want high returns; Congress wants lots of missions activity; and their regulator wants them only to do things that are safe and sound and carry no risk. Gee, Posties, you only are about 15 years late in coming to that fact.)

This is and will continue to be the worst housing devaluation and heavy red ink experience that most of us ever have experienced, save those who lived during the Depression. But mortgage markets will adjust and real estate will survive and come back.

Fannie and Freddie more than ever need the support of their friends in the housing and mortgage finance industries, on Capitol Hill, and in public policy positions. To justify and earn that support, Fannie and Freddie have to step up and help home buyers and those various industries and interest groups when they need help, not when it’s convenient or easy for the GSEs.

Dick Syron, Dan Mudd and their senior people need to focus, prioritize, and extend their grasp and then r-e-a-c-h some more, making sure that they don’t drop that franchise ball!

But I always have believed that doing the former will insure success with the latter.


Steve Blumenthal a senior former OFHEO assistant, before Lockie came aboard, managed to make the news this past week, offering some predictions about his former agency and revealing that he’s now owns Fannie Mae stock.

Blumie predicted that OFHEO never will back away from its GSE constraints. I wish Steve would have talked more about his little guerilla effort against Fannie.

Steve’s name came up--a few years ago--in a most interesting HUD Inspector General’s report. The IG seemed to suggest that Blumenthal and then OFHEO Director Armando Falcon and possibly others, constructed and implemented a strategy aimed at coordinating bellicose OFHEO statements and actions with a variety of Fannie public events when Fannie Mae—through executive speeches or statements--sought to unveil new products or discuss new business initiatives.

The spoilers’ goal, apparently, was to squelch investor interest in the company’s stock and advocates interest in Fannie’s housing mission.

The HUD IG couldn’t quite bring himself to forward this finding to the Justice Department or even to the SEC, which I think still looks askance at people--even Republicans--trying to manipulate the stock prices of public companies, whether it's done intentionally or mindlessly through incompetence.

Steve now is in private legal practice in DC and is a Fannie shareholder (probably projects himself as a GSE expert, too).

I wonder if he owns enough stock so that Lockie’s antics are hurting Steve's wallet. One would hope so. Or does Stevie have a “long perspective,” looking forward to the days when Lockie is back in Texas doing the “greeter thing” and GSE values soar?

Maloni 12-5-2007

Tuesday, November 13, 2007

I Prefer John Wayne, Ward Bond, and Victor McLaughlin

Wow, what a dream sequence. The leaders of North Korea and Iran get into cat fight, slapping and scratching and pulling hair. One hits the other with his purse. A retaliating kick to the shin answers the Gucci smack. Hiss, snarl!

The combatants morph into Andrew Cuomo and Jim Lockhart, more hissing and snarling, even a growl.

I’m tempted to break it up just like Ward Bond contemplated--as Father Lonergan, the wise village priest in “The Quiet Man” movie--when John Wayne and Victor McLaughlin went knuckle sandwich on each other. But, “Father Lonergan” wisely decided not to intervene in such a lovely fight, which was good enough for me.

New York state Attorney General Andy Cuomo’s rumble with OFHEO Director Jim Lockhart never will rival the Wayne/McLaughlin tiff, but the two officials are off to a fun start.

In my dream, I wonder if both guys can lose. “If there’s a God, boy.” I hear Ward Bond rumble in my subconscious!

They Did What?

If you still are in a stupor over the shrinkage of your 401(k), you may have missed that Andy is investigating mortgage lender Washington Mutual’s loan appraisal systems and he has some “concerns.” He thinks they may be inflated or fraudulent and believes there might be some blame to share with Freddie Mac and Fannie Mae, both of which buy loans from the west coast financial institution. Cuomo has subpoenaed the companies for information which he believes is germane to his probe.

Fannie and Freddie have agreed to comply and also name an independent source to double check their systems to see if they were violated.

Is it possible that WAMU--with criminal intent or in collusion with the GSEs--slipped improperly appraised loans past Fannie’s and Freddie’s automated underwriting and detection technology, even though WAMU’s GSE contracts make it financially liable for underwriting errors and put the GSEs on the hook for credit losses from securitized defaults?

Sure. But, I doubt it.

Why Would They do That?

First off, why—after recovering from years of lost business, political and media abuse and suspicions, spending well over a billon dollars on every conceivable back office upgrade, firing anyone who had anything to do with the “bad old times,” proudly displaying their corporate transparency, and touting their return to being “SEC compliant”--would the companies knowingly do anything so outrageously audacious? What reward could possibly justify that risk?

I think the speed with which the GSEs complied with Cuomo’s requests—noting their doubts with his allegations—also argue that they are not afraid of what his inquiry will show.

Lockhart, to his credit, fired back at Cuomo—almost like a good GSE regulator would—and questioned the state AG's understanding of the mortgage securities market, as well as Cuomo’s failure to communicate, coordinate or cooperate with OFHEO in his inquiry. (Lockhart’s response momentarily stymied Cuomo’s staffers when they couldn’t discern which of AC’s hundreds of press releases and dozens of subpoenas issued last week angered OFHEO.)

I assume that Lockie’s response was driven by the GSE operational protections his agency watched installed; AC’s modus operandi; Andy’s political persuasion; the fact that Andy’s is a media hog; and--importantly--because there is some OFHEO-peril in Andy’s fishing trip.

Everyone knows that since Lockie went medieval on them and shackled Fannie’s and Freddie’s business operations, with bureaucracy, additional capital and severe limits on their portfolio purchases, OFHEO has been running the GSEs!

Did OFHEO revert to form, issuing bellicose press releases and threats (Hey, sounds like Andy), while being asleep overseeing the GSE operational switches? When you take de facto control over a company, as Lockie has, YOU make the big calls or have they all run by you. The buck stops at your desk!

Someone might ask if Andrew is onto something, how could this happen under OFHEO’s stifling watch?

But, my chips are on OFHEO and the companies.

Andrew Cuomo is a “#%@#*&#$@!”

Serious political observers know the two words used most frequently to describe Andy Cuomo—at least the words which can be repeated to your mother—are “grandstander” and “irresponsible.” In “Cuomoland,” getting it out always has been more important than getting it right. Apologies always can come later, plus they don’t generate as much news coverage.

Knowledgeable mortgage industry sources still are trying to figure out Andy’s angle. How can Fannie and Freddie make money by cheating themselves and securitizing--or putting in their portfolios--loans with inflated appraisals and, therefore, not worth their face value, especially in the current environment?

Cuomo long has been a politician “on the make,” always looking for any press attention, actively seeking footholds and stepping stones to the next higher office. Given his outsized ego, it’s a wonder he leaves any oxygen in the state for other public officials or the general public.

I often wished that Andrew’s parents had just named their son “Governor, Senator,” or President” and saved the world AC’s constant campaigning for those jobs?

Andy is a GSE opponent—despite what he may claim—starting when, as Bill Clinton’s Secretary of HUD, he developed a severe case of “mortgage operations envy.” It bugged him that the two companies--for which he was part overseer--could do so many positive things so easily, while he had to go through bureaucratic hoops and Congress. He viewed himself as the country’s number one low income housing advocate and he was galled by all of the positive press and attention the GSE executives continually received. His personal dispute with one senior GSE exec didn’t improve his temperament, either.

Andy got his latest “Warhol 15 minutes” last week, at the expense of the GSEs and some Washington public officials. He assisted in tanking the market a bit and probably helped shake up the country's faith in the mortgage finance system, all the while trying to maintain his “choir boy” look. I suspect if his investigation produces anything, it won’t be worth the collateral damage he’s already generated and still might cause.

