Sunday, September 28, 2008

A Message For the Treasury!

Congress needs to endorse, with qualifications, the Administration “Bailout” Wall Street and main street plan. When you read this, that process should be far along.

Hank Paulson claims the government will need to buy $700 billion or more of mortgage backed securities (MBS) from the commercial and investment banks which made very bad business decisions to originate that rot and/or buy them in the first place.

I am going to make this follow up suggestion so easy that even Senator Richard Shelby (R-Ala.) and Rep. John Bohner (R-Ohio), the House Minority Leader can understand it.

The Treasury just acquired 8000 highly skilled employees, when it put Fannie Mae and Freddie Mac under conservatorship. These mortgage market talented men and women have spent their professional lives underwriting, buying and selling mortgages and mortgage backed securities, USE THEM FOR THIS NEW FEDERAL TASK.

When this mammoth exercise begins, the government will need to re-underwrite and price those securities, acquire them, and then sell or hold those mbs until the market solidifies and the mortgage backed bonds fetch a better price. This very government action will act to strengthen the overall MBS market, but might take years.

To not employ Fannie and Freddie, extensively, in the Treasury’s new task would be stupefying and suggests more of the old Right Wing, “We hate all things Fannie and Freddie, so why would we use them?”

Ignore their availability, their talent, the fact that they are now under government control, and try and duplicate crudely with other government employees, and you risk a foolish waste of precious resources. You will miss a golden opportunity to put a dent in the Himalaya of “poison mbs” which the American people soon will own.

The Treasury shouldn’t go any farther than Wisconsin Avenue and McLean, Virginia to start the attack against this “block of granite” (an insider term from Fannie’s pre-1982 history). No new bureaucracies, no “Ginnie Mae” (HUD’s Government National Mortgage Association) except to support Fannie and Freddie. Give the suddenly “mission less” and former GSE work forces something real to do.

The Administration already brought in its own apparatchiks to run Fannie and Freddie. Hire a few more of those out of work Wall Streeters, put them to work, and let the former GSE operatives--who have the natural capacity and understanding to evaluate (price!) and understand these securities--move this product.

Turn them loose, with profits going to the Treasury.

Take advantage of their efficient operations and don’t create unnecessary redundancy, since you now own Fannie and Freddie. Just because you and your allies spent years trashing Fannie and Freddie, doesn’t mean all that rhetoric was true or the two can’t help immeasurably get this job done. They likely can do better than any ad hoc group you might cobble together to take on this major new government challenge, which if done sloppily just perpetuates the problem you are trying to solve.

Oh and when you ask these Fannie and Freddie employees to carry your water here, consider apologizing for the damage you did to them, their families, their mission, and their company’s shareholders.

Obama and McCain

When Senator John McCain’s campaign ran an attack ad against Senator Barack Obama, featuring a picture of Frank Raines, some purported historical headlines, and a photo of an elderly woman worried about losing her home, I got very angry.

The McCain campaign’s effort was scurrilous to somehow tie Raines to Obama (who enjoy a very limited relationship) and then use Fannie Mae as a club to hammer the Democratic nominee.

More so, as I noted in a letter I sent to the New York Times, was the fact that several of the senior McCain campaign staff had worked for Fannie Mae and Freddie Mac as lobbyists and political and public relations consultants. I identified six (TIME magazine added 13 more).

The Times never printed my letter, which I shared with some friends, but shortly after I emailed it to the paper, I began getting press calls about it and I repeated to various media what I had written to the newspaper.

Articles were written. Senator Obama used the information in speeches in Florida and elsewhere.

That might have ended it, but Senator McCain took umbrage and defended his campaign director, Rick Davis, whom I had identified in my letter and who had done some work for Fannie Mae and Freddie Mac in 2000, when we helped create the “Homeownership Alliance,” an advocacy group supporting homeownership.

The GOP presidential candidate said Rick Davis had nothing to do with the companies and had ended his relationships (with Fannie in 2004), but the New York Times--this time without my assistance--found out that Davis still was getting paid by Freddie for all purpose lobbying activities and had been doing so, up until last month’s GSE lobbying ban!

If, as I believe, the death spiral of the McCain campaign started last week, because of this story, McCain’s colorless response to the “bail out” mess, his failed Cecil B. Deville performance during White House negotiations over the Treasury’s emergency plan, and then McCain’s debate weaknesses, I plan to tell my grandkids that their Daddy’s daddy might have played a small role in Barack Obama presidential victory!

Maloni 9-28-2008

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