Monday, January 7, 2008

Happy "Blue Year?"


I was going to bag my blog in 2008, turning to notable acts and I still may. But, with so much happening, I would disappoint myself if I didn’t share some of my observations and analyses of political and financial services activities.

The Primaries

It’s the Monday after Iowa and before New Hampshire and Huckabee and Obama reign, for now.

Democrats everywhere have to be rooting that Mike Huckabee stomps his opposition and sails right through the state primaries and emerges as the GOP nominee for President. Governor Huckabee has a very narrow appeal, albeit not among the Republican brethren, and would bring the same stultifying policy perspective to the White House that President Bush parlayed into our current social, economic, and foreign policy messes.

Let’s see if New Hampshire is more successful for Governor Romney, Mayor Rudy, and Senator McCain. The Iowa farmers sure didn’t buy what they were selling. (If McCain gets the wind at his back, somebody certainly should pay kudos to Rick Davis, our former “Housing Alliance” colleague.)

Senator Obama did very well on his own hook in Iowa, not merely getting votes just from people who didn’t like his opponents.

He has great momentum going into New Hampshire tomorrow and if he wins the Granite State primary, he could deal the Clinton campaign a mortal wound. (I remember one Obama supporter—a 70 year old female activist Democrat, who planned to travel from her eastern state home and campaign in Iowa for the Illinois Senator--telling me three months ago, how potent the Democrats would be with “Obama in the White House and Hillary Clinton as Senate Majority Leader.”)

Hmmmmm. Is it me or does John Edwards sound like he’s running to be Obama’s VP?

My lingering concern about Senator Obama is that he reminds me of Jimmy Carter, attractive, well meaning, but short on what it takes to drive policy changes in Washington. It’s a jungle inside the Beltway and pussycats don’t survive.

GSE Regulatory Legislation

Notice all the macro economic concern about “recession” and then look at the various proposals to employ the GSEs to jumpstart housing, including letting them—possibly only for a brief time—buy loans of up to $600k.

I love that idea. It was one I expressed some months ago and if congressional Republicans could see that championing a moderate GSE bill, minus all of the White House “get Fannie and Freddie” ideological poison might keep a few of them in office come November.

White House anti-F/F extremism is the only thing that stands between getting a useful GSE bill now or waiting until 2009 for President Clinton or President Obama to sign one. If the latter is the case, not too many of the current GOP Banking and Financial Services Senators and Congressmen will be present for the signing ceremony.

They’ll be at home overwhelmed by the "blue flood" and trying to turn their support for President Bush’s Neanderthal politics into steady employment. (WalMart always will need greeters, guys, but there is a certain federal financial regulator who has first dibs on one of those jobs.)

A GSE bill is not a panacea for every economic problem the Bush Administration has created, but it would be a big step in correcting the housing and mortgage finance mess, especially if Congress added to it, or separately approved, statutory changes to control the mortgage lending excesses and punish the industry culprits who helped usher in the subprime extremes.

Do the congressional Republicans have the courage to stand up to the “Noriega” bunch in the Administration for whom scuttling the GSEs is a higher priority than insuring that the nation’s housing sector, which represents more than 20 percent of the economy, lands softly and hopefully soon from its free fall?

Richard Baker

News over the weekend suggests that Rep, Richard Baker (R-La.) is looking to leave the Hill soon and take a major job with a hedge fund trade association, possibly within the next several weeks.

The promise of a seven figure income has a way of convincing public officials that they need to "spend more time with their families" or whatever their justification is for leaving office early.

Baker--whom I liked personally, but detested his F/F politics--started out very pro-GSE but he turned to the dark side and never came back, when the GOP took control of Congress. Since then, he has conducted a loud but largely quixotic campaign against everything Fannie and Freddie.

If he takes this hedge fund association job, it shouldn’t come as a surprise. As I noted several paragraphs above, lots of senior GOP Senators and Members will bail as soon as something attractive comes their way.