Someone needs to remind him that the GSE people and cultures he disliked are long gone and his “bull in a china shop” antics may not further his political career.

Like a shark, Andy is drawn to media opportunity, when he smells blood in the water. He has WAMU and now he thinks that going after Fannie and Freddie might make him look more like an avenging angel and also keep the world reading his press utterances. If he’s wrong, he’ll iron it later, having some flunky issue a statement with a prominent “but clause.”

Go Get Him, Lockie!

He also might be crossing a line here, if Chuck Schumer (D-NY), the Chairman of the Senate Housing Subcommittee, who already has been working responsibly and intently on most of these issues, decides that he doesn’t need Andy Cuomo’s “help” to figure out what is appropriate federal policy in the mortgage and GSE areas.

Maybe Lockie should get his tail up to the Hill and work with Senator Schumer on their common interests, one of which might be keeping Andy Cuomo as far away as possible from their business?

Lockie, you are playing with fire, but “Fire” is trying to burn your children and your home. If you are in for a dime, be in for a dollar and fight hard! You don’t want to leave town with your scalp hanging from Andrew’s belt.


(Happy birthday today to Bill Maloni, a great guy who is smart, friendly, responsible, humorous, compassionate, and a good husband, father, grandpa, and friend. Sounds like a great epitaph!)

Maloni 11-13-2007

Tuesday, November 6, 2007

The Joys of Running a GSE!

These Purgatives are Good for the Market

Those little financial chickens continue to come home to roost and the nation is well served by it, as long as the process remains orderly and devoid of panic. It’s what’s supposed to happen when market participants make mistakes and then account for them, literally and figuratively.

The mortgage market is taking its lumps and it may take more, but that is a better process than hiding the errors and mistakes with “fireworks and bobble head doll giveaways” (a favorite ploy of losing major league baseball franchises).

Citi, Merrill, Bear Stearns, UBS and others will live on, either under their own names or taken over by a stronger entity and the public won’t suffer more than they have to date. Some Wall Street and banking jobs will be lost, but as long as that plays out in an orderly manner, relative to the broader economy it should be a minor hiccup.

The mortgage market will right itself in a year or so, with some property value losses, which won’t injure families who bought a house to live in, not as an investment toy.

Returning to a previous theme, though, still more needs to be done for the families trying to make survive and keep their homes while stuck in those upwardly adjusting subprime loans.

Finding those borrowers and insuring they are aware of their available options—and helping them exercise those opportunities--is the best thing that mortgage market professionals can do for the people trapped by those loans.

National Politics

Hillary versus Obama, Rudi versus Romney?

I speculated in an earlier blog that Senator Clinton would come on to wrest the Democratic nomination from Obama. I continue to believe that is what will happen. Right now, it looks like Giuliani may get the GOP nod over Mitt Romney.

But each could become the next President of the United States.

As you think about the next leader of the free world going nose to nose with Mahmoud Ahmadinejad, Vladimir Putin, or Hugo Chavez, which of those four do you think stands his/her ground best and can prevail in personal interactions with the other world leaders?

(Every time I write Ahmadinejad’s name, I think of SNL’s faux 2000 presidential debates with Will Ferrell’s “George W. Bush” character preening and proudly displaying how well he can enunciate the names of foreign leaders and begging to name more!!)

A national columnist this weekend went off on Hillary’s candidacy noting if she were elected, the nation also would get her husband, which the writer felt was a horrible precedent.

I think he is wrong. Who among us doesn’t like a bargain? The nation’s food stores seemed to have pioneered the BOGO or “buy one, get one” marketing, to great acclaim from the buying public. Part of me is enamored with the idea that Bill Clinton would be there as “first mister” to help President Hillary Clinton, if she indeed were elected.

I also think Hillary is smart enough to do things “her way,” not Bill’s if she disagrees with him. And, if Mr. Clinton--while Hillary was President--ever got out of line, in a way that most people assume he is prone to do, then I think she would divorce him (excuse me, “in a New York minute) and earn wide spread kudos for that action!

Hopefully, that step never becomes necessary and Bill Clinton just learns comfortably to stand in Hillary’s presidential shadow, if she becomes the nation’s choice. I think he could be an incredible resource.

Six degrees of Kevin Bacon

Retiring Time Warner CEO Dick Parsons (he’s staying as board chairman), NYSE’s John Thain, Black Rock’s Larry Fink, and John Sites all share a Fannie link (or two).

Parsons was on the Fannie board and Sites currently is a member.

Thain, Fink and Sites all are getting media attention as top candidates for current and pending vacancies at various Wall Street and commercial banking firms. The three also served stints on Fannie Mae’s National Advisory Council.

While I am sure that currently he has fourteen other business irons in the fire—as he usually does--those New York boards seeking a strong CEO shouldn’t look too far past Jim Johnson, former Fannie Chairman and CEO.

SEC Compliant, Goodbye!

Apropos of absolutely nothing, there continues to be rumors that once Fannie and Freddie make current their financial books (in the next few days/weeks), one or both of their top folks could be headed elsewhere.

Question, why would any sane businessman walk away from the joyful GSE executive experience of hanging with Hank, loafing with Lockie, bonding with Ben, howling with Howard and the Homebuilders, fooling Pfontenheimer, wooing Wall Street, rapping with the Realtors, chewing the fat with the credit unions, bowing to your board, fussing with FASB, empathizing with employees, gagging on GAP, jousting with the Journal, leaned on by lenders, moaning over “mission,” seething over ceilings, raging at the rating agencies, offending OFHEO, angsting with Angelo, yawning with Yingling, dueling with Dianne, clicking with the community bankers, hissing at HUD, being bullied by Barney, gabbing over goals, and mooned by the Mortgage Bankers?

Answer? Buller, Buller, class, class…?

Question of the Week?

As noted, Fannie is ready to file its quarterly reports with the SEC this week, thus becoming “SEC compliant.” Freddie, I am sure, will shortly follow suit.

What excuse will OFHEO’s Jim Lockhart, “I am the Lockinator,” use to deny these two companies relief from his twin political decisions to force them to hold 30% excess capital, beyond their statutory risk based formula, and to limit their portfolio purchases to some low number he cooked up with the other zealots.

Don’t hold your breath waiting!

Some people say that Lockie still is cheesed off at Dan Mudd and Dick Syron, because both wore white underwear after Labor Day, which is a fashion no-no in “Lockieland.” (No discussion of briefs or boxers.)

Reportedly, Two Gun still is raging that one of the GSE board members failed to bow “really low” to him, at a recent meeting.

He supposedly called both actions “typical GSE hubris.”


Maloni 11-6-2007

Wednesday, October 31, 2007

Lockie: “You Have the Right to……………”

“Hot potatoes” only can be passed, never kept or the holder gets burned. That’s why to win this game; you need to move them on.

That’s part of what is happening with the subprime investors and all of the schemes to “buy this and transfer that,” with SIVs (wish I had beaten Allan Sloan to the term “Sivilis,” which is so descriptive and for which he earns special honors) and MDOs, etc.

Some of the loans in these securities are just bad and the sooner those losses are posted, the better for the system. (See Bear Stearns, UBS, and Merrill.) Others can be saved—but at a cost, albeit less than full default and foreclosure—by reaching out to those borrowers and re-underwriting them, putting them into loans they can afford and have a likely chance of “surviving,” as their own financial situation solidifies (see Countrywide and a few others).

Other poorly underwritten loans never will go bad, because the people who took them out will bust their guts to make those payments come whatever. Good for them. But those families are a small piece of the 2,000,000 possible subprime mortgage defaults and foreclosure the market faces.

