I am Too Big to Fail, choose me, pretty please!
No, you’re not TBTF! You are. You are, but not you!
I am. I am. Pick me or I’ll die on your lawn and stink!
Well now, ahem, I think you are Too Big to Fail!”
We now know that Fannie Mae and Freddie Mac were “Too Big to Fail” (TBTF), but Indy Mac and Lehman Brothers were not.
Remember friends and my fellow Americans, "Too Big To Fail" always has been “existential,” which means the definition is not written anywhere and the financial authorities will know it when they see it and act accordingly.
After the Fed’s famous 180 degree turnaround (“You can believe what we say…until we change out mind”), we now know that AIG is TBTF, at least temporarily, although nobody is really sure why.
Will the Fed start running AIG? Do they know anything about the insurance business or the credit default business? Maybe the Fed can bring back Alan Greenspan, as their official “gecko.” Dr. Greenspan’s visual acuity recently seems to have grown by leaps and bounds, as a federal retiree, when he now opines on issues which he couldn’t quite see when he headed the nation’s central bank.
Just as I did with their takeout of Bear Stearns, I support this week’s AIG intervention and give Bernanke and the Treasury the benefit of the doubt.
Does anyone think that General Motors is TBTF or Washington Mutual? There will be bellows of support and opposition in Congress when these guys come with their hands out and they will come with their hands out.
Let’s see, Michigan has how many electoral votes?
McCain and North Vietnam
What would Sarah Palin say to these corporate supplicants, besides remind us that Senator McCain was “a prisoner of the North Vietnamese for five years?” I am not belittling that terrible experience or McCain’s courage and gustiness, but I have heard McCain and his handlers use that exact construction when asked questions he doesn’t want to answer or for which he doesn’t have an answer.
McCain’s performance this week on economic matters is chilling. He really doesn’t understand and he’s made himself into such a political chameleon and his pronouncements are so vague, I don’t know what the man really supports.
Fannie and Freddie
Dan Mudd and Dick Syron are gone from their top GSE jobs and richer for it, but not quite as well of financially as they could be. Will they fight the Federal Housing Finance Agency decision limiting their severance packages or quietly go along?
Dan has little less than $3 million in play, to which his contract says he is entitled, but Dick risks losing close to $10 million.
When you have Bob Barnett, Williams and Connolly, and a contract (meaning “contract law” should prevail), as Mudd has, it’s tempting to want to fight, especially given OFHEO nee FHFA’s losing efforts in these matters with Leland Brendsel and Frank Raines. But, my advice would be to walk away with what you can, eschew the legal fight, because even by winning, you would lose. Is the money worth the toll on your life, family, and future?
Is anyone surprised that doom and gloom stalk employees at both companies. Some of the newer workers never toiled when both were humming with positive energy, not the current funereal mood at both places. You missed something special, kids.
What are they Doing to Those Companies?
If those ex-GSE CEOs want to strike a blow for justice, they could ask the new overseers just what kinds of operational advice are they giving the companies they left behind?
Rumor is that “downtown” is hectoring the GSEs to lower prices and remove all obstacles to making mortgage deals. That’s fine counsel, Mr. Lockhart, but just a few weeks ago FHFA and you were advising the companies to tighten up lending standards and increase fees to protect against losses and grow capital?
It’s disturbing that insiders say this message came from FHFA shortly after the Mortgage Bankers Association reportedly asked the White House to force Fannie and Freddie to lower their new fees and some of their tighter underwriting changes.
What First Amendment?
Even though the Treasury in Paulson’s “Sunday Smashdown” acquired warrants for 80% of the Fannie and Freddie common stock, leaving the balance worth ‘bubkis,” don’t those remaining ownership interests have any first amendment rights? Who at the companies can speak to Congress on their behalf?
Since the companies can’t/won’t speak for them, maybe those “orphaned owners” should get their own voice(s) and make sure that Congress hear their side of the Smashdown’s impact, especially if some in Congress feel they were misled by Mr. Paulson about what he planned to do and when. Who knows, those GSE owners might want to offer Congress some advice on “fixing” the Paulson plan.