Baker’s extensive knowledge and position on all things GSE should help him immeasurably as he works for the hedge funds, since—in large part—the funds’ voracious demand for “high yield securities”--junk bonds and other risky securitized product, much of which were subprime mortgages--fueled the feeding frenzy of mortgage brokers and lenders dropping caution and filling the hedge funds voracious appetities for high yielding subprime mortgage securities.

Baker’s long time cries of insufficient GSE regulation--and the demands for greater federal controls--should fit right at home when he rallies his new troops, since the hedge fund industry demands far more oversight. So RB's rhetoric easily can be re-used. He just has to substitute "hedge funds" for "Fannie Mae and Freddie Mac."

I expect, with Richard Baker in the lead, his part of the hedge fund industry will champion additional federal controls to insure hedge fund transparency, sufficient capital, corporate responsibility, and other necessary ingredients of thoughtful federal regulation.

The Baton Rouge native knows, at bottom, that there is similarity between financial institutions--no matter their function--and that the public wants all of these large money movers be well regulated, ideally at the federal level.

The financial services companies all borrow or acquire money at one cost and re-invest it at a higher one, then manage the margin as best they can. They may do it in different ways, but they all do that.

What’s good for one financial services goose works for another.

If he takes this job, there is no chance that Rep. Baker will change his stern position on the need for strong federal regulation, just because he will be paid buckets of money?


Maloni 1-7-2008

4 comments:

Bill Maloni said...

Confession: I let the weekend NH polls cause me to drop the line "don't underestimate the Clinton campaign machine," which I had originally in my comment about Senator Barack Obama winning Iowa.
Reading about a possible eight point poll "deficit" favoring Obama, I took the safe way out and just ignored my own my written caution.

Whether it was Hillary's tears, Bill Clinton calling out Obama's voting/not voting on Iraq, a sophisticated electorate, or just revenge of the women, Hillary got a second wind, which is great for the her and the Democratic party.

What I expect now, as we race toward Super Tuesday, is more media/voter scrutiny to be paid to Senator Obama's plans to implement his soaring--and, to date, effective--campaign rhetoric and lots of attention paid to Senator Clinton's claims to be an agent of change, substantively.

At times John McCain looks like a giant among the GOP Lilliputians. If only his overall campaign hadn't tilted so far right to appeal to their wing nuts. If he succeeds in winning the nomination, Senator McCain will be a formidable opponent for Clinton or Obama.

Jason said...
This comment has been removed by the author.
Jason said...

Bill,

the GSE announced today that they would allow Fannie and Freddie access to the 30% that was being required to stay in reserves. Rueters says that this will free up billions of dollars for both entities to invest in the market. What impact does this have on the market? Does it bring us any closer to conforming loan limits being increased?

Bill Maloni said...

Jason--Sorry for the delay in responding to your question. I have neglected the blog for very understandable reasons, but should have let those people who turn to it regularly understand why.

I expect to return to writing regular editions of the blog, following improvement in some health concerns that have dogged me through the winter.

I am not exactly sure to what you are referring.

OFHEO hasn't backed off, yet, from the extra 30% capital requirement it posted on the GSEs, although that could be the most helpful move they can make, now that they've said the GSEs can grow their portfolios.

This ability to increase capital protection--which OFHEO wields clumsily--is part of what has held up GSE regulatory reform.

When Chairman Frank's bill was on the House floor, a large bi-partisan coalition removed language from the bill that would give the regulator unfettered authority to raise GSE capital for reasons unrelated to their mission or operation.

The WH ideologues desperately want that authority which they view as the tool to hamstring the GSEs. Most pro-housers don't want it. Until that is resolved, no legislation will pass int he Senate.

Short answer to your question: The mortgage market relief that should have flowed from Congress approving a temporary increase in the GSE mortgage ceilings is being made moot by OFHEO's slow walking necessary regs and the capital requirements they insist on for any new F/F lending.