There is a big slug of loans that some investors are hoping get “floated” the traditional way, when the good times return and rising housing values wipe out their mistakes and the housing asset because worth more than the debt. If that occurred, then those subprime borrowers have a viable market option to pay off their notes and have some cash for another house. That, too, bails the big boys out of their mistakes.

Those of you, who see that happening in the next two years, raise your hands, “Class, class, Buller, Bulller…?”

It’s that group of loans where you are going to see a bunch of creative “hot potato” games. No investor wants to accept their failure and nobody really wants to keep holding them for long.

Holding out and hoping for asset appreciation to me doesn’t seem like a viable option, but it is an option. I think the sooner the big boys own up to their mistakes and swallow the red ink, the better for the nation.

There might be some surprising financial failures and major business mergers and takeovers, as the subprime dust settles. But, as many others before me have said and written, you have no market discipline, if the Treasury and Fed just cobble something to protect those who juiced the subprime process, hoping that home price appreciation never would stop, and now have been caught borrowing short and lending long.

Most of the investors are well known large commercial and investment banks. The Treasury should be in close and constant communciation with all of them, monitoring how decisions are being made how to record the mortgage fallout.

Also, when the inevitable takeovers and buy-outs come, I hope our federal financial regulators don’t forget all of their “systemic risk” and the “too big to fail” concerns which they freely have applied to the GSEs, whose business activities seem quite mundane compared to what the really big guys have done.


Do you think I’ve forgotten you? No way man. Happy Halloween!

(BTW, nice mask; hope you get plenty of goodies tonight.)

Did your minions really inquire at the GSEs if someone there was feeding me information about OFHEO?

I am glad that I’ve apparently pierced your annoyance threshold, but what did you see in my blog blatherings that could have reflected someone “dropping a dime on you or your troops?”

I couldn’t name twenty current officers at either Fannie or Freddie and the ones I do know I couldn’t tell you what they’re working on and to whom they report. I can’t tell much about their business initiatives, either, other than it looks pretty “vanilla” and tame.

If such an inquiry was made, it is even sillier when you look how I blog. I comment on what I believe are ideological and partisan regulatory actions, which are discussed in the national and trade media every day. I put them in the context of what I know about congressional/national politics and then offer my opinion, with a dash of humor.

Where, in anything that I have written, can you find “OFHEO secrets” (I was going to say “intelligence,” but that’s an oxymoron) regarding agency interactions with Fannie or Freddie?

Must have been a slow day at the office, when that one was hatched.

What were you going to do, send Alfred Pollard and David Roderer (two old friends/colleagues, now OFHEO lawyers) over to “waterboard” me??

C’mon Lockie. Don’t rendition me, Bro!

David Maxwell

Best wishes to former Fannie Mae Chairman and CEO David O. Maxwell, a formidable figure with great character and intellect, for a prompt recovery from elective bilateral knee replacement surgery.

David decided he needed to exchange the knees God gave him for a new set of bionic ones, to insure that he could continue to win senior tennis tournaments when he turns one hundred, still more than a generation from now.

The jury still is out on whether David should have had those skulls and crossbones tattooed on each of the new knees. But if it unhinges your opponents, I say go for it!

Maloni 10-31-2007

Thursday, October 25, 2007

Stein and Operation Noriega

Hold onto your under britches, Aunt Gertrude, the world is going to turn upside down because I am about to agree with a Wall Street Journal mortgage editorial. Well, not the entire editorial, just one line or so.

That’s the bad news; the better news is that a far superior writer, economist, and voice of reason said the same thing, but better and earlier in the week. So let me associate myself, first, with that writer’s observation, but in fairness--a commodity not often seen at Mr. Murdoch’s newest toy--let me note that the WSJ said the same thing this week, albeit as part of a far longer diatribe against something useful.

In that context, let me again recommend the work of Ben Stein, writing in last Sunday’s New York Times business section (sorry, don’t have the authority to provide a link), in which he sought to put into perspective what’s happening in our economy and more narrowly in our real estate markets.

Stein argues calmingly that most of today’s familiar housing/mortgage finance problems are manageable. Certainly there will be financial losses, but if they are experienced by right business interests, then the market is working and those companies are big enough to swallow their red ink.

In the case of subprime mortgages, Stein--as did the Wall Street Journal on Wednesday--demanded more focus be put on saving the families stuck in those contracts, not the lenders or the investors.

That’s a perspective with which I agree and which is quite doable, if the lenders and investors have the “cajones” to walk the walk, not just talk the talk.

Angelo Mozilo and Countrywide seem, not surprisingly; to have stood up first and tallest and said that they were going to try and reach 75,000 families and, in helping them stay in their homes, help themselves. I have no problem with that self interest and expect that Countrywide’s effort will produce far more positive developments than those who just want to make an announcement and say “I/We plan to help, too.”

The key to providing assistance is contacting the mortgagors who can be helped (not all fit that description) and walking them through the steps necessary to get into new mortgages. All of those servicers, who the mortgage investors use, should be beseeching those subprime borrowers, now, and alerting them to the options available to them. The trick is that the help available may not be with the companies which made the loans, so somebody is going to have to rise above their selfish interest and point some of these vulnerable creditors to other resources.

The market could do far worse than emulate Mozilo and Countrywide.

Friend Ben Stein is not a big fan of last week’s $80B Paulson/Wall Street announcement, since it’s a Wall Street/big bank sop to…Wall Street and big banks. But you should read Stein’s views yourself regarding that puppy.


The Mortgage Bankers Association tickled me twice in a little over a week.

The first time was when on of their subcommittees, meeting at the annual MBA convention in Boston, argued that Fannie and Freddie should not be allowed to finance jumbo mortgages or those larger than their OFHEO-approved $417,000 single family ceiling.

Flash back a few weeks ago, when MBA leaders and staff were running around Washington beseeching everyone who would listen, about the need to create more jumbo/non-conforming liquidity and urging the GSEs to do just that.

Do you think the membership knew their paid and elected officials were doing what they now say is undesirable? Is someone in MBA being duplicitous or is someone being hypocritical?

The MBA’s public position will last until the next time the commercial bank/Wall Street investors run from the jumbo market and help is needed.

The other MBA generated laugh comes from the trade group’s opposition to Chairman Barney Frank’s legislation requiring mortgage broker registration and brokers to discipline their offerings to the public. Please note that independent brokers are hired by lenders. Brokers get paid to find and underwrite potential borrowers, ”upstreaming” the applications to their lender employers.

It's a faster process. But, it’s a documented fact, even in good times, that broker generated loans perform worse than those produced by in-house employees or underwriters.

The bill was fine for the Mortgage Broker Association, which supported Frank’s legislation, but the Mortgage Bankers bleated about how such an action would change western civilization as we know it, bringing floods, droughts, locusts, whine, whine, whine. (You know the lines.)

How narrow and short sighted.

How can any systemic good come from the subprime experience and meltdown, if those with their fingerprints on the murder weapon can’t be sanctioned or re-directed?

With apologies to old tax writer Senator Russell Long, for marginally corrupting his famous statement about finger pointing when looking to raise revenues, the MBA is suggesting, “Don’t regulate you, don’t regulate me, go regulate the other guy behind the tree!”

Operation Noriega!!

The Bushies don’t do GSE regulation well, but their ideological skull duggery skills are right up there with the best.

There are fresh allegations that the DOJ sent out some political hit man to kneecap a prominent Democrat, just because he wasn’t of their party. But this time, it’s not the DNC, DSCC, DCCC, or some scrunchy liberal labor scalawag uttering those charges.

It’s a member of “the club.”

Look at the testimony this week, before the House Judiciary Committee, by Dick Thornburgh, former Reagan and Bush Attorney General, former GOP Governor of Pennsylvania, and as loyal and rock ribbed Republican as you can find.