Dress for Succes….er, Mediocrity
Nobody ever will put “Humpty (Fannie) and Dumpty (Freddie)” back together again, but there has to be a way to make them more than “HUD North” and “HUD West,” which seems to be the current planning. (“OK, all of you former private sector employees, new to federal agency work, we want the guys to start wearing short sleeve shirts, of regulation synthetic material, with pen protectors in the pockets. Also, get bad haircuts. Ladies, dress accordingly and please wear hairnets, so your flowing locks don’t become caught in the moving parts of government. Um, sir, you don’t need to wear the hairnet.”)
Congress. Don’t Call the GSEs, Call FHFA
Those congressional staffers who asked to meet with Mr. Allison and Mr. Moffett, the new bosses at Fannie and Freddie respectively, should know that the meeting times they wanted were scotched by FHFA officials because the desired meeting time conflicted with Mr. Lockhart’s schedule, even though the latter wasn’t invited by the Hill staffies to the meeting.
FHFA has imposed a “no lobbying” rule on the GSEs and the entire outside political consultant contracts have been ended, but every federal agency has a “congressional liaison office and congressional liaison officials. (I know. I was one, twice!)
I expect that when the dust settles someone at Fannie and Freddie will be tasked with answering the phone calls from the Hill or handling information requests.
Some Advice for the "New President"
--I hope AIG’s problems and the Fed’s historic Heimlich maneuver on that company eventually leads to federal regulation of the insurance industry. Even elements in the insurance business, long used to lax/easy state regulation, have been open to that significant change, so why shouldn’t that be one of your early initiatives in your “First 100 Days.” Make sure title insurance is in that shift, too, and you can save every mortgagor between $1500 and $2000 in unnecessary title search charges, although one prominent US Senator might balk at this much needed reform.
--Save the hoary “Financial Commission” idea for his next Rotarian Club speech. Time Magazine has a list of things the next President should consider and Joe Stiglitz just published a list of six financial services ideas for the next President. Use either list, if you have no good ideas of your own.
--Quit screwing around and just make the Federal Reserve the sole federal financial regulator, since all of the others defer to the Fed, anyway (or secretly ask its advice before acting).
--There are group of progressives (Democrats!) now at work on plans to restructure HUD and turn it into something more effective. Any substantive change will achieve that much, since you can’t do much worse. Use their plan. Mr. President.
Financial Adviser Suse Orman on Larry King
King: Sen. McCain is saying this involves fraud -- or let me use another word similar to fraud -- on Wall Street. Do you agree?
Orman: It starts way back when there was nobody overseeing and regulating. Nothing. It's how many times have I said on this program, what were they all thinking? Why were they lending money to people who shouldn't have been borrowing money? Why were they packaging these things? What about the rating agencies? Why weren't the rating agencies rating everything the way they should have been and now they're making matters worse? So whether it's fraud or not, was there deceit going on? I don't know if it was deceit as much as just total irresponsibility is what caused this.
(I added this bon mot for my friend at the Fed, who told me I was being easy on the GSEs, when I blamed the Bush regulators, including the Fed, for ignoring subprime until it was too late. The exchange above suggests that lots of smart people know this big problem started with subprime, not Fannie and Freddie, and know which Washington officials ignored that poisonous lending and allowed it to fester.)
Excerpts From the Famous “I am Confused” Email
*Graduate from Harvard law School and you are unstable.
* Attend five different small colleges before graduating,
you're well grounded.
* If you spend three years as a brilliant community
organizer, become the first black President of the Harvard
Law Review, create a voter registration drive that registers
150,000 new voters, spend 12 years as a Constitutional Law
professor, spend eight years as a State Senator
representing a district with over 750,000 people, become
chairman of the state Senate's Health and Human Services
committee, spend four years in the United States Senate
representing a state of 13 million people while sponsoring
131 bills and serving on the Foreign Affairs, Environment
and Public Works and Veteran's Affairs committees, you
don't have any real leadership experience.
* If your total resume is: local weather girl, four years
on the city council and six years as the mayor of a town
with less than 7,000 people, 20 months as the governor of a
state with only 650,000 people, then you're qualified to
become the country's second highest ranking executive.
* If you have been married to the same woman for 19 years
while raising two beautiful daughters, all within Protestant
churches, you're not a real Christian.
* If you cheated on your first wife with a rich heiress,
and left your disfigured wife and married the heiress the
next month, you're a Christian.
(Some this stuff is just too dead on and truthful not to share.)