Sunday, August 26, 2007


With a letter, in the American Banker last Friday, former ICBA head Ken Guenther asked why the Administration (paraphrasing) “won’t put Fannie Mae and Freddie Mac into the game” and let the two companies help bring additional mortgage liquidity to markets which still are shaky despite recent Fed actions.

Why, indeed! I’ve suggested that the Administration has so heavily invested in the “GSE as bogeyman” balderdash that it can’t extricate itself from its own incendiary rhetoric to do something which is so logical that their indifference defies logic!!

Many observers have pointed out that the OFHEO-imposed portfolio investment limits are a political/ideological imposition, not a market driven necessity.

But, if you claim often enough that the GSEs represent “systemic risk” and/or have little value—as this Administration and its allies have done—you may undercut your available market remedies and paint yourself into a corner when bad news prevails.

The nation’s roiled mortgage markets don’t seem troublesome enough for the Bush Administration to unleash Fannie and Freddie. Joint pleas from the Homebuilders, Realtors, Mortgage Bankers, Housing Council of the Financial Services Roundtable and major players in the jumbo market have fallen on deaf WH ears. (That’s a lot of GOP money and votes to ignore!).

But, the Bush Administration (Paulson, Steele, Lockhart and whomever in the WH is making political calls, could that be you Keith Hennessey?) has been presented a more compelling and powerful reason to accommodate this request. It’s something that most people in Washington—even Bob Novak (see 8-23 column)--recognize and understand.

That reason is that three most potent congressional Democrats in the financial services world have asked this Administration to remove the GSE portfolio shackles.

How will President Bush get anything he needs accomplished if his Administration continues to snub Senate Banking Committee Chairman Chris Dodd (D-Ct.), Senate Housing Subcommittee Chairman Chuck Schumer (D-NY) and House Financial Services Committee Chairman Barney Frank (D-Mass.)?

To the GOP, I ask what am I missing here? What is smart or bold about showing your disdain to those august political personages, whose cooperation eventually you will need for some part of your agenda?

Forget Lockie for a moment, he’s just an order taker. But why is Secretary Paulson playing hardball with these guys, the very individuals with whom he must negotiate on all sorts of money matters, foreign and domestic?

The “I’ll hold my breath and turn blue, first” behavior is not the act you want to pull on the GSE portfolio limits, which is a small issue in the grand scheme of things, one which makes financial/economic sense, and is easy to rectify.

It was a questionable OFHEO regulatory action to begin with, imposed in a time when mortgage markets were stable, not like today.

The last time I checked George Bush can’t run again in 2008, so taking partisan positions just to isolate your political opponent doesn’t produce much. (Unless Karl Rove is working on a “going away surprise for us, revoking the 22nd amendment?)

Being so opposed to something which seems designed to “bring relief to middle income families”—and opening yourself to that incendiary charge--makes as much political sense for the GOP as saying “no” to health insurance for children in lower income families. (Oh wait the, Bushies already did that!)

The Administration claims that it won’t give the GSEs any relief until Congress passes reform legislation to more aggressively regulate the GSEs, i.e. to prior approve new GSE mortgage products, give the new regulator greater discretion to boost GSEs capital, and let the “new OFHEO” use any development—related or unrelated to the GSEs businesses--to move against the companies. (“Hello. This is Lockie. The sun came up in the east this morning and, in my ‘pinion, that doesn’t look good for mortgage finance. I’m going tighten those GSE risk based capital parameters a scosh! By the way, how’s the fishin’ in Kennebunkport and howmydoin’.”)

Just who are these mystery people who lead those congressional committees and subcommittees whom the Admin says must pass their entire GSE package of “legislative angina,” BEFORE it will consider the Dodd, Schumer, Frank request? Um, it’s um, now don’t tell me, it’s um, it’s Chris Dodd, Chuck Schumer, and Barney Frank.

Being pushed out there on portfolio limits to go nose to nose with these three guys, after you’ve figuratively thumbed your nose at them, sure makes that WalMart greeter job in Dallas look pretty good right now, doesn’t it Lockie??

Remember to remind the two powerful committee Chairmen, and the very able Senator from New York, that you expect to head this new GSE regulatory agency, which you insist they create for you and your boss, and that you plan to bring with you your entire crack OFHEO team! Yes sir and don’t forget to speak real loud and pound the desk for emphasis!

They love when you do that!

(My next blog will to offer a thoughtful “road map” for the White House and Congress to deal with the mortgage problems that we have all been talking about for weeks. Look for it in a few days.)

Maloni 8-25-2007

1 comment:

Bill Maloni said...

Look for my legislative "solution"--IN TOMORROW'S BLOG--to current problems in the mortgage markets, including subprime and jumbo.