Thornburgh is representing a prominent Pittsburgh area Democrat, County Coroner Cyril Wecht. The US Attorney has charged Wecht with a variety of nickel and dime charges, but Thornburg has focused on the timing of the charges and what some could read into that timing.

Wecht has been a 40 year fixture in Western Pennsylvania Democratic politics and is an internationally known forensic pathologist, often employed—privately—in headline making cases. (Dr. Wecht welcomes the limelight and handles it well.)

In his testimony, Thornburgh suggested that Wecht—in my words, not his—got swift boated because he was a “D” and nothing else. The formal charges against Wecht involved mileage reimbursements, use of his official fax machine, etc.

The “blogs,” however, went further and suggested that the indictment was a DOJ effort to help a beleaguered GOP Senator. Republican Sen. Rick Santorum, also from Pittsburgh, was in a tough re-election race (which Santorum lost). The thought was if the US Attorney could indict a prominent local Democrat, it might call into question the entire Democrat organization and help Santorum’s failing campaign.

The entire House hearing this week dealt with a variety of similar charges that the Bush Administration employed political retaliation against political enemies through Cabinet and regulatory agencies.

Other committee witnesses documented that the DOJ, under Bush, has tried to indict five times as many Democrat office holders as Republicans.

To read a little more of the same—but in the world of mortgage finance--check Frank Raines legal filings in his fight with OFHEO and his references to “Operation Noriega,” which was what one Administration participant labeled the effort to find Raines and Fannie guilty of something.

It astounds me, when people claim that this administration would never stoop to the unsavory “hurt the other party” lows, which show up in the Judiciary Committee’s hearings and Raines documents.

But, following all of the Bush “World War lll, Good job Brownie, Bring him on, I’m the decider, weapons of mass destruction, Saddam/Al Queda, I looked into his heart,” plus a daily ration of lying, distortion, misstatements, false statements, duplicitous and self serving statements, how can anyone reasonable person think that the Bush Administration is above character assassination, based on someone’s political differences?

Maloni 10-25-2007

Tuesday, October 16, 2007

Sword of Damocles or Damn Sword?


Whether it’s consuming the latest developments in the lives of personalities we adore or abhor, like Pamela Anderson, Lindsay Lohan, and Brittney Spears, or blogging about the conservative hordes going after the GSEs, certain behavior drives some of us to compulsive responses.

Now, anyone infatuated with the above personalities or topics will claim they have “no problems” and their interest is “normal.” But, the truth is that we watch each new incident and development and file it in a compartment which, generally, supports our predisposition and then we cite the new event as proof that we have been right all along.

But, in defense of we the obsessed, the “perps” make it so easy for us to become entranced, repeating the same bizarre acts over again, confirming the reason we are interested in the first place!

Think of Pamela Anderson’s marriage partners and her links to porn tapes or performers in same There's Lindsay Lohan, who already has “dried out” more times than a rented Ocean City beach umbrella, and who called her recent session “sobering.” Brittney Spears has had multiple and very vivid setbacks this year and that was before she shaved her head and the court took away parental control of her two sons!

I’m no different than the average Lindsay, Brittney or Pamela Anderson fan, save I prefer to spend my time cataloging what I think are outrageous, odd, punitive and ideological offenses that GOP interests and Administrations, most notably the current one, have carried out against the GSEs, since the early Reagan days.

Now here is where I have to offer my standard caveat. Yes, there have been any number of GOP Senators and Congressman who have not aided that effort, but they have been in the numerical minority and have found it tough to overcome the instincts and actions of their political cohort. I salute these “menschs” (I know that most aren’t Jewish, but the word fits) whenever I can, because--when they stand up inside the GOP--they are outnumbered and face a harsh ideological blowback.

The Democrats

Therefore it always has fallen to the Democrats--and will again--to preserve the key elements of the mortgage finance system and stop the Bush White House, now, from manipulating their regulatory primacy to scuttle Fannie Mae and Freddie Mac, two players in the mortgage finance system which most agreed have worked fabulously, as the subprime market and the “jumbo” mortgage markets suffered various degrees of failure and still are impaired.

Based on last week’s media reports, the D's are going to have to get to work, again. The two companies have come into the Bush cross hairs and the conservatives are considering regulatory plans to rock the structure of the GSEs, drain them of more working capital, citing “safety and soundness concerns,” and give Treasury control to govern (read "limit") the GSEs debt raising.

I guess while they “negotiate with the Hill” on one hand, the Bush Administration wants to construct a “sword of Damocles”--to hang over GSE heads--with the other.

It will come a no surprise to most who read my blog that I believe on every major policy issue, including Afghanistan, the Iraq War, Korea, Katrina, global warming, tax cuts, Valerie Plame and Joe Wilson, children’s health insurance, vehicular mileage standards, immigration, Guantanamo prisoners, domestic wiretapping, the firing of the US Attorneys, and many more, the Bush Administration has misled the American people consistently and distorted the positions of their opponents.

They Do Lie and A Lot

The Administration fabricates even to its own guys, withholds documents and facts, creates fanciful precedents (“the Vice President is part of no unit of government”), threatens whistle blowers, and tries to intimidate and otherwise bully those who disagree with them, all this while the “Leader of the Free World”—if one of his former aides can be believed—used his valuable time with Vladimir Putin arguing about chicken parts.

With this sorry history in mind, why does anyone think that this White House, Treasury, or OFHEO will be any more honest when it comes to GSE matters?

If the news reports are accurate, those in Congress laboring on GSE legislation should be major league PO’d—like gut wrenching, “I want to blast your nose into oblivion” mad--if Treasury tries to scuttle Fannie and Freddie debt raising activities and OFHEO suddenly decides that the GSEs still don’t have enough capital.

That’s “bad faith,” but I guess the Congress is used to seeing that. Plus, those regs—if put in final form--will hurt more than Fannie and Freddie.

Note to the world: OFHEO and its puppet masters never will believe that Fannie and Freddie have enough capital or enough constraints, certainly not in God’s lifetime!

As long as OFHEO is the GSE regulator, you will have guerilla warfare carried out by the regulator--with plenty of support from its political soul mates—because this OFHEO head thinks the GSEs should exist as only a shell of themselves, if at all.

The House has spent more time than the Senate trying to cooperate with the White House on GSE legislation. Yet Barney Frank’s hard work basically would get kicked to the curb as Paulson and Lockhart (or whomever in the White House is pulling the strings) tries to steamroll, via these proposed regulations, the legislation on which the House spent great time trying to construct a rational GSE regulatory paradigm.

The Senate--maybe realizing that the crew downtown speaks with more forks in their tongue than a two sets of table wear--has not drafted its “Chairman’s mark” dealing with GSE regularity restructuring and may never do so, given the new White House perfidy.

The Bush Administration could be engaging in well known tactics, saying one thing to the Hill about the GSEs regulatory future, while simultaneously considering new regulations to strangle Fannie Mae and Freddie Mac.

I am not sure what the solution is, but I believe that the congressional leadership, Senators Dodd and Schumer and Rep. Barney Frank and their colleagues—on both sides of the aisle--are up to the task and won’t be cowered or conned by the Administration’s brazenness.

If not Reason, Maybe a Stake in their Heart Will Do It?

Language in appropriations bills banning use of any appropriated agency dollars to implements regs of this sort may be one consideration the Congress should examine in dealing with those with those who insist playing only by their rules, rules which have left a lot of domestic and international ruin and unhappiness in their wake.

Lockie and his friends don’t like being challenged or criticized and--with this latest “in your face, Congress” maneuver--seem open in their disdain for the legislative process.

