Tuesday, September 9, 2008

"Could You Moose My Bald Head?"

What do most big game hunters look for? Big game!

How big is a moose? It’s pretty big, the largest mammal in North America (except for Bigfoot).

What happens when you field dress a moose? It gets smaller.

What was the newest element added to the GSE political world last week? Sarah Palin, the moose hunter and field dresser.

What out there is bigger than Fannie Mae and Freddie Mac? Not much (except Bigfoot).

Now what happened to Fannie Mae in the past two days? They got hunted, killed, and field dressed, i.e. likely made much smaller.

Ergo, what happened to Fannie and Freddie is all Sarah Palin's fault!!


(Don’t worry class, I have more Sarah Palin and John McCain observations, which will frequent coming blogs. However, let me just offer one. As Jon Stewart of the Daily Show opined, “I am happy that the Governor’s daughter made her “choice”—words in Palin family press release—to get married and have her baby. But based on Governor Palin’s beliefs and statements, if she became Vice President Palin, she would deny that same choice to other 17 year old mothers to be.")

Quit Now?

I should stop while I am ahead, if I have successfully convinced my blog fans that I solved the biggest question of the past two days, “Why whack Fannie and Freddie now?

Indeed, why now?

I mean everything going on at the two companies has been known or should have been, with the 24-7 equivalent OFHEO/FHFA presence in both companies.

Excuse me, since our government and this Administration does occasionally lie, I do not believe that Morgan Stanley—making its $95,000—suddenly discovered something that OFHEO/FHFA, the Fed and Treasury hasn’t known for weeks, if not months?

And, if they didn’t know what Morgan found, shame on the Treasury, FIFA, and the Fed because both companies, as most Americas media reported, have made public the presence of tax credits on their books, the amount of their loan loss reserves, the quality of their assets, their loss projections, etc.




Premeditation and Planning?

So why now? When did the scheming start for this well coordinated plan, comprehensively and devastating implemented against two privately owned companies?

It just doesn’t feel like this reflects the almost last minute (caused by a Lehman Brothers specious review of the GSEs capital accounts, which caused huge short selling in the companies) Paulson legislative request to provide some incidental new Treasury powers, if really bad things happened to the GSEs.


If you’re Fannie Mae, why wouldn’t you fight like hell against a takeover, especially since you have capital to withstand coming losses and recently raised more? They seemed to cave fairly easily.

Ok, OK, how about the “wild hair” suggestion that Secretary Paulson could have postulated some variation of the following to the GSEs: “If the CEOs of both companies do not oppose the “takeover” and the boards behave according, I'll let the former walk with their contractual severance packages and I will grant their boards legal ‘immunity,’ since the latter being expressly permitted under the new statute?”

Nah, that couldn’t be the answer could it? That’s just a “Fig Newton” of my imagination!

The Takeover Deal


While breathtaking in scope and still minus some crucial details, especially on the companies' “housing mission,” the deal should quiet the shaky real estate markets and give Fannie and Freddie some time to use the lending latitude their new government partners/overseers say the companies now have, as well as provide time for the mortgage market to accommodate to the new reality of Fannie and Freddie being under government control.


Between now and the end of 2009, the companies can grow their portfolios and prepare for the end of 2010 when the government wants them to shrink their portfolios. (Don’t ask!)

However, they still have been put under a group of government employees, who are not used to working on market time but on “government time.” Let’s just hope that approvals from “downtown” are not needed several times an hour before either company can buy or sell mortgages or raise money.

Don’t worry, the Congress is on the hook to decide—sometime in 2009, which I doubt will happen--if this current experiment should become the future GSE model or something else should replace it, including the "McCain-Palin bust them into a million pieces plan " and let the banks takeover the complete mortgage finance system.

I don’t know who the next President will be, but I feel confident that there will be more Democrats in both chambers, as well as more minorities. Those new Democrats --for whom the GSEs homeownership function may be viewed as crucial to their constituents—certainly would challenge the McCain-Palin plans (no matter what they are) and an even Obama—Biden proposal that didn’t give the companies sufficient latitude to carry out their missions.

As noted the “takeover” represents an agreement between the Secretary of Treasury and the companies.

An Obama named Treasury Secretary could change some/many of those conditions; replace the men named as CEOs of Fannie and Freddie, and remind Jim Lockhart that he serves at “the pleasure of this President,” who doesn’t want the door to hit him on his way out of FHFA.


Letter Today to the Washington Post

Since the Post never publishes the letters I send to them, re their editorials, I thought I would share what I sent them this morning.


"Our sense is that the complex, risky business of securitizing mortgage debt should be left to the private sector, under appropriately tight government regulation."

I really can't believe that the Post, today, editorialized the above and endorses it.