After years of meeting/exceeding their capital requirements and also achieving a multitude of affordable housing goals--representing 55% of their annual business volumes--Two Gun still can’t find anything good to say about the GSEs.

Yet, after trumping their “systemic risk,” in an exercise two years ago which allowed him to raise Fannie’s and Freddie’s required capital by 30%, Lockie may now decide that the companies still are short another $10 billion in capital or so, just when Treasury decides that Fannie and Freddie need to jump through hoops and get Treasury’s permission to go into the debt market for working capital.

The reported regs--if successfully implemented--will achieve some primary objectives in the Bush agenda, load the GSEs up with unnecessary costs and make them slog through regulatory delay. That will make Fannie’s and Freddie’s business operations more expensive, not to mention the cost of the homes they help finance, and slow down their operations and injure their competitiveness.

So the President’s men decide the best way to treat Fannie Mae and Freddie Mac, which didn’t abandon the mortgage markets, didn’t ignore their missions, and didn’t walk away from mortgage commitments--as so many others did over the past 6 months--is to assault them through the regulatory process. KnowwhatImean?

And just who do our erstwhile public servants seek to advantage, when they get done working over Fannie Mae and Freddie Mac? “Class, class, Buller, Buller…..?” Why, it’s the spoilers, the gang of mega-commercial banks and Wall Street firms who bragged for years that they were the equal to the GSEs and argued they were primed to replace old dumpy consumer friendly, fixed-rate-mortgage-facilitating Fannie and Freddie, if only given a chance.

Well they got their “big chance,” when the mortgage market gagged on the subprime seeds these same guys had planted. The Fannie/Freddie wannabes’ resolve got tested and the GSE pretenders responded by going limp, feigning injury and hauling butt to the safety of the side lines, where some still hide.

Those looming subprime financial losses can’t be dodged for long, but most of this White House crew will be well into their next careers when this red ink finally hits the investment houses, the big commercial banks, and possibly the American people.

Anticipating this, a bipartisan majority in Congress can’t allow the Administration’s anti-GSE ideologues to plunder Fannie Mae and Freddie Mac, leaving the nation’s homebuyers without these major homeownership resources, when the butcher’s bill comes due.

Maloni 10-16-2007

Monday, October 8, 2007

“Stinker,” A Tutorial on Misusing Systemic Risk

Before earning great acclaim as a prominent anti-smoking and health care advocate, Joe Califano not only was President Jimmy Carter’s Secretary of Health, Education and Welfare--before the agency was renamed “HHS,” for you kids out there--but he was also a very capable assistant to President Lyndon Johnson and played a significant role in privatizing Fannie Mae.

Califano told me about his responsibilities in 1968 when, in the midst of the Vietnam War and domestic spending challenges, Lyndon Johnson did not want to be the first American President to send the Congress a $100 billion spending budget. The President tasked Califano to make the budget come in below LBJ’s perceived “political third rail” budget figure.

The aide repeatedly went over the draft federal budget and finally identified some 30 domestic items and functions which—if he could get the Congress to end or remove them as government obligations—would allow the Johnson budget to fall under the magic number. One of these proposals was selling Fannie Mae to private investors. Since the Roosevelt days, Fannie Mae--part of the Department of Housing and Urban Development--had acted as a secondary mortgage market for government backed mortgage loans.

Califano said that he intentionally chose the Fannie Mae idea as a “lightning rod.” Knowing it was such a congressional favorite, he assumed Congress never would allow the agency to be jettisoned. It was a “stinker,” something that stood out by design and which Califano included it in the package, believing that later he would acquiesce to congressional pressure and “reluctantly” take Fannie back keeping it in government.

That was Califano’s plan. He really was hoping that Congress would rage over Fannie and that it would draw all of the congressional fire, while he managed to preserve the balance of the cuts so that he could meet President Johnson’s budget goal.

To Califano’s surprise, the Congress bought all of the proposed changes. Congress restructured Fannie Mae as a private company—with authority to purchase and securitize conventional, i, e, non-federally insured or guaranteed mortgages—and in 1970, the new privately owned and managed company first was traded on the New York Stock exchange under the symbol FNM.

GSE Systemic Risk Stinks or Is It a Stinker?

What brought Califano’s political strategy to mind is the noise now coming out of various Administration spokespersons, bleating about the “systemic risk” language, taken from the House passed GSE regulatory reform bill, when Financial Services Committee members Melissa Bean (D-Ill) and Randy Neugebauer (R-Texas) convinced 381 of their Democrat and Republican colleagues to vote for a floor amendment removing the White House required boilerplate.

The original Administration language, which Bean, Neugebauer, and their House stalwarts wisely quashed, 383-36, had no parallel in other financial services regulatory regimes. It would have allowed the new GSE regulator to employ “systemic risk”--a very subjective term hatched and husbanded by the Greenspan anti-housers--to legitimize any actions a GSE regulator chooses to take against the companies.

The now excised provision would have given the GSE regulator broad latitude to apply regulatory sanctions, employing a rationale which might have nothing to do with Fannie Mae’s or Freddie Mac’s business operations, but merely was the regulator’s perception of broader amorphous threats somewhere in the financial services world.

Could today’s “systemic risk” be masquerading as Califano’s forty year old “stinker?”

Are Paulson, Steel, Lockhart, Bernanke (yes, he has finally earned his “Junior Bushman GSE Badge”), and others--who insist on return of that language—talking for real or are they just engaging in a feint designed to position themselves for more extreme demand later, in the inevitable compromise when/if the Senate passes a GSE bill and a conference occurs?

Maybe they are, but then again, maybe not.

“Systemic risk concern” employed by this White House crew sounds a little like them defining pornography, “Um, trust us. Lockie’s successor will know what systemic risk is when he sees it. KnowhatImean?”

This speech excerpt is a pretty fair description of some recent and real systemic risks.

Shortly after the August FOMC meeting, however, financial market conditions deteriorated considerably further, following events that shook investor confidence, particularly in complex structured credit products. The disruptions to nonprime mortgage markets became more severe and problems even extended to high-quality loans, as rates for prime jumbo mortgages jumped after the secondary markets for them shut down. Importantly, the disruptions also spread beyond the mortgage markets. Most notably, investors' concerns about exposures to subprime mortgage credit risk caused them to shun commercial paper that might be backed by such assets, in both Europe and the United States. This aversion, in turn, meant that commercial banks that had written backup liquidity lines for commercial paper programs or had other connections with these programs might have to make good on their actual or implied support by extending credit. With leveraged buyout credit and some mortgage originations also possibly staying on the balance sheet unexpectedly, the banks faced substantial, but uncertain, calls on their liquidity and capital. All this uncertainty led the banks and other short-term lenders to turn very cautious; interest rates on bank deposits and other sources of credit beyond just a few days rose steeply, funding in money markets became concentrated in the very short term, and concerned and uncertain lenders generally became much less willing to extend the credit needed for liquid and efficient financial markets.

Those words were part of a talk delivered last Friday, Oct. 5, to the Philadelphia Chamber of Commerce, by Fed Vice Chairman Don Kohn. To his credit, Mr. Kohn did not try and blame the housing GSEs for these broader systemic challenges in the wake of subprime mortgage problems.

Garage Sales in McLean and at 3900

For years, the Bush Administration and their conservative think tank and media friends have labeled Fannie Mae and Freddie Mac as “systemic risks,” wrongly in my oft stated view.

If the current OFHEO had additional intervention authority, based solely on the Director’s systemic risk allegations, there is little doubt in my mind that the two companies boards now would be presiding over giant “garage sales”--in McLean ,Virginia and Northwest DC--hawking the GSEs furniture, drapes, pcs and cafeteria supplies at deep discounts. That is the level of disdain and political animus that the Bush appointees and their allies have for Fannie Mae and Freddie Mac.

The GSE opponents have tried very hard to make that case employing every communications and political trick at their disposal. I wonder if it ever has occurred to them that the reason they have failed so far is that they are wrong. Despite all of the mud, slurs, allegations, and heavy handed mugging, the two companies are well capitalized for the risks they take and operate soundly in their secondary market niche. They add value, plain and simple and most reasonable people seem to agree.

It also is why the Congress--primarily the Democrat leadership of the House Financial Services Committee and the Senate Banking Committee--can’t get fooled by the White House’s histrionics over what it “insists” must be in any bill which Congress passes. The last time I checked “W’s” party didn’t win the midterm elections and should get no grander seat at the table than the Democrats were given when the President was riding high and his party controlled the Hill.

In its arrogance, this White House would have the Congress ignore 383 votes in the “people’s house” against using systemic risk as a regulatory justification, plus years of the Senate’s own political wisdom. The Administration instead wants to tell us how “close” Congress is to producing a good GSE bill, if only it would “add this or put back that.”

It’s a “mug’s game.”

The anti-Fannie/Freddie financial crowd sits like jackals, hungering for the remains of a successful Administration hit on the GSEs, desperately wanting the new regulator to have some new power to add greater capital burdens to the companies or allow more interference in the product choices or initiatives. They'll take whatever GSE grief they can hustle.

This GSE fight always has been about money and which mortgage players will finance and hold the lion’s share of American home mortgages. The White House spins scary tall tales and hopes more mortgage financing and investing gets done by their Wall Street cronies and much less by the GSEs and their lender partners.

The Congress should never forget that the White House favorites in this conflict are the same unreliable mortgage interests who brought you the subprime and “jumbo illiquidity” messes, when they skittered and skulked away from the broader mortgage market as their subprime chickens first started coming home to roost.

Here is where that “stinker” comes into play. Either the “systemic risk” issue is a “stinker,” a phony issue stalking for something else they really want or it’s an ideologue's fondest dream, which the bad guys refuse to give up and the good guys can’t give them, in any way shape or form.

Remember, They Excel at Deceiving

Let me suggest one small note of political caution to the Democrats.

The WH will tease and offer carrots forever: “If the GSEs just did this to their books or did that to their securities, we will consider taking off their handcuffs.”

Don’t buy it. On these matters, they are not honest brokers nor have they ever been.

Just as they are talking with the Hill over elements of a GSE bill, the Treasury tries a sneak attack to hamstring the GSEs debt raising activities suggesting additional hurdles to efficient market access. That's "good faith?"

Responsible parties enter the debt markets when rates and conditions are optimal--and the timing for that changes hourly or more often--not when some Treasury GS 13 responds to a GSE debt request, following his/her morning latte break!

“Tomorrow is promised to nobody,” especially public officials. Even if the Democrat congressional majority thinks that the 2008 White House race already is in the “Blue bag,” its way too soon to act on it, even if they are correct.

Congress should not write comprehensive GSE legislation, now, contemplating that a more thoughtful, progressive, pro-housing regulator might oversee the companies two years from now. It is better to write legislation as if “Freddy Kreuger” is going to be the new GSE regulator—you know, someone like Lockie needing a manicure—rather than a housing soul mate to Mother Theresa.

“Stuff” happens!

The Congress can’t make it easy for the Bush Administration, thinking it won’t be around for long. Even a new GSE regulator needs a leash.

Offer Them What They Deserve

Consider giving the WH a “thin bill” now and, if the Democrats prevail in the 2008 elections and return as the majority, the Congress can complement any work done now or complete the job in 2009 with “a technical corrections package.”

Or, don’t give the Administration anything. Wait it out. Let Lockie whine to the appropriators and justify his budget and agency activities, until the White House/Treasury/OFHEO stop inviting you to shoot craps with their loaded dice.

In the meantime, expect the anti-GSE pack to continue their wearisome howling and guerrilla campaign against Fannie Mae and Freddie Mac.

Why shouldn’t they, most of them already own a home or two?

Maloni 10-8-07

Thursday, October 4, 2007

Please Keep Saying No, Lockie!


Can anyone who attended last week’s Brookings Institute panel discussion, featuring former and current Treasury officials Bob Rubin, Larry Summers, Robert Steel, tell me if Treasury Undersecretary Steel’s nose got longer, when he claimed that all Administration GSE policy is based on substance, not politics?

Where has Steel been and what was he watching for the past 6 years, or did he miss it all?

While I may have fallen from a hay wagon, it certainly wasn’t last night. When was the last time that ANY major policy issue was decided in Washington, without employing politics? Try “C,” meaning “never.” (Those multiple choice answers always are “C,” right?)

Any banks looking to sell their Florida subprime REO might want to contact Pinochi……, er Undersecretary Steel, at 202-622-2000. With that mindset, be could be a heavy investor.

Poor “Steelie,” a true Bush loyalist. He does a Brookings panel discussion with former Clinton Treasury officials and he gets ripped by Bob Novak for being a "closet Democrat."

(Think Lou Reed and “Walk on the Wild Side.)

“And the Treasury Undersecretary says politics never comes into play when the Bushies make GSE policy, doot, todoot, todoot, todootie, doot…”

“Hear Me Roar”

Every time OFHEO Director Jim Lockhart plays his tough guy part and says “no” to Senators Chris Dodd (D-Ct.) and Chuck Schumer (D-NY), and Rep. Barney Frank (D Mass.), he makes my day. Now he’s taking on Majority Leader Harry Reid and Speaker Nancy Pelosi.

That could put him on Whoopi Goldberg’s hit list? (See "The View" interview with the Speaker.)

Lockhart’s intransigence, belligerence, and political posturing have the effect, like nothing else, of driving the Democrats to insist on GSE policy changes that work for the mortgage market and consumers. He won’t be able to bully those officials or filibuster them out of their objectives.

As rumors grow of the Senate Banking Committee leadership working on GSE reform legislation, Lockie produced a timely Market News International interview, reminding the world of the Bush anti-GSE agenda and the same-old, same-old “the GSEs are still weak” story line. (It’s amazing how “available” these guys are when they want to spew negatives about Fannie and Freddie.)

In the interview, Lockhart did his best “Don Quixote” tilting at a threatening windmill and wailing and lamenting the language knocked out of the House-passed GSE regulatory restructuring bill—by a huge bipartisan majority, 383-36—which would have allowed a future regulator to use “non-GSE systemic risk” or other issues NOT related to Fannie Mae and Freddie Mac operations as a justification to thump the companies.

(Think Lou Reed and “Walk on the Wild Side.)

“And the Treasury Undersecretary says politics never comes into play when the Bushies make GSE policy, doot, todoot, todoot, todootie, doot…”

Many think that OFHEO seems to have plenty of clout to ride herd over Fannie and Freddie, even without that draconian authority in their regulatory closet. Lockie even brags about his ability to do that. Once again, the GSEs quietly have exceeded their quarterly capital requirements, as per OFHEO, and, oh yes, exceed their annual housing goals, as per HUD. But, Lockie never mentioned either of those two facts in his talk with the reporter.

I keep trying to think of an analogy which might make it easier for Lockie and his crew to understand why 383 House Democrats and Republican’s—that’s roughly nine tenths-- joined on the floor to knock out the White House’s overreaching language from the Committee bill.

Quarterpounder and Hershey Chocolates

Is it analogous if the D‘s decided that the FDA should have the authority to end all federal support to the cattle industry, if the agency didn’t like the price of McDonald’s Quarterpounder? Is it analogous if Agriculture Department could trash all sugar subsidies, because Hershey’s Christmas packaging offended the Secretary?