The last time this Post-preferred mortgage financing execution was in vogue, the "private sector," utilized a mechanism of mortgage brokers originating home loans on behalf of Wall Street and sending them directly to those investment banking firms, which turned them into "private label" securities (meaning non Fannie/Freddie securities). This lovely arrangement produced the "monstrous subprime poison," when most of these garbage loans defaulted, after utilizing teaser rates and faulty underwriting.

The nation is paying a gaudy price for what you now say is your desired way to securitize mortgage loans.

Your editorials on the GSEs have turned you into the "Wall Street Journal South" and advocacy like the above makes it obvious. GSE "securitization," which you seem to oppose, is what the Treasury and the GSE regulator seems to want the companies to do under the new "takeover" structure..

As to Fannie and Freddie having "failed to hold interest rates down," which you incorrectly describe as their ostensible function, the companies primary purpose in statute is to provide "liquidity" to the residential mortgage markets, meaning plenty of capital working through primary lenders, which Fannie and Freddie performed dutifully, since earlier this year nearly 80% of all US loans were being funded by the two companies, according to data put out by the GSEs new government owners.


At Least They Made Up My Bald Pate!

Yesterday morning, I was asked to do an interview with Liz Claiman on Fox Business News, in the 3 o’clock hour, to discuss the political and business implications of the “takeover.”

I presented myself at the appropriate hour, was ushered into “make-up,” where I dusted and the sheen taken off my shaved head. They put a little around the eyes to dull the circles and I was set. I was ushered into the studio, put opposite the TV broadcasting the show in New York, hooked up with a wire in my ear and a microphone on my lapel, and told to stare into the camera.

I did all of those things, heard myself being introduced and was asked a question by Ms. Claiman about the provision in the Treasury “deal”—noted in the FHFA statement—that the companies no longer would be permitted to lobby. I answered that and turned it into a broader discussion of the initiative, which I felt was systemically positive.

I heard someone in my ear say “We have to cutaway” and I think “Liz” thanked me and that was that. The DC producer apologized for the shortness of the interview and when I got home, I received a call form the NYC producer saying the same thing. We talked some more about the “no lobbying” issue and then I checked in with one of my sons, whom I had asked to watch the broadcast.”

“Dad, you weren’t on.”

Apparently, I was interviewed but the segment never made it on the air—or maybe only in the Johnstown, Pennsylvania and Muddy Trap, Texas markets, since nobody I know saw it or called to say they saw me.

But, in the car sent to pick me up and deliver me home, the flavored life savers were good and the water refreshing. And, I learned how to make-up my bald head.

Maloni 9-9-2008

28 comments:

The Progressive Pragmatist said...

What do you think of the way the bailout was structured? I believe that there were a multitude of ways that it could have been structured and that the selected approach was onerous--why charge 10% interest and immediately grab 80% of the companies, before doing much of anything? Paulson's previous statements about a desire to maintain the hybrid nature of the GSEs appear to have been BS. The anti-GSE ideologues have had their way. I see no prospect that this administration wants to rescue the GSEs--I'm sure they want to be sure that the GSEs are irrevocably destroyed. It looks like another example of executive branch usurpation of congressional powers.

Bill Maloni said...

I can joke about it, but you are right and then--down the road--is a Fannie/Freddie "user fee, piad tot he Treasury Department which was the original Reagan Administration proposal, albeit now much higher, that started this conservative campaign against the GSEs in 1983.

The FIFA BS "lobbying ban" is designed so nobody associated with the companies can bitch to the Hill.

Even if the government took over 80% of the common stock value, that means the other 20% of shareholder value has just had it first amendment rights abrogated.

Go back a few blogs and you'll see my prediction that if Treasury pulled the trigger BEFORE the election, nobody on the Hill would complain.

Has anyone heard any real complaints from Hill D's, beyond the usual "haff kaff harumph?"

Bill Maloni said...

Of course I know it is "Jon" Stewart, not "John."

That was just a test to see if anybody is reading the blog and at least one person is.

I fix it in a moment.

Anonymous said...

FHFA not FIFA...but otherwise DEAD ON!

Bill Maloni said...

Again, the commenter is correct, I actually wrote the phonetic pronounciation of the new ergualtor, i.s. "Pheye--Pha" or FIFA.

I see that Chairman Frank and Chairman Dodd have offered some disgruntled statements about the breadth of the Paulson actions.

Why they should be surprised, I am not sure, since they gave the Admin this broad auhtority, not to mention at the last minute any real review.

Nonetheless, I hope they hold some hearings to see if this plan, which obviosuly is being shaped on the fly, has any real parameters.

Anonymous said...

Believe it or not the Fédération Internationale de Football Association (FIFA) does have a major stake in the American housing market.

Bill Maloni said...

If you say it, I believe it!

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