Are those out of kilter examples of causes and effects clear enough to help OFHEO understand the regulatory overkill which the Bush Administration wants to give OFHEO and why the Democrats will not give it to them?

What reason does the GOP see for giving OFHEO this death ray regulatory weapon other than to hope the agency does greater operational damage to the GSEs than they’ve attempted so far?

C’mon Two Gun admit it, the R’s have been trying for 25 years to knock the GSEs out of the batters box by whatever means possible. Now you are upset because D’s and R’s in the House wouldn’t let you cite the sun, stars, the rain, and the number Texas criminal executions as possible reasons to curtail Fannie’s and Freddie’s mortgage operations or jack up their already excessive capital?

Think Lou Reed and “Walk on the Wild Side.”

“And the Treasury Undersecretary says politics never comes into play when the Bushies make GSE policy, doot, todoot, todoot, todootie, doot…”

Lockie, who pretends to have no influence over GSE daily business operations, takes interview credit for keeping the GSEs out of trouble in the subprime mess, ignoring the fact that most of that product didn’t fit even the most diluted conditions under which either Fannie or Freddie would finance those mortgages.

Star Trek

Let’s see Mr. Director, did you employ your “Vulcan mind meld” to get that job done or are you taking credit for something the companies, wisely, did on their own?

The Director repeats the canard that the GSEs still are operationally weak and may need until next March before he might consider relaxing the politically motivated portfolio caps/limits, pushing that carrot out front a little further. In doing so, he totally ignores the fact that, by next March, he might not be in a position to help. He well could be spending his days greeting customer at the new WalMart bathroom fixtures store in Bugtussle, Oklahoma.

Go-o-o-o-d morning WalMart shoppers. Howdy. Hot out there, ain’t it. KnowwhatImean?

“Lookie, lookie here. I know you folks want to talk about other things, but first I got to ask you if you be the first ones in your neighborhood to own this hot new product, just come into the store? Hee-hee, KnowwhatImean? We call it our” stomp, wash-and-blowamatic,” a genuine Ginzu shower stall—just like you seen on TV-- complete with a kettle drum, three spritzers, a gentle air blaster, plus an optional bar of soap for you traditionalists.”

Now, thank you for visiting our newest store in Bugtussle. Don’t forget to spend a bunch.

As an aside, I wanted to answer your many questions about my time in DC and the guv’mint job my good friend “W” got me. Now you heard that I told some interviewer gal that Fannie Mae and Freddie Mac were a risk to this nation because of their “sheer size.” That’s right, they’s bigguns.

Now there are some other big ol financial boys out there, in fact bigger than Fannie and Freddie. Some are a lot bigger. We called those “fat bigguns.” But, heck, we didn’t worry nothing about them. They’s ours and we don't know if they are risky or not, since nobody ain’t never asked for one of them to get a sandpaper forensic accounting exams. Shoot, I spect that most of the fat biggun financial service companies don’t never get checked out, let alone have their innards flip flopped by hundreds of accountants and auditors, like ol Fan and Fred.

Some people, mostly them Capitol Hill Dummicrats, think if we ever did the same kind of work up on our fat bigguns, like we did Fan and Fred, we would come up with a whole mess—ooops, excuse me—a whole lot of problems that need fixing. But why ever would we do that? They’s usn’s, while we know that Fan and Fred belong to those D-boys over there. Nope, that ain’t never goin to happen. KnowhatImean?

(Think Lou Reed and “Walk on the Wild Side.)

“And the Treasury Undersecretary says politics never comes into play when the Bushies make GSE policy, doot, todoot, todoot, todootie, doot…”

Maloni 10-04-2007

Sunday, September 23, 2007

'The GSE Shuffle"

Lockie Antoinette: “No bread? Let them eat… mbs”

Dr. Lockhart Kildare: “Here, take two of these ‘percent thingies’ and call me in February.”

Professor Paulson: “Yes they can help, but first they must bend over and..…!”

Field Marshall Bernanke: “Whatever you do, just make it short and quick. Don’t hurt me.”

“Dodge, feint, and back around. Parry, thrust, and don’t make a sound. Kneel, bend, and stalk real slow. Bob, weave, and pretend you don’t know. Rise up, give in, and show no hate. Spin, talk, prevaricate….now you're doing the GSE shuffle.”

The GSE Shuffle,” lyrics by B. Maloni, music by you.


If you were a bit confused reading or hearing the Bush Administration’s frantic GSE policy maneuvering last week, shortly after HUD announced both companies had met their most recent affordable housing goals, you are not alone.

Nonetheless, just call the results a win for the GSE good guys.

After fending off so many congressional demands to “unleash Fannie and Freddie,” bringing additional liquidity to today’s mortgage market problems-- and before he gave in a scosh--OFHEO’s Jim Lockhart just ran out of excuses for not doing what Senators and Congressmen were demanding.

The pressure on his was so great that Lockie, reportedly, was answering every phone call, saying, “I am sorry Mr. Chairman, but we can’t……,” even, the day the call wasn't from Capitol Hill.

“I am sorry, Mr. Chairman...oh, hello dear. Of course I am not caving. I’m am just using reverse psychology. Yes dear, I won’t dear. Yes dear, me too, dear. I promise. Um, goodbye Mr. President! Hey, hey, don’t forget that good WalMart job for me. KnowwhatImean?”

OK. It's just a joke!

That particular conversation never happened and my cynical treatment is designed just to exploit humor. Of course. Lockie doesn’t call the President “Dear” (at least not that I know of) and I have no personal idea about “Two Gun’s” vocational aspirations with WalMart.

But it was heartwarming watching Lockhart, Paulson, and, yes, Bernanke dance as they realized that neither the market nor political momentum supported their hardline, “We will not employ the GSEs, ever” campaign.

It also is hard not to be derisive and snicker at their new positioning, especially when you consider the long record of Admin and Fed misstatements, tall tales, and abuse aimed at Fannie and Freddie.

Thumbs Up, Chris, Chuck and Barney

Senators Chris Dodd (D-Ct.) , Senator Chuck Schumer (D-NY) and Rep. Barney Frank (D-Mass.) deserve the greatest credit for causing the WH turnabout. Kudos also go to the companies, their industry supporters and others both, in and out of Congress. Nobody backed off their legitimate conviction that Fannie and Freddie can be part of a market solution to today's subprime and jumbo problems.

That spirited advocacy forced the Bush White House to realize that Fannie Mae and Freddie Mac were created to provide mortgage market and borrower relief in just these types of unsettled markets.

It’s too early to light any victory cigars, since this debate isn't over, but the anti-GSE elements have made enough concessions and retreated enough, so that a possible resolution appears doable.

Fannie and Freddie only can help “in February,” Lockie claims, when each will be SEC current. Secretary Paulson says they can be very helpful breaking up jumbo mortgage market illiquidity logjam, but only after Congress passes new GSE regulatory legislation.

Given those flimsy caveats, its occurred to many people that Fannie and Freddie can likely help now, when there is a significant and pressing mortgage market problem.

After all, the companies both are capital sufficient, according to OFHEO. They have met their latest affordable housing goals, according to HUD, and they are doing business everyday, albeit handcuffed by OFHEO’s vague and totally discretionary operational limitations.

Shouldn’t someone employ the GSEs sooner than February, meaning today, when the big bad wolf is banging on the mortgage market’s door?

Paulson and Bernanke (the latter employing fedspeak) both endorsed the GSEs—on a short term basis (what a great idea, where did I hear it before?)—funding higher balance jumbo loans, those currently larger than the GSE limits, so the two companies can clean up the illiquidity mess created by the traditional, but now MIA non-conforming investors.

Pay the Piper

But Paulson has a price. Before the GSEs can provide the relief that the Admin obviously believes they can, the Treasury Secretary would have Congress first pass a new regulatory restructuring bill, probably with some Administration language returned—which was overwhelmingly knocked out by a bipartisan vote, when the House passed its bill--that would give a new GSE regulator unchallenged authority to intervene in Fannie/Freddie businesses operations, based on any event in the economy.

So, Treasury is saying that we have a “right now” problem in the jumbo mortgage market segment, to which Paulson would apply a “sometime next year” GSE solution?

(A recent report suggested that the traditional 25 basis point spread between conforming and non-conforming product grew to 92 basis points last week. That’s a pretty expensive fear premium that some investors are charging to buy jumbos. Needless to say, Fannie’s and Freddie’s entry into jumbo financing--even briefly--would all but erase that dissimilarity, bringing greater liquidity and efficiency to the, now, “non-conforming” market.)

It wouldn’t matter, in this Admin/Paulson/Lockie model, whether the issues justifying intervention were related to GSE business actions or not. Lockie’s successor could use financial or economic irrelevancies—if he/she wanted—to impose sanctions on Fannie and Freddie.

“Hello? Yes, Lockie’s successor here. Nah, Lockie ain’t here, no more. He's greetin' at WalMart. You say Angelo’s going to do what, when, in how many branches? Plus, you claim his handicap is down a stroke and his tan is fading? Boy, that doesn’t sound good for Fannie and Freddie; I better increase their capital requirements. KnowwhatImean?”

The Fed's terms are far less onerous. Mr. Bernanke just wants whatever GSE supplied mortgage market relief that Congress chooses to be short term

For now, GSE supporters can enjoy the Administration’s continued conflicting and self-defeating shuffling. Congress, based on statements of Messrs. Dodd, Schumer, and Frank, wisely seems determined to get rid of the GSE investment caps, come up with some realistic new mortgage limits, as well as possibly letting the GSEs work—for a brief period—in the “jumbo market.” Congress also seems to support some Administration-backed subprime policy changes for FHA.

An Understanding and a Reminder

I don’t know if it will take one bill or two to accomplish all that each side wants, especially if the Senate Banking Committee and the House Financial Services Committee lack time to consider two separate pieces of legislation. But, the situation screams for compromise and a “quid pro quo.” I think Congress can get most of the GSE policy changes it wants, plus it should insist on some version of the bipartisan Bean (D)-Negeubauer (R) House language, since this Administration has given obvious and ample proof why some restraints on a wayward regulator are desirable.

When a positive GSE proposal is pending, but someone in this Administration conditions it on the companies being “totally SEC compliant,” I am reminded that there still are many in this town, including a group on the Hill, who believe that the GSEs never were horribly non-compliant with FAS 133, the incident this Administration used to label them outside the rules. The “justifiable doubters,” believe that Fannie politically got into the face of senior Bush Administration officials--one too many times--and the faux SEC case was used to whack the GSEs with a major mallet.

It would be easier to ignore that possibility, if the Bush White House hadn't shown itself too willing and very able to place itself above the law and employ their Cabinet and regulatory agency political appointees to penalize presumed enemies.


(Recommended reading: “The Great Inflation Mystery, Still Unsolved,” in Sunday’s New York Times business section, penned by Ben Stein, who played the great droll voiced roll-taking high school teacher in “Ferris Buhler’s Day Off.” Stein has a wonderful economic perspective. He writes about the subject plainly and masterfully.)

Maloni 9-24-2007

Monday, September 17, 2007

Greenspan’s Book

“The enemy of my enemy is my….. er, enemy?”

I was surprised to read about former Fed Chairman Alan Greenspan’s heavy criticism of President Bush’s fiscal policies or lack thereof in AG’s new book, “The Age of Turbulence. (No, I haven’t bought/read the book, yet.)

Maybe there is hope for the Maestro, yet.

I expect that congressional Democrats will jump all over the tome and force the GOP to defend “W” or attack Greenspan. I wonder how GOP presidential candidates will handle it, probably dodge, noting that Greenspan wasn’t strong enough on abortion.

How will those people, who oppose President Bush’s policies and also think Alan Greenspan did not walk on water, react to the central banker’s criticism?

I just described myself, so I guess I’ll answer and apply a little “situational ethics,” realizing that Greenspan is gone and Bush is still here, suck it up and say “Go Greenspan, get Bush!” (My endorsement doesn’t apply to AG’s Neanderthal GSEs views, however.)

But, the facts lean heavily to Greenspan.

IMO, Bush—with a huge electoral and political mandates--did nothing to restrain the Republican Congress’s violations of orthodox GOP tight fisted budget responsibility and limited deficit spending. He refused to buck the assault on fiscal discipline or any of the excessive spending the House and Senate overlords demanded. (“Hey Karl, what’s this here veto pencil thing? Why does it say, ‘Do not use unless Karl approves?’ ”)

Yes, President Bush found himself in a costly war. But it was one he created, once he chose to invade Iraq based on a false premise.

In those five years since, President Bush has yet to pay for the war with spending cuts or new taxes. Instead of shutting down Uncle Sam’s spending spigot, he actively drained it at both ends, backing more spending plus more tax breaks. No wonder Greenspan’s nailed him.

I would hope that Democrats—if they ever controlled both the Congress and the White House—would use this sorry example and do a much better job.

Speaking of which, I wonder how Greenspan’s enthusiasm with President Bill Clinton’s approach to federal spending will spill over on presidential candidate Hillary Clinton, who likely is Bill’s intellectual equal? If Bill Clinton had the resolve to achieve balanced budgets--he did it twice, with Frank Raines as his Budget Director--can a “new” President Clinton match or exceed that, even though she will start from a much deeper deficit position? I wonder what AG thinks?

GSE Week and a Message for My GSE Friends

This will be a big week for “GSE talk,” with mortgage market hearings, an FHA markup in the House, and a Fed decision on short term rates.

In the near term, both companies could benefit.

As the fall unfolds, I just hope that both Fannie Mae and Freddie Mac remember that “they do well when they do good.”

Each company needs to follow through on what I believe will be new charter support from Congress with regard to their mortgage activities and operational freedom. With this little help from their friends, the GSEs can reestablish the core value which their diehard supporters believe they represent, but which the companies still need to display for some skeptics.

I know it is difficult to manage, on a day by day basis, the conflicting charter imperatives of safety and soundness, return for shareholders, and mission, especially when your regulator isn’t making it easier and seems to be playing a major “two faced” game.

So, let me try and help my GSE friends with their tough choices.

MISSION, MISSION, MISSION. Get grungy, get sweaty and dirty, try and do the really hard to do mortgage work and then the other things, neatly, will fall into place.

(I could try larger type face, if “yelling” will help make the point easier to understand.?)

“Walk the walk” and the home buying public, your industry business partners, the GSE supporters in Congress, the investment community, and--surprise--even the media will rise to protect your back.

When given a chance to show they were up to replacing you, your foes failed miserably and in a spectacular way. The GSEs now are in a position to remind all of those who only vaguely understand your role and value to see it first hand. Without getting too poetic, the housing “good guy” mantle is there for you to retake and wear it justly and proudly.

The best result of stepping up your mission work, big time, though, will be that your success will consistently deny your enemies traction, since the bad guys and critics will be with you as long as little babies are cute.

Totally vanquishing the GSE opponents isn’t realistic, but shutting them up for a long time is a very real possibility.

“You can book that, Dan-o” (Oh and Dick, too)!”

Maloni 9-17